Global biofuel production has been increasing rapidly over the last decade, but the expanding biofuel industry has recently raised important concerns. In particular, the sustainability of many first-generation biofuels – which are produced primarily from food crops such as grains, sugar cane and vegetable oils.

The increasing attention of the sustainability, none food feedstock competition and cost reduction of many first-generation biofuels, has raised attractiveness to the potential of so-called second-generation biofuels. Depending on the feedstock choice and the cultivation technique, second-generation biofuel production has the potential to provide benefits such as consuming waste residues and improving the greenhouse gas (GHG) emission reductions.

• Biofuels from vegetable oils or sugar/starch • Mature technologies with low barriers to entry & many players • Feedstock constrained: competes with food, low flexibility and yield • Limited CO2 reduction (~50%)	• Biodiesel from any vegetable oil • Higher quality than 1G • Entering production stage, based on refinery technologies • More flexible than 1G but still feedstock constraints • Production constrained by need of low-cost hydrogen	• Biofuels from highly available cellulosic feedstock (e.g., wood, waste) • Good feedstock yield • Immature technologies still at pilot/demonstration stage • Uncertain cost-competitiveness • Barriers to entry (tech., Capex) • High CO2 reduction (~80%-90%)

Biofuels value chain activities

• Emergence of new feedstocks for biofuels production including new sugarcane-based projects for ethanol, and increasing investment and growth in alternative biodiesel feedstocks such as palm oil, jatropha, castor oil, tallow, used cooking oil and algae.
  
  
• Moving into mid- and some upstream, biofuels producers integrate vertically into seed crushing, or waste management like animal fats and used cooking oil collection and secure off-take agreements with the large oil majors. The excess capacity currently is putting cost pressure with high feedstock prices and tighter retail margins.
  
  
• Oil majors are mostly blending / marketing today. Trends of investment into mid- and some upstream into advance biofuels technologies, which promise to use much more widely available inputs such as cellulose biomass, therefore reducing production costs significantly (e.g. cellulosebased biodiesel and bioethanol, synfuels)

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Biofuels evolutionary pathway

• The next generation of biofuels will come from cellulose-rich organic material such as cultivated lumber, forestry waste or straw.
  
  
• 2nd generation seen as a future complement, not a substitute of 1st generation. It was clear from presenters that 2nd generation fuels (e.g. cellulose based biodiesel and bioethanol, synfuels) are not around the corner.
  
  
• The general view was that the industry will need both generations of fuels to reach a hypothetical 10% goal by 2015, and this supports our view that 1st generation producers have at least a 10- 15-year window before facing serious competition from 2nd generation.
  
  
• New frontier, utilization of micro-algae as an energy source, with applications being developed not only for biodiesel but also for ethanol, methanol, methane and even hydrogen. The future feedstock and transformation technologies move away from the food value chain.

Going forward to a commitment to Sustainability, a green biofuel label

• As environmental stewardship and sustainability become more important, biofuels industrials will be to work on the improvement of the sustainable practices regarding the procurement of feedstock, logistics and processing. E.g. certification schemes guaranteeing sustainable practices throughout the supply chain will underpin EU efforts to ensure biofuels deliver true environmental benefits.
  
  
• The establishment of environmental standards for biofuels used, requiring biofuels to deliver "substantial reductions" in greenhouse gas emissions and not result in conversion of forests or wetlands should be a priority in the coming years not only in Europe but globally.
  
  
• Important focus points of the current policy discussions are lifecycle GHG balances of biofuels, including the effects of direct and indirect land use change, as well as social and environmental standards along the biofuel production chain. In order to ensure compliance of biofuel production with the required sustainability standards, sound certification schemes will be needed, a green biofuel label.

Outlook for the Global Ethanol Market

The global ethanol market is in its infancy. During the past few years, ethanol has developed into a politically charged alternative fuel and source of potential energy independence for gasoline heavy markets. Because of its potential abundance from various crops (i.e. corn, sugarcane, sugar beet, etc.) and high prices of gasoline, the pace of development has been quite rapid with the U.S. market recently surpassing Brazil in production capacity last year from virtually nothing ten years ago.

Apart from Brazil and the U.S., ethanol demand growth may be limited. Globally, there are only two major fuel ethanol markets: Brazil and the U.S. These two markets account for 74% of world ethanol demand. other countries will begin expand their ethanol consumptions by moving toward E5 and E10 blends, but under varying timeframes. However, because of the size of their market (think Canada, Thailand, Colombia), the cautious pace of implementation (think Japan, EU, India), or the fuel consumption mix of their vehicle fleet (EU diesel), demand for ethanol from other nations will remain limited through 2020.

Brazil is aggressively pursuing the domestic fuel market via government mandates and support for flex-fuel vehicles. Internationally, it is at the forefront of biofuels advocacy, developing partnerships and joint ventures with foreign firms. Government and industry leaders circle the globe meeting with stakeholders in the United States, Europe, and Asia to build relationships and champion ethanol as the fuel of the future. As they build these relationships, they hope to secure open access to and demand from these markets.

Cellulosic ethanol production will certainly not meet targets. Technologies for industrial-scale production of cellulosic ethanol are maturing. Although a number of producers are investing R&D dollars into cellulosic ethanol, there are no guarantees that the three billion gallon annual increase required beyond 2015 could be achieved from domestically produced cellulosic ethanol.

Cellulosic ethanol offers the most promise but the technology is not there yet.Cellulosic ethanol, on the other hand, is closer to industrial scale production. Iogen is operating a one million gallon cellulosic plant in Ottawa, Canada as a demonstration facility. Similarly, Abengoa, SunOptra, and China Resources Alcohol Corporation all have operating cellulosic ethanol production plants. Current plant sizes top out in the 1.5-2.0 million gallon range today and plans are in place for 10 and 25 million gallon facilities in the next two years.