Are you sure about this, Keith? I have tried to mix hydrous ethanol (about 80%) with biodiesel by shaking in a glass jar, and found that they separate again. Also, I have seen references to far lower biodiesel water solubilities than the 1200 ppm reported by Camillo (e.g. 7 ppm). As for the coarse filter to let through the emulsion, there must be a downside to that surely (risk of abrasive particles).
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