Abstract:
The US, Brazil, and a number of European and other countries worldwide have introduced various support schemes for bioethanol and biodiesel. The advantage of these biofuels is that they are relatively easily integrated with the current fossil fuel based transport sector at least up to a certain point. However, recent studies point to various negative effects of expanding the production of first generation (1G) biofuels further. 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 is targeted support to 2G biofuels likely to bring costs down? And are current support schemes for biofuels well designed in order to promote the development of 2G biofuels? We find that the prospects for cost reduction looks better for 2G bioethanol than for 2G biodiesel. Biothanol made from cellulose 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 bioethanol will bridge the conversion to 2G bioethanol. Hence, to the extent that private investment in the development of 2G bioethanol is too low, current support schemes for 1G fuels may block 2G bioethanol instead of promoting it.