Policies for second generation biofuels

Current state-of-the-art knowledge concludes that green house gas (GHG) emissions must be controlled and reduced within the next 30-40 years. The transport sector contributes almost a fifth of the current global emissions, and its share is likely to increase in the future. The US and a number of European countries have therefore introduced various support schemes for research and development (R&D) of low emission fuels that can potentially replace the current fossil fuels. One such alternative is biofuels. The advantage of biofuels are that it is easy to introduce into the transport sector. On the other hand, recent research papers question whether the supply of feedstock is sufficient, and to what extent biofuels lead to GHG emission reductions.

This report reviews the current status of second generation biofuels. Second generation biofuels are made from cellulose, which according to our survey of the literature, is in more abundant supply than the first generation biofuels feedstocks. Furthermore, it seems to have the potential to reduce GHG emissions from the transport sector without leading to devastating land use changes, which recent critique has held against first generation biofuels. Given that governments have decided to support R&D of low emission fuels, we ask the following questions:

• Should second generation biofuels receive R&D support to the same extent as other low emission fuels like hydrogen?
• How should support schemes for second generation biofuels be designed?

Second generation biofuels can be divided according to the production process into thermo-chemical and bio-chemical. With respect to the thermo-chemical process the potential for cost reductions seems to be low. On the other hand, ethanol made from cellulose using the biochemical conversion process is far from a ripe technology. Expert reports point to several potential technological breakthroughs which may reduce costs substantially. Hence, cellulosic ethanol, should receive direct support to R&D in line with other low emission fuel alternatives.

R&D on cellulosic ethanol can also be supported by indirect measures. The most important measure in this respect is to ensure a correct pricing of fossil fuels now and in the future.

Many argue that production and use of first generation biofuels will bridge the conversion to second generation biofuels. We doubt that the necessary cost reductions for second generation biofuels can be obtained from widespread use of first generation biofuels. First, the production processes are simply too different, and second, the advantage with all kinds of biofuels are that it easy to introduce into the transport market at once the technology is ripe.

Some also argue that second generation biofuels need to be protected against competition from import of low cost first generation biofuels made in developing countries. However, with targeted support to second generation biofuels, there is no need to pay attention to the infant industry argument. Trade policy should only aim to correct for insufficient internalizing of GHG emission costs from the production of biofuels in countries without a price on carbon.

It is by no means certain that second generation biofuels will play a central role in the decarbonizing of the transport market. Necessary cost reductions may not be achieved. The GHG emissions from land use change connected to large-scale growing of cellulosic feedstock may turn out to offset the gains from changing fuel. It is important to avoid a technological or political lock-in in biofuels. In other words, policies should be flexible, and it should be possible to terminate support programs within a short notice.