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O2Diesel Announces Ottawa Moves On World's Largest E-Diesel Testing Program

NEWARK, Del.--Sept. 4, 2003--Management of O2Diesel, Inc. (OTCBB:OTOD) is pleased to announce the Company has entered into an agreement to proceed with the largest urban bus demonstration ever conducted for its O2Diesel(TM) ethanol blended diesel fuel.

The milestone program, which is being coordinated in conjunction with the Canadian Renewable Fuels Association (CRFA), the Province of Ontario, Environment Canada, The City of Ottawa, Suncor, O2Diesel, Inc., and others, will involve bus fleets operated in Ottawa by OCTranspo, the local transit agency.

"The upcoming demonstration program is a major development for O2Diesel, Inc. and one that should help establish a strong foothold for O2Diesel(TM) in the Canadian transit and transportation market," said Alan Rae, President and CEO of O2Diesel, Inc. "The Canadian Government and its business leaders have demonstrated a willingness for change and are clearly motivated to reducing the harmful effects of fossil fuels. O2Diesel(TM) is positioned at the forefront of this evolution to cleaner fuels," said Mr. Rae.

The transit agreement with O2Diesel(TM) comes on the heels of several recent important Canadian government policy announcements from various federal and provincial agencies, including Canadian Prime Minister Jean Chretien, concerning new incentives for ethanol-blended fuels and new biofuels production investment.

The Company further reports the latest and so far largest urban bus demonstration of O2Diesel, Inc.'s clean diesel technology in Ottawa, Ontario has received significant media attention including a recent feature editorial in the highly-regarded industry newsletter Inside Fuels and Vehicles.

About O2Diesel, Inc. O2Diesel, Inc. is a pioneer in the commercial development of a revolutionary clean-burning diesel fuel alternative that provides exceptional performance and environmental qualities for centrally-fueled fleets and off road equipment of all kinds. Engineered and designed for universal application, O2Diesel(TM) is an ethanol-diesel blend that substantially reduces harmful emissions without sacrificing power and performance. Extensive field tests have proven the effectiveness of O2Diesel(TM) and the commercial introduction of this cost-effective, cleaner diesel fuel is now underway in the United States and other global markets.

Inside Fuels and Vehicles

August 14, 2003, page 7

OTTAWA PLANS WORLD'S LARGEST E-DIESEL TEST PILOT PROJECT ON BUSES

The city of Ottawa is planning to launch the world's largest ethanol-diesel (E-diesel) pilot test project on buses in an effort to reduce emissions and advance renewable fuel, sources told Inside Fuels and Vehicles. The initiative comes at a significant time when Canadian leaders announced a $1 billion climate change plan Aug. 12, 2003 that includes cleaner fuels.

The city, along with industry partners, have completed phase I of a three-phase project on E-diesel. Officials are testing performance, environmental benefits and its effect on engines at the Environmental Technology Center, a source associated with the Canadian Renewable Fuels Association (CRFA) said. The testing serves as a platform to conduct phases II and III. The test results are due back in four to five months.

Meanwhile, the CRFA has applied for federal grant funding to execute the remainder of the project, but has not heard any word yet, the source said. The government has already given $50,000 (CDN) to the project. Partners have given more than one-quarter million dollars in cash and in-kind services. The testing costs about $500,000 (CDN) and an educational campaign about handling E-diesel, another $400,000 (CDN).

Once officials can get government funding, they will start phase II -- a four-month test on 20 OCTranspo buses in the city of Ottawa. After that they would enter into phase III -- a 6-month test of 169 buses -- the largest test in the world to date. They would run 20 buses on conventional diesel to compare environmental benefits between the two fuels. The buses would purposely be tested under cold weather conditions because cold has been a challenge in keeping ethanol from separating from diesel.

One of the project partners, Suncor is supplying the ethanol at a 7.7 percent blend. O2Diesel Inc. of Newark, DE is supplying the special additive that bonds the ethanol and diesel. The additive is blended at less than 1 percent, but a source with the company declined to disclose the exact amount due to proprietary reasons. The additive includes a cetane improver due to energy loss from ethanol, he said. O2Diesel Inc. has tested various diesels and found overall emissions reductions: 2 to 6 percent in oxides of nitrogen, 28 to 40 percent in particulate matter and 20 to 28 percent in carbon monoxide. The transportation sector emits 25 percent of the greenhouse gases -- the largest of all polluting sectors.

E-diesel is on the verge of becoming commercially available, but not to the general public due to handling issues, officials said. E-diesel would be relegated to centrally fueled fleets because it is more flammable than conventional diesel -- acting more like gasoline.

The city has 898 buses, 1,068 diesel-fueled vehicles and 1,082 gasoline-fueled vehicles. In March of 2002, the Ottawa City Council approved the Fleet Emissions Reduction Strategy to show leadership on addressing environmental issues.

The foregoing was reprinted by permission of Inside Washington Publishers, Arlington, Virginia USA

Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be forward-looking statements. Forward-looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements contained in this release include information related to the non-binding letter of intent to acquire AAE, the conditions to closing and the information related to AAE's business and prospects. The Company undertakes no obligations to update forward-looking statements and readers are cautioned against placing undue reliance on such statements.

For further information about the company or its products, contact:

www.o2diesel.net

O2Diesel Corporation

200 Executive Drive

Newark, DE 19702

+1 302 266 6000 (Tel)

+1 302 266 7076 (Fax)