Promoting Second Generation Biofuels: Does the First Generation Pave the Road?

The transport sector contributes almost a fifth of the current global emissions of greenhouse gases (GHG), and its share is likely to increase in the future. The US, Brazil, and a number of European and other countries worldwide have introduced various support schemes for biofuels. The advantage of biofuels is that they are easily integrated with the current fossil fuel–based transport sector. However, recent studies question whether the supply of feedstock is sufficient, and to what extent biofuels lead to GHG emission reductions. In addition, studies find that some first generation (1G) biofuels have had a significant impact on food commodity prices. 1G biofuels’ problems can be overcome by a transition to second generation (2G) biofuels. So far, 2G biofuels are much more costly to produce. We therefore ask to what extent targeted support to 2G biofuels is likely to bring costs down. Are current support schemes for biofuels well designed in order to promote the development of 2G biofuels? We find that ethanol made from cellulose using the biochemical conversion process is far from a ripe technology, with several cost-reducing opportunities yet to be developed. Hence, targeted support to cellulosic ethanol might induce a switch from 1G to 2G biofuels. However, we find little evidence that production and use of 1G biofuels will bridge the conversion to 2G biofuels. The production processes are so different that more use of 1G biofuels will have little impact on technological development in 2G biofuels. Hence, to the extent that private investment in the development of 2G biofuels is too low,current support schemes for 1G fuels may block 2G biofuels instead of promoting them. Classification-JEL: separated by commas