United States 

Department 

of Agriculture 

www.ers.usda.gov 

 A Report from the Economic Research Service

Abstract

Next-generation U.S. biofuel capacity should reach about 88 million gallons in 2010, 

thanks in large measure to one plant becoming commercially operational in 2010, using 

noncellulosic animal fat to produce green diesel. U.S. production capacity for cellulosic 

biofuels is estimated to be 10 million gallons for 2010, much less than the 100 million 

gallons originally mandated for use by the 2007 Energy Independence and Security 

Act. In early 2010, the Environmental Protection Agency lowered the cellulosic biofuel 

mandate to 6.5 million gallons, more in line with production prospects. Even so, expansion of next-generation fuels will have to be rapid to meet subsequent annual mandates 

and the longer term goal of 16 billion gallons for cellulosic biofuel use by 2022. Nearterm sector challenges include reducing high capital and production costs, acquiring 

financial resources for precommercial development, and developing new biomass supply 

arrangements, many of which will be with U.S. farmers. Overcoming the constraints of 

ethanol’s current 10-percent blending limit with gasoline, or expanding E85 markets, 

would improve prospects for cellulosic ethanol. An alternative is production of green 

gasoline and green diesel, biobased fuels equivalent to fossil fuels that could be used in 

unlimited volumes with existing vehicles and in the existing fuel distribution system. 

Keywords: Biofuels, bioenergy, cellulosic ethanol, next-generation biofuels, feedstocks, petroleum-equivalent fuels

Acknowledgments

Thanks to Janet Perry, Tom Capehart, John Dyck, and Paul Westcott, USDA/ERS, 

for their helpful comments. Thanks also to Mary Blanchard (Virent Energy), Clark 

Garland and Samuel Jackson (Univ. of Tennessee), Tom Elam (Farm Econ), Tom 

Foust (DOE), Bill Hagy (USDA/Rural Development), Andrew McAloon (USDA/

Agricultural Research Service), Matt Merritt (POET), Carl Pray (Rutgers University), 

Robert Rapier (R-Squared Energy Blog), Charles Rock (Rollins College), Hosein 

Shapouri (USDA/Office of Energy and New Uses), and David Woodburn (formerly of 

ThinkEquity). Their input significantly enhanced the quality of the report. Thanks also 

to Priscilla Smith for editing and Cynthia Ray for designing the report and to David 

Nulph and Vince Breneman for developing the map.

William T. Coyle

Next-Generation Biofuels

Near-Term Challenges and Implications 

for Agriculture

BIO-01-01

May 2010

Contents

Approved by USDA’s 

World Agricultural 

Outlook Board

Introduction. . . . . . . . . . . . . . . . 2

Short-Term Outlook for NextGeneration Biofuel 

Production. . . . . . . . . . . . . . . . 3

Key Challenges Facing NextGeneration Biofuels. . . . . . . . . . 10

Next-Generation Biofuels 

Poised To Expand. . . . . . . . . 19

Acronyms. . . . . . . . . . . . . . . . . . 21

References. . . . . . . . . . . . . . . . . 22

Appendix: Biochemical and

Thermochemical Processes 

and Algae Feedstock 

Characterize NextGeneration Biofuels. . . . . . . . . 25
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Will “next-generation” biofuel production rise enough to reach current 

legislative mandates? What feedstocks and technologies are envisioned for 

next-generation biofuel production? How costly will such production be? 

How will investment be financed and what prospects do investors see for cost 

reduction? What will the role of agriculture be in supplying feedstocks for 

production of next-generation biofuels?

These questions can be addressed in part by examining the published plans 

for next-generation biofuel projects. Information that is publicly available 

provides insights into the scope and trends of next-generation biofuel developments that are in progress or soon will be launched. 

The information, drawn from public statements by corporations and governments and from press reports, could miss projects that have a relatively low 

public profile or that have not been publicly revealed. In most cases, it is 

assumed that major investments come into the public record in one way or 

another. Since most of the estimates and projections are based on the published 

expectations of firms that hope to profit from them, the data are likely to give 

an optimistic picture of the near future. However, aggregating these expectations is still of interest, providing insights into the potential for future output 

and costs of next-generation initiatives under the most favorable conditions.

Next-generation biofuels refer to biofuels made using advanced technologies 

that greatly expand the potential to use widely available biomass, including 

woody biomass and wood waste; crop residues; dedicated energy crops such 

as switchgrass, energy cane, and biomass sorghum; municipal solid waste; 

and algae. Some next-generation biofuels, however, such as biobutanol and 

green gasoline and green diesel may use traditional feedstocks such as sugar 

beets, corn, sugarcane, animal fats, and vegetable oils. (ScienceDaily, 2008).

Rising oil prices through the past decade, along with strong public-sector 

support, significant venture capital interest, joint arrangements with large 

multinational companies, and affiliations with universities, have spurred the 

creation of several dozen next-generation biofuel companies in the United 

States. Public-sector support for next-generation biofuels is driven by:

•	 national interests in reducing the economy’s dependence on imported

petroleum

•	 minimizing the price impacts on food crops

•	 mitigating greenhouse gas emissions, and

•	 enhancing rural employment opportunities.

The focus of this report is on the outlook for production of next-generation 

biofuels, key near-term challenges for the sector, and the implications for 

feedstock supply from U.S. agriculture.

Introduction
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Total production capacity for next-generation biofuels, including cellulosic 

biofuel, biobutanol, and biobased petroleum equivalents, is expected to be 

about 88 million gallons per year (a large share from one company, Dynamic 

Fuels) by the end of 2010, less than the average capacity of a single new corn 

ethanol plant (fig. 1). Total sector capacity is expected to surpass 350 million 

gallons by 2012.

In early 2010, the EPA announced that the cellulosic biofuel mandate for 

2010, the most significant next-generation category in the 2007 Energy 

Independence and Security Act (EISA), would be greatly reduced from 100 

million gallons as specified in EISA, to 6.5 million gallons. There were no 

changes to mandated levels for cellulosic biofuel use in subsequent years. 

Based on company press releases and other reports,1 ERS estimates that 

production capacity for cellulosic biofuel, primarily ethanol, may be somewhat higher, about 10 million gallons, with capacity expanding to over 200 

million gallons by 2012 (fig. 2) (table 1). Production likely will be less than 

the capacity estimates because of the short-term prevalence of pilot and 

demonstration facilities that are not operated on a continuous basis. 

The EISA establishes ambitious goals to more than triple overall U.S. biofuel 

use to 36 billion gallons by 2022, with cellulosic biofuels making up 16 

billion gallons and on a trajectory to surpass corn-based ethanol use (fig. 3). 

There are about 30 next-generation companies in the United States developing biochemical, thermochemical, and other approaches, and experimenting with a variety of feedstocks, some of which are directly linked to 

agriculture (see table 1). 

1There are no publicly available production surveys of the next-generation 

biofuel sector. Production estimates in 

this report are based on company press 

releases and various reports. Because 

of the lack of transparency and the high 

degree of uncertainty about the commercialization of next-generation biofuels, production-capacity estimates must 

be reviewed and updated frequently as 

the sector develops. 

Short-Term Outlook for Next-Generation

Biofuel Production

Figure 1

Next-generation biofuel production capacity, 2010

Million gallons

*Dynamic Fuels, with a commercial plant expected to be operational in 2010, accounts 

for 75 million of the total. That plant will use animal fat to produce biobased fuel.

Source: USDA, Economic Research Service (table 1, pp. 4-5).

Cellulosic ethanol Biobutanol Petroleum equivalents

0

20

40

60

80

100

10.3

1.0

77.3*
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Table 1

Selected companies developing next-generation biofuels in the United States 

Company Plant 

location Plant type Technology Biofuel Production capacity1

Biomass

2009 2010 2011 2012 >2012

Million gallons per year

Abengoa Bioenergy York, NE Pilot Bio Ethanol 0.02 0.02 0.02 0.02 0.02 Ag residue

Abengoa Bioenergy Hugoton, KS Commercial Bio Ethanol 11.6 11.6 Ag residue/

energy crops

AE Biofuels Butte, MT Demo Bio Ethanol 0.15 0.15 0.15 0.15 0.15 Ag residue

AE Biofuels Keyes, CA Commerical Bio Ethanol 5 10 10 Ag residue

Amyris Emeryville, 

CA Pilot Bioengineered Petroleum equivalents 2 2 2 2 2 Crops

Amyris Campinas, 

Brazil Pilot Bioengineered Petroleum equivalents

/2 /2 /2 /2 /2 Crops

Amyris Campinas, 

Brazil Commercial Bioengineered Petroleum equivalents

/2 Crops

BlueFire Ethanol Lancaster, 

CA Commercial Bio Ethanol 3.9 3.9 3.9 MSW3

BlueFire Ethanol Fulton, MS Commercial Bio Ethanol 19 Multiple

Cello Energy Bay Minette, 

AL Commercial Cat Petroleum equivalents

/4 /4 /4 /4 Multiple

Central Minnesota Cellulosic Ethanol PartnersLittle Falls, 

MN Commercial Bio Ethanol 10 Wood waste

ClearFuels Technology Kauai, HI Pilot Thermo Ethanol 1.5 1.5 1.5 Ag residue

ClearFuels Technology Collinwood, 

TN Commercial Thermo Petroleum equivalents 16 Wood waste

Cobalt Biofuels Mountain 

View, CA Pilot Bio Biobutanol 0.035 0.035 0.035 0.035 Multiple

Cobalt Biofuels Mountain 

View, CA Demo Bio Biobutanol 1.5 1.5 1.5 Multiple

Coskata Madison, PA Demo Hybrid: Bio 

and thermo Ethanol 0.04 0.04 0.04 0.04 0.04 Multiple

Coskata Southeast Commercial Hybrid: Bio 

and thermo Ethanol 50 50 Multiple

DuPont Danisco Vonore, TN Pilot Bio Ethanol 0.25 0.25 0.25 0.25 0.25 Ag residue/

energy crops

Dynamic Fuels Geismar, LA Commercial Hydro Petroleum 

equivalents 75 75 75 75

Animal fat, 

veg. and 

other oils

Enerkem Pontotoc, MS Commercial Thermo Ethanol 10 20 Multiple

Fiberight Blairstown, IA Demo Bio Ethanol 2 2 2 8.6 MSW3

Flambeau River Park Falls, WI Demo Thermo Petroleum 

equivalents 8 Wood waste

Fulcrum Bioenergy Storey 

County, NV Demo Thermo Ethanol 10.5 10.5 MSW3

Gevo St. Joseph, 

MO Demo Bio Biobutanol 1 1 1 1 1 Crops

Gevo Various locations Commercial Bio Biobutanol 50 50 50 Crops

Gulf Coast Energy Livingston, 

AL Demo Thermo Ethanol 0.2 0.2 0.2 0.2 0.2 Wood waste

ICM St. Joseph, 

MO Pilot Bio Ethanol 0.5 0.5 0.5 Ag residue/energy crops

continued—
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Table 1

Selected companies developing next-generation biofuels in the United States—continued

Company Plant 

location Plant type Technology Biofuel Production capacity1

Biomass

2009 2010 2011 2012 >2012

Million gallons per year

Inbicon Spiritwood, 

ND Commercial Bio Ethanol 20 Ag residue

INEOS Bio Fayetteville, 

AR Pilot Thermo Ethanol 0.04 0.04 0.04 0.04 0.04 MSW3

INEOS Bio-New Planet 

Energy Florida Commercial Thermo Ethanol 8 8 8 Multiple/Non ag

LS9, Inc. San Francisco, CA Pilot Bioengineered Petroleum 

equivalents

Lab 

scale Multiple

LS9, Inc. Okeechobee, 

FL Demo Bioengineered Petroleum equivalents 0.05 0.05 0.1 Multiple

Mascoma Rome, NY Demo Bio Ethanol 0.2 0.2 0.2 0.2 0.2 Wood waste

Mascoma (Frontier 

Renewable Resources) Kinross, MI Commercial Bio Ethanol 20 20 Wood waste

Ohio River Clean Fuels/

Baard

Wellsville, 

OH Commercial Thermo Petroleum equivalents 17 Multiple

Pacific Ethanol Boardman, 

OR Demo Bio Ethanol 2.7 Multiple

POET Scotland, SD Pilot Bio Ethanol 0.02 0.02 0.02 0.02 0.02 Ag residue

POET Emmetsburg, 

IA Commercial Bio Ethanol 25 25 25 Ag residue

Qteros Springfield, 

MA Pilot Bio Ethanol Small pilot under construction Multiple

Range Fuels Soperton, GA Commercial Thermo Methanol, 

ethanol 4 4 30 30 Wood waste

Rentech Commerce 

City, CO Demo Thermo Petroleum equivalents 0.15 0.15 0.15 0.15 0.15 Multiple

Rentech Rialto, CA Demo Thermo Petroleum 

equivalents 9.2 9.2 Multiple

Terrabon Bryan, TX Pilot Bio Petroleum 

equivalents 0.11 0.11 0.11 0.11 0.11 Multiple

Verenium Jennings, LA Pilot Bio Ethanol 0.05 0.05 0.05 0.05 0.05 Ag residue

Verenium Jennings, LA Demo Bio Ethanol 1.4 1.4 1.4 1.4 1.4 Ag residue

Verenium Highlands 

County, FL Commercial Bio Ethanol 36 36 Energy crops

Virent Madison, WI Demo Bioengineered Petroleum 

equivalents 0.01 0.01 0.01 0.01 Crops

Western Biomass 

Energy/KL Energy Upton, WY Demo Bio Ethanol 1.5 1.5 1.5 1.5 1.5 Wood waste

ZeaChem Boardman, 

OR Demo Hybrid: Bio and thermo Ethanol 0.25 0.25 0.25 0.25 Poplars

Million gallons per year

Cellulosic biofuel (1) 3.9 10.1 29.0 223.1 291.4

Mandate for cellulosic biofuels (2007 EISA) 56.5 250 500 1,000

Biobutanol (2) 1.0 1.0 52.5 52.5 52.5

Petroleum equivalent (3) 2.3 77.3 77.3 86.5 127.6

Total next-generation (1)+(2)+(3) 7.1 88.4 158.9 362.2 471.5

Bio=biochemical processes; Thermo=thermochemical processes; Cat=catalytic depolymerization; Hydro=hydroprocessing technology (see appendix for descriptions). 1The numbers in this table 

represent “production capacity,” not “production.” Actual production from these plants is likely to be less in the short run since many are pilot or demonstration plants not operated on a continuous basis. Numbers are volumetric and not adjusted for energy content. 2Production in Brazil; capacity of demonstration plant is 10,000 gallons per year; commercial output from various plants 

could be as much as 200 million gallons/year after 2012. 3MSW = municipal solid waste. 4Limited information about feedstock used; capacity has been estimated at 20 million gallons per year. 5Mandate for cellulosic biofuel reduced by EPA from 100 million gallons per year (specified in 2007 EISA), to 6.5 million gallons in February 2010. Sources: USDA, Economic Research Service 

analysis of data from U.S. Environmental Protection Agency, ThinkEquity, company websites (names as listed above).
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Range Fuels and Dynamic Fuels are expected to complete the first commercial next-generation biofuel plants in 2010. Range’s plant in Soperton, GA, 

will use pine-tree waste as the feedstock. According to the EPA, however, the 

plant’s initial capacity has been reduced from 10 million to 4 million gallons 

per year and initial output will be methanol. The company’s ethanol production is expected to commence at a later stage of development. Dynamic 

Fuel’s plant in Geismar, LA, is expected to start commercial operations in 

the second half of 2010, using animal fat as the feedstock and producing a 

biobased diesel fuel. POET, which has a pilot plant operational in Scotland, 

SD, may have the first commercial plant to produce cellulosic ethanol. The 

facility will be colocated with one of POET’s existing corn ethanol plants 

in Emmetsburg, IA, and is scheduled to be operational in late 2011 or early 

2012, using corn cobs as the feedstock. Most other companies have small 

Figure 2

Cellulosic ethanol production capacity in the United States 

Million gallons

Source: USDA, Economic Research Service (table 1, pp. 4-5).

2009 2010 2011 2012

0

100

200

300

400

500

600

Cellulosic ethanol

Energy Independence and Security Act 

mandate for cellulosic biofuel use

Figure 3

Rapid rise in use of cellulosic biofuel mandated by Energy 

Independence and Security Act

Billion gallons

Source: U.S. Environmental Protection Agency. Regulation of Fuels and Fuel Additives: 

Changes to Renewable Fuel Standard Program: Final Rule. February 2010.

Conventional biofuels 

and other nonadvanced

Cellulosic biofuels Other

(could be cellulosic)

Biomass-based diesel

09 10 11 12 13 14 15 16 17 18 19 20 21 22

0

5

10

15

20

2008
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pilot or demonstration plants, with average estimated production capacity of 

less than 1 million gallons in 2010, but with future plans to expand. 

There are more than two dozen other next-generation companies in Europe, 

Canada, Brazil, China, and other countries at various stages of development. 

And more than two dozen companies in the United States are developing 

approaches to growing and converting algae to fuel (see box, “Algae’s High 

Potential Yield Per Acre Interests U.S. Biofuel Producers”). 

Biochemical and Thermochemical Are Leading 

Conversion Processes

Next-generation companies are developing a variety of biochemical and thermochemical pathways to convert biomass to fuel. For 2009-10, including pilot 

and demonstration plants in operation as well as planned operations for 2010, 

biochemical approaches are most common (table 2). Those companies using or 

planning to use biochemical processes include Verenium, Mascoma, Abengoa, 

and POET. Those using thermochemical approaches include Range Fuel, 

Rentech, and INEOS Bio. Coskata and ZeaChem are combining biochemical 

and thermochemical processes. LS9, Amyris, and Virent are companies using 

other approaches to produce biobased petroleum-equivalent fuels. 

There may be a shift in favored technologies underway. Several companies 

planning to be operational with some of the larger plants in the next several 

Algae’s High Potential Yield Per Acre Interests U.S. 

Biofuel Producers 

More than 30 U.S. companies currently are experimenting with different 

approaches to producing algae-based fuels. Their interest in algae as 

a feedstock is driven by algae’s high potential yield per acre. Some 

companies grow algae in photo-bioreactors and others in open ponds, 

with yields potentially greater than 5,000 gallons per acre, by far the 

greatest potential of any feedstock for conversion to biofuels. Algae can 

be cultivated on marginal land that is unsuitable for growing crops or 

raising livestock, but also can compete with food-producing resources 

(for example, converting catfish ponds to algae propagation). Although 

the majority of algae-to-biofuel companies are focusing on producing 

algae oil for traditional biodiesel production, some companies are using 

algae to produce ethanol (Algenol), or petroleum-equivalent fuels (UOP 

and Sapphire). 

However, production cost estimates (net of capital costs) for growing 

and converting algae to fuel are significantly higher than for first- and 

next-generation biofuels, ranging from $9 per gallon to $35 per gallon, 

depending on the production technology (British Columbia Innovation 

Council, 2009). This compares with less than $3 per gallon for cellulosic ethanol. Except for subsidized military uses, the market for algaebased fuels will be limited until production costs are greatly reduced.
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years plan to use thermochemical approaches or other processes that produce 

biobased petroleum-equivalent fuels.

About 50 Percent of Next-Generation Companies

Will Use Feedstock From Agriculture

Based on company information, about 50 percent of next-generation plants in 

2009-10 likely will use exclusively agricultural biomass (table 3): 

•	 crops, vegetable oils, and animal fats, typically used for first-generation

biofuels 

•	 crop residues

•	 energy crops

The proportion may be higher if some companies that report capacity to use 

multiple feedstocks actually use agricultural biomass. About 20 percent of the 

companies report their use or intention to use forestry products as feedstocks. 

The overall impact from the expansion of next-generation biofuels on U.S. 

agriculture initially will be small because fuel production will be very 

limited, requiring only modest amounts of biomass from all sources in the 

next several years. Some companies will exploit already existing streams of 

forestry waste and municipal solid waste. Other companies are in the process 

of developing supply arrangements for agricultural biomass (particularly 

crop residues and energy crops) (fig. 4). Eventually agriculture could play 

a significant role as next-generation biofuel production expands. Biomass 

inventory studies show that of all potential sources of biomass in the United 

States, agricultural biomass is the most significant. This is reflected by a 

number of companies planning significant biofuel production in 2011-12 

from agricultural biomass: POET plans to produce 25 million gallons from 

corn cobs starting in 2011 or 2012; Abengoa, 11.6 million gallons from 

corn stover, wheat straw, and switchgrass in 2012; and Verenium, 36 million 

gallons from energy grasses in 2012. Other companies developing technologies for producing petroleum-equivalent fuels and biobutanol may use firstgeneration feedstocks, such as sugarcane, sugarbeets, corn, vegetable oils, 

and animal fats. 

Table 2

Next-generation biofuel plants by conversion technology, 2010

Technology Cellulosic 

ethanol Biobutanol Petroleum

equivalent Total

Number of plants

Biochemical 9 2 11

Thermochemical 3 2 5

Hybrid 2 2

Other 4 4

Total 14 2 6 22

Includes pilot, demonstration, and commercial plants.

Source: USDA, Economic Research Service (table 1, pp. 4-5).
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Table 3

Next-generation biofuel plants by feedstock used, 2010

Cellulosic 

ethanol Biobutanol Petroleum

equivalent Total Capacity

Number of plants1 Million gal/year

Ag residue 3 3 1.6

Ag residue/energy crops 2 2 0.3

Animal fat, vegetable oil 1 1 75

Crops 1 2 3 3

Energy crops 1 1 2 0.2

Ag related 6 1 4 11 80.1

MSW2 2 2 2

Multiple3 1 1 2 4 0.2

SRWC4 1 1 0.3

Wood waste 4 4 5.9

Total 14 2 6 22 88.5

1Pilot, demonstration, and commercial plants. 2MSW = municipal solid waste. 3Plant is capable of using a range of feedstock, including at least 2 categories of biomass.

4SRWC = short rotation woody crops.

Source: USDA, Economic Research Service (table 1, pp. 4-5).

0.02 - 4.0

4.1 - 40.0

40.1 - 75.0

Capacity

2010 2012+

(million gallons per year)

Biomass

Wood

Agriculture

Multiple

Municipal solid waste

ICM

POET POET

Amyris

Inbicon ZeaChem

Rentech

Rentech

Frontier Renewable

 Resources (Mascoma)

Mascoma

Coskata

Coskata

Verenium

Verenium

LS9, Inc.

INEOS Bio

Fiberight

Range Fuel

AE Biofuels

AE Biofuels

Flambeau River

DuPont Danisco

Pacific Ethanol

BlueFire Ethanol

BlueFire Ethanol

Fulcrum Bioenergy

Gulf Coast Energy

Abengoa Bioenergy

Abengoa Bioenergy

Ohio River Clean

Fuels/Baard

Western Biomass Energy/KL Energy

Central Minnesota

Cellulosic Ethanol 

Partners

Cobalt

Biofuels

Gevo

Virent

Terrabon

Dynamic Fuels

Enerkem

ClearFuels

Technology

INEOS Bio-New 

Planet Energy

Figure 4

Next-generation biofuel plants located across the Nation near biomass supplies

Source: USDA, Economic Research Service (table 1, pp. 4-5); biomass resource map from Oak Ridge National Laboratory (Biomass Research and 

Development Initiative, December 2008, p. 79).

The darker the green, the greater the

density (tons per county) of cropland

and forestry biomass.
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The future of next-generation biofuels will hinge on success in addressing the 

following challenges:

•	 reducing high production and capital costs

•	 securing financial support during precommercial development

•	 establishing feedstock supply arrangements

•	 overcoming blend wall constraints

Reducing High Production and Capital Costs

High production and initial construction costs for untested technologies and 

processes on a large scale increase investment risk and affect the willingness 

of investors to underwrite projects. 

Estimated production and capital costs for next-generation biofuel production are significantly higher than for first-generation biofuels. These costs are 

expected to decline as companies scale up production. Government programs 

to subsidize feedstock delivery and a company’s choice of feedstock and 

operational structure may also help to lower production costs. 

In 2007, USDA estimated cellulosic ethanol production costs at $2.65 per 

gallon, compared to $1.65 for corn-based ethanol. In this estimate, conversion 

and capital costs for cellulosic ethanol were significantly higher than for cornbased ethanol (fig. 5) (Collins, 2007). POET recently reported it had lowered 

production costs for cellulosic ethanol, including capital expenses, from 

$4.13 to $2.35 per gallon in a year as of November 2009 at its South Dakota 

pilot plant.3 Novozymes, the world’s leading producer of enzymes, recently 

estimated that the cost of enzymes for cellulosic ethanol production had been 

reduced significantly in the last 2 years to about 50 cents per gallon, reducing 

total production costs in the near term to about $2 per gallon.4

These production cost trends are in line with Government targets for the 

industry. The 2008 National Biofuels Action Plan5 set target costs for cellulosic ethanol at about $2 per gallon for 2009. The U.S. Energy Department 

set in 2006 a goal of reducing production costs for next-generation biofuels 

to about $1.00 per gallon by 2012 (Karsner, 2006).

A key area of uncertainty is the cost of biomass, which needs to be relatively 

low to offset higher conversion and capital costs relative to first-generation 

biofuel production. According to a 2008 report by the Biomass Research and 

Development Board,6 farmgate prices of $40 to $45 per dry ton would be 

sufficient to secure feedstocks for U.S. production of 12 to 16 billion gallons 

of cellulosic ethanol. These biomass price assumptions are consistent with 

$40- to $60- per-ton prices POET reportedly intends to pay suppliers for 

delivery of corn cobs to its cellulosic plant in Iowa. But the range of prices 

may underestimate the cost of increasing biomass yields on marginal lands 

and the incentives required for harvesting, gathering, and delivering bulky 

material to the biorefinery. Corn cobs, for example, are two to four times 

Key Challenges Facing Next-Generation

Biofuels

3POET company website. Available 

at: http://www.poet.com/news/showRelease.asp?id=181.

4“Novozymes, Genencor Unveil 

New Enzymes for Cellulosic Ethanol,” 

SustainableBusiness.com. February 17, 

2010.

5Biomass Research and Development 

Initiative, October 2008.

6Biomass Research and Development 

Initiative, December 2008.
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more expensive to transport than corn kernels on a tonnage basis because they 

are much more bulky (Hudson, 2009). Also, dedicated energy crops would 

need to compete with the lowest value crop such as hay which has had a price 

exceeding $100 per ton since 2007 (NASS, 2007). The new Biomass Crop 

Assistance Program in the 2008 Farm Act will help to boost farmer incentives 

by as much as $45 per ton and thus lower feedstock costs for biorefineries.

Capital-investment costs for cellulosic ethanol are estimated to be more than 

three or four times those for corn ethanol plants. It must be kept in mind that 

these are estimates, and that there are no actual cost data for commercial operations since none are yet operational. DOE’s Energy Information Administration 

estimated in 2004 that capital investment costs for biomass-to-liquid facilities 

ranged from $650 million to $900 million for a 100-million-gallon capacity plant, 

compared with $65 million to $195 million for a similar size biodiesel plant and 

$130 million to $230 million for a similar size corn ethanol plant (U.S. Department of Energy, 2006).According to a more recent analysis using normalized 

data for 2007, to produce 100 million gallons, projected total project-investment 

costs for biochemical conversion were $320 million and for thermochemical 

conversion $340 million (Foust et al., 2009). While this and another analysis 

conclude that there was no clear difference in capital-investment costs or operating costs for either the thermochemical or biochemical approaches, (Wright and 

Brown, 2007) they do allude to a downward trend in overall capital costs relative to earlier DOE estimates. This likely occurred despite significant increases 

in nonlabor costs since 2003 because of a variety of market changes leading to 

higher material and energy costs (Foust et al., 2009). 

Company estimates are mostly consistent with the DOE estimates. Canada’s Iogen Corporation estimated in 2006 that a cellulosic plant with the 

capacity of 50 million gallons per year would cost about $300 million. By 

comparison, a corn ethanol plant with the same capacity could be built for 

about $65 million (U.S. Department of Energy, 2006). Abengoa Bioenergy 

announced in 2007 that its hybrid plant in Hugoton, KS, that will produce 85 

Figure 5

Comparing corn and cellulosic ethanol production costs

Source: Keith Collins, Chief Economist, USDA. The New World of Biofuels: Implications for Agriculture. Presentation at Energy Information 

Administration (EIA) Energy Outlook, Modeling, and Data Conference, March 28, 2007.

Total = $1.65 per gallon

Corn ethanol

Total = $2.65 per gallon

Cellulosic ethanol

Feedstock

(57.6 %)

Capital

 (9.9%)

Other

 (30.5%)

Enzyme

(2.0%)

Feedstock

(36.4%)

Capital

(20.0%)

Other

 (29.1%)

Enzyme

(14.5%)
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million gallons per year of corn ethanol and 11.6 million gallons of cellulosic 

ethanol, would cost $400 million (Environment News Service, 2007). Coskata 

estimated in 2008 that a 100-million-gallon capacity per year cellulosic plant 

would cost $300 million, later updating the estimate to $400 million (Ring, 

December 2008). 

The way a company structures its operation may also help to reduce costs 

by taking advantage of existing residue waste streams and/or combining 

advanced cellulosic ethanol production with corn ethanol production. Three 

of the four plants (Bluefire, POET, and Range) supported by 2007 DOE 

grants and expected to have commercial operations relatively early are 

focused on residues (municipal solid waste, cobs and wood waste), while one 

(Abengoa) is focused on a number of potential feedstocks, including switchgrass and agricultural residues, such as corn stover and wheat straw. Two of 

the four plants (POET and Abengoa) are building operations that combine 

cellulosic and corn ethanol production in close proximity.

Securing Financial Support During Precommercial 

Development

Next-generation biofuel companies are using a variety of strategies to overcome high initial capital-investment costs and to sustain themselves during 

precommercial development. These strategies include the use of venture 

capital, Government grants and loan guarantees, alliances with large U.S. 

and multinational companies, ties with academic institutions to benefit from 

access to intellectual capital, and combinations of these strategies. 

Venture capital: Venture-capital investment worldwide in clean-technology 

(solar, biofuels, vehicle technology, and wind companies) rose in 2002-08, 

totaling $8.5 billion in 2008, (Covel, 2009) with solar accounting for almost 

40 percent of the total, followed by biofuels at about 10 percent. U.S. companies accounted for more than two-thirds of the global total (SustainableBusiness.com News, 2009). Leading biofuel companies receiving venture capital 

in 2008 were Range Fuels ($166 million), Sapphire ($100 million), Amyris 

($90 million), Mascoma ($61 million), Solazyme ($45.4 million), and 

Coskata ($40 million) (Lane, 2009).

In 2009, overall clean-technology venture capital declined by one-third from 

the effects of the global recession. Because of strong Government support 

for clean technologies, not as much of a decline occurred as in other venturecapital sectors. Within the biofuel sector, venture capital has shifted away 

from traditional corn-based production to next-generation biofuels and algal 

biodiesel. 

Public-sector support: Venture capital support for next-generation projects 

was bolstered by a major infusion of public-sector support in December 2009 

when DOE announced $564 million in grants to 19 next-generation companies. These grants were part of the Federal stimulus program (American 

Recovery and Reinvestment Act of 2009) and were divided about equally 

in number among companies developing cellulosic ethanol and those developing biobased petroleum substitutes, closely akin to fossil fuels. USDA also 

extended three major loan guarantees in 2009-10, two for next-generation 
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biofuel companies: one for $80 million to Range Fuels and another for $54.5 

million to Sapphire Energy. 

The Federal Government committed a total of more than $2 billion to nextgeneration biofuels in 2007-09 in direct private-sector support, university 

research and development, including biomass development projects. The 

largest grants7 previous to the December 2009 ones were also made by DOE 

in 2007 and allocated to six companies: Abengoa Bioenergy (Hugoton, KS; 

$76 million), Range Fuels (Soperton, GA; $76 million), BlueFire Ethanol 

(Lancaster, CA; $40 million), POET (Emmetsburg, IA; $80 million), Alico 

(La Belle, FL; $33 million), and Iogen (Shelley, ID; $80 million). The last 

two dropped out of the program. 

A number of States also have provided financial support to specific nextgeneration companies, including Michigan’s support ($23.5 million grant 

from the State and $26 from the U.S. DOE) for Mascoma’s plant in Kinross, 

MI; Iowa’s support for POET’s Emmetsburg, IA, plant ($14.8 million in 

funding from the Iowa Power Fund and a $5.3-million grant from the Iowa 

Department of Economic Development); and the State of Tennessee’s support 

to build and operate DuPont-Danisco’s pilot plant in Vonore, TN ($70.5 

million). Other States, including New York, Florida, Colorado, and California, are providing support for projects in their jurisdictions. 

Partnerships with corporations: Another strategy is for biofuel companies to 

partner with large corporations in the energy, automotive, forestry, and seed 

product industries. These arrangements augment a small company’s financial resources and provide opportunities to gain access to engineering and 

marketing know-how, and some cases, conversion technologies. For the large 

companies, these partnership or arrangements may provide an opportunity to 

vertically integrate or diversify their businesses. 

BP, Shell, Chevron, and Valero have partnered with next-generation biofuel 

companies as well as institutions engaged in biofuel research. BP has relationships with Verenium to work on a prospective commercial plant in 

Florida and in other locations in the southern United States. In addition to 

first-generation facilities in Brazil, BP is also partnering with U.S. startup 

Qteros in Massachusetts and is working with DuPont and Associated British 

Foods to develop biobutanol in the United Kingdom. BP is investing $500 

million in a 10-year program (started in 2007) in the Energy Bioscience 

Institute with the University of California (Berkeley), University of Illinois 

and the Lawrence Berkeley Labs to focus on biotechnology applications to 

energy, including development of next-generation biofuels. 

Shell Oil Co. is a partner with Canada’s Iogen, one of the world’s first cellulosic companies. Shell raised its equity share in the company to 50 percent in 

2008 (Burnham, 2009). Shell also has collaborative arrangements with Virent 

in Wisconsin; agreements with researchers at academic institutions around 

the world; a joint venture with Cosan, Brazil’s largest sugarcane producer; 

and an agreement with Codexis, a California company developing enzymes 

to lower next-generation biofuel production costs. 

Chevron has a partnership with Solazyme (a California company working 

on the production of algal oil) and a number of academic institutions as well 

7The grants were awarded under 

Section 932 of the Energy Policy Act of 

2005, which authorized the U.S. 

Department of Energy to fund commercial demonstration of advanced biorefineries that use cellulosic feedstock 

to coproduce ethanol, bioproducts, heat 

and power. Awards were capped at 40 

percent of the total project cost, up to a 

maximum of $80 million. By investing 

in these facilities, DOE is sharing the 

risk of financing first-of-a-kind technology and providing crucial funding at 

a difficult stage in the development 

process.
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as a joint venture (Catchlight Energy) with Weyerhaeueser, a wood products 

company, to produce cellulosic and other biobased fuels. 

In 2009, Exxon Mobil announced a partnership with Synthetic Genomics, a 

company developing strains of algae for producing petroleum-like products. 

Valero, the leading U.S. oil refiner, expanded its biofuel interests by 

purchasing corn ethanol facilities in 2009 from bankrupt VeraSun8 to add to 

interests in next-generation startups: Qteros (Massachusetts-based company 

working on converting woody biomass and fast-growing grasses to cellulosic ethanol), ZeaChem (Oregon-based plant working on converting poplar 

trees to cellulosic ethanol), Terrabon (Texas-based company working on 

converting sorghum to petroluem-equivalent fuel) and Solix (Colorado-based 

company working on growing algae for conversion to biofuels).

Coskata, a next-generation startup headquartered in Illinois, has partnered 

with General Motors as well as with the U.S. Sugar Corporation and is 

exploring business relationships with Australian and Chinese interests. 

General Motors also has invested in Mascoma, with a demonstration plant 

now operational in New York State, and plans to build a larger plant in 

upper peninsula Michigan. Canadian startup Lignol signed a memorandum 

of understanding in 2008 with Weyerhaeuser to explore development of 

commercial applications of Lignol’s biorefining technology and to evaluate 

the development of a commercial-scale biorefinery plant at or near a Weyerhaeuser mill site. 

Danish-owned Novozymes, the world’s leading producer of industrial 

enzymes, has partnerships with next-generation companies POET, KL 

Energy, ICM, Inc., and Inbicon. Novozymes has received research support 

from the U.S. Department of Energy and has its own researchers in California, North Carolina, Denmark, Brazil, and China as well as partnerships 

with Cornell University, Pacific Northwest National Laboratory, the DOE’s 

National Renewable Energy Laboratory and France’s National Center for 

Scientific Research.9 Novozymes is developing enzyme production facilities in Nebraska, first for corn ethanol and then for cellulosic production (a 

$200-million investment, scheduled to be operational in 2011), and in China. 

In some countries, large state-run companies like Petrobras in Brazil and the 

China National Cereals, Oil and Foodstuff Corporation (COFCO) in China 

are spearheading development of next-generation biofuels. Petrobras, through 

its Center for Research and Development, is operating a next-generation 

pilot plant using sugarcane bagasse (fibrous residue after cane is crushed) 

as the feedstock and plans to commercialize production by 2015. COFCO is 

collaborating with Sinopec and Novozymes to develop large-scale production of cellulosic ethanol (Green Car Congress, 2009). Since 2006, COFCO 

has been producing 1.7 million gallons of cellulosic ethanol per year10 from 

corn stover, wheat straw, grasses and other organic material (STT Pressi.com, 

2006; USDA/FAS, 2006) at a demonstration plant in Zhaodong, Heilongjiang 

province, alongside a traditional ethanol facility. 

Partnerships with universities: Some of these technology-intensive enterprises are closely associated with universities: three examples are Qteros 

(University of Massachusetts), Mascoma (Dartmouth College, New Hampshire), and Virent (University of Wisconsin). 

8“Valero wins bid to buy VeraSun 

plants,” F.O. Licht’s World Ethanol & 

Biofuels Report. March 25, 2009.

9“The Forefront of Enzyme Production,” Ethanol Producer Magazine. 

June 2009.

10“China’s COFCO eyes cellulosic 

ethanol progress.” F.O. Licht’s World 

Ethanol & Biofuels Report. March 27, 

2007.
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In the case of Qteros, the connection is with the University of Massachusetts 

where the company’s chief scientist is also a microbiology professor. In 

2005, her lab discovered the capability of a microbe (Clostridium phytofermentans) to consume a variety of plant material, including woody biomass 

and fast-growing grasses, and convert them directly into ethanol, potentially a 

step-reducing and cost-lowering discovery (Kho, 2008).

One of Mascoma’s founders is a Dartmouth College engineering professor 

who has been developing technologies that reduce the number of steps and 

increase the speed of cellulosic-to-ethanol conversion. 

Virent’s founder invented its BioForming technology at the University of 

Wisconsin where he was a chemical engineer before leaving in 2001. That 

process converts plant sugars into a variety of hydrocarbon molecules identical in structure to petroleum-based fuels.

Several other next-generation companies have university connections: 

INEOS (University of Arkansas), DuPont-Danisco (University of Tennessee), 

CleanTech Biofuels (University of California, Berkeley), Solix (University 

of Colorado), Verenium (University of Florida), and Zymetis (University of 

Maryland) among others. 

Establishing Feedstock Supply Arrangements

Another challenge facing the next-generation biofuel sector is the development of arrangements to assure a steady year-round supply of biomass to the 

biorefinery. Access to low-cost feedstock is critical to the commercial prospects of next-generation companies, particularly given their high capital and 

conversion costs. Feedstock accounts for more than one-third of estimated 

cellulosic ethanol production costs. When fully commercialized, companies 

will require vast amounts of bulky material to be delivered and stored at 

the processing plant. Biomass producers will need incentives to commit to 

sustained production of new feedstocks.

From a broad perspective, the United States has the potential to produce a 

significant volume of biomass on a sustainable basis, enough to produce 

about 60 billion gallons of gasoline equivalent, or about a third of current 

U.S. fossil fuel transportation demand (140 billion gallons of gasoline 

demand and 40 billion gallons of diesel demand) (Sandia Labs and General 

Motors, 2009; and U.S. DOE and USDA, 2005). Other reports (Biomass 

Research and Development Initiative, December 2008; and EPA, 2009) 

conclude that EISA mandates for cellulosic biofuel can be met, primarily 

with domestic crop residues, forestry biomass, and energy crops. 

But physical potential does not translate into economic availability. In some 

cases companies are planning to exploit existing waste streams of MSW and 

wood products. But in other cases, supply arrangements for new feedstocks 

need to be developed. Companies are working with local biomass producers 

to develop feedstock supplies for their pilot or demonstration plants to lay the 

groundwork for larger commercial operations. Here are a few examples:

•	 POET is working with regional corn producers to supply cobs in addition

to grain in anticipation of graduating from its pilot-scale cellulosic plant 
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in Scotland, SD, to its commercial combined-corn-and-cellulosic facility 

scheduled for operation in late 2011 or early 2012 in Emmetsburg, IA. 

The company is working with a number of equipment manufacturers 

to facilitate the simultaneous harvesting of grain and cobs. It is also 

working with local farmers and expects to pay producers $40 to $60 per 

ton for their cobs.

•	 ZeaChem, with a demonstration cellulosic plant planned for operation

in 2010 in Boardman, OR, is working with GreenWood Resources, Inc., 

to supply poplar trees to support the company’s initial 250,000 gallon 

per year output. It takes about 40 acres of hybrid poplars to produce this 

amount. Since poplars take 6 years to mature, it will take about 240 acres 

to sustain ZeaChem’s initial level of production.11

•	 The Noble Foundation is partnering with the Oklahoma Bioenergy

Center to plant and conduct research on 1,000 acres of switchgrass in 

anticipation of the completion of a cellulosic plant in 2011 by Abengoa 

Bioenergy in Hugoton, KS.12

•	 The State of Tennessee, through the University of Tennessee, is providing

60 farmers with subsidies and other assistance to help meet feedstock 

demand at the DuPont-Danisco pilot plant in Vonore, TN.13 About 7,000 

acres of switchgrass are expected to be in production by the end of 2010.

•	 The Verenium-BP joint venture in Highland County, FL, signed a long-term

lease for 20,000 nearby acres to supply energy cane14 and forage sorghum 

to the planned 36-million-gallon-per-year cellulosic ethanol plant.15

Overcoming Blend Wall Constraints 

EISA and the 2008 Farm Act provide substantial support for next-generation 

biofuels (see box, “U.S. Policies Support Next-Generation Biofuels”). But 

there is a technical standard that has a more immediate effect on the outlook 

for both corn and cellulosic ethanol. This is the “blend wall” that limits the 

share of ethanol that can be blended in gasoline. Car manufacturer warranties 

and extended warranties for non-flex-fuel vehicles cover an ethanol share in 

gasoline no more than 10 percent on a volumetric basis because of the potential for higher blends to damage the engine and other components. 

Ethanol use across the United States was about 10.8 billion gallons in 2009. 

Since 2009 gasoline demand was 138 billion gallons, the ethanol share in 

gasoline was about 7.8 percent. Under EISA, the maximum amount of corn 

ethanol use that can count toward the Renewable Fuel Standard in 2015-22 

is 15 billion gallons. If gasoline consumption remains constant at 138 billion 

gallons, as some industry analysts predict, corn ethanol’s share could exceed 

10 percent, leaving little opportunity for cellulosic ethanol to compete with 

corn ethanol for the blended gasoline market. 

Reaching the 2022 targets in EISA for cellulosic and corn-based ethanol 

will require raising the 10-percent blend standard for regular vehicles and/

or expanding the use of the gasoline substitute, E85.16 In 2009, the EPA 

deferred until mid-2010 a decision to raise the 10-percent standard to 15 

percent, at least possibly for newer vehicles manufactured after 2000. 

Expanding the use of E85 will require development of an infrastructure to 

11ZeaChem website: http://www.

zeachem.com/press/pressrelease01.php

12“Oklahoma switchgrass project 

gets extra funding.” F.O. Licht’s World 

Ethanol & Biofuels Report. Tuesday 

November 11, 2008.

13“Tennessee farmers sign up for 

cellulosic switchgrass funding.” F.O. 

Licht’s World Ethanol & Biofuels Report. June 22, 2009.

14Energy cane is a relative of sugarcane but is lower in sugar and higher in 

fiber. The high fiber content allows the 

plant to grow taller, increasing per-acre 

yield.

15http://www.vercipia.com/pdfs/

Highlands_FactSheet.pdf

16“Currently, high-percentage blends 

account for well under 1 percent of the 

overall U.S. market for fuel ethanol. 

Expanded use of high-percentage 

blends is necessary if total ethanol use 

is to grow beyond the level of 12 to 

15 billion gallons per year that would 

saturate the market for low-percentage 

blends.” –Testimony of Dr. Howard 

Gruenspecht, Acting Administrator, 

U.S. Energy Information Administration before the Subcommittee on 

General Farm Commodities and Risk 

Management, Committee on Agriculture, U.S. House of Representatives. 

April 1, 2009.
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distribute and dispense E85 and expanded manufacture of vehicles capable 

of using it. Currently, there are only 9 million of about 235 million cars and 

other light vehicles in the United States that are E85 capable and 2,200 of the 

Nation’s 160,000 gas stations are set up to dispense E85.17

Given the limited market for ethanol as a gasoline additive (due to the E10 

“blend wall”) and as a gasoline substitute (because of slow development of 

the E85 market), developers and investors may turn away from cellulosic 

ethanol in favor of production of another class of next-generation biofuels, 

petroleum substitute fuels. These so-called “drop in” fuels can be used as 

gasoline or diesel substitutes in current vehicles without limit and distributed 

seamlessly in the existing transportation fuel infrastructure.

17Paul Westcott. “Full Throttle U.S. 

Ethanol Expansion Faces Challenges 

Down the Road,” Amber Waves. 

September 2009.
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The development and production of next-generation biofuels in the United States are supported 

by a variety of policies, including some originally 

designed to support first-generation biofuels: cornbased ethanol and soy and recycled vegetable and 

animal fat biodiesel. 

The following policies and programs are designed 

to provide broad support for next-generation biofuel 

producers. Other programs discussed in the text relate 

to direct support for specific bioenergy companies. 

Renewable Fuel Standard Mandates 

Increased Use

The most significant of the broad market policies is 

the consumption mandate or renewable fuel standard 

(RFS2) enacted in the 2007 Energy Independence and 

Security Act (EISA). It is referred to as RFS2 because 

it supersedes the RFS in the 2005 Energy Policy 

Act (EPACT). RFS2 specifies annual mandates for 

expanded use of conventional (ethanol primarily from 

corn starch) and advanced biofuels (from cellulosic, 

biomass-based diesel, and other sources) through 

2022. The law provides waivers that allow the EPA 

administrator to adjust the annual mandated amounts 

because of adverse economic or environmental 

impacts, or if there is insufficient production. 

The various categories of biofuels are generally 

defined by their environmental impact; that is, the 

reduction in life-cycle greenhouse gas (GHG) emissions relative to fossil fuel. EISA defines renewable 

biofuels as those that reduce life-cycle GHG emissions by at least 20 percent relative to fossil fuel; 

advanced biofuels by at least 50 percent, including 

biomass-based diesel; and cellulosic biofuels by at 

least 60 percent. 

Tax Credits and Border Protection

There is a tax credit of $1.01 per gallon for cellulosic 

ethanol (2009-12), more than double the 45 cents 

per gallon for first-generation ethanol. Cellulosic 

ethanol benefits from the same border protection as 

first-generation ethanol: 2.5-percent ad valorem and 

54-cents-per-gallon surcharges (which are waived 

for imports from Caribbean Basin Initiative countries 

that meet certain conditions regarding local content). 

U.S. Farm Act Provides R&D Support and Loan 

Guarantees

The 2008 Farm Act provides more funding for 

research and development on conversion technologies and biomass and assistance to producers for 

eligible second-generation feedstocks. The Biomass 

Crop Assistance Program provides assistance up to 

$45 per dry ton for eligible biomass. The assistance is 

directed at the establishment and production of new 

feedstocks for biofuels. The subsidy significantly 

increases incentives to produce, harvest, collect, 

and deliver bulky low-value biomass products to 

biorefineries and other conversion facilities. This, in 

turn, will help to lower feedstock costs and facilitate 

timely availability of supply to biorefineries.

USDA also provides loan guarantees to support 

development of innovative conversion processes 

for cellulosic biofuel. EISA provides a 50-percentdepreciation deduction for eligible cellulosic biofuel 

plants in the first year of operation through 2012.

USDA and DOE Support Basic and 

Applied Research

Finally, USDA and DOE are committed to basic and 

applied research through their national networks of 

laboratories and experiment stations. DOE has also 

funneled significant resources into the creation of 

three Bioenergy Research Centers, led by the Oak 

Ridge National Laboratory in Oak Ridge, TN; the 

Universitiy of Wisconsin in Madison, WI; and the 

Lawrence Berkeley National Laboratory in Berkeley, 

CA. Significant resources are allocated through 

DOE labs, including the National Renewable Energy 

Laboratory in Colorado. Public-research funds target 

efforts to lower the costs of production of next-generation biofuels through increasing biomass yields (tons 

per acre), conversion yields (gallons per ton), and 

speed of conversion; finding new uses for co-products, 

better understanding of optimal removal rates for agricultural residues, as well as addressing economic and 

environmental issues. 

U.S. Policies and Programs Support Next-Generation Biofuels
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The next-generation biofuel sector in the United States is slowly emerging. It 

now consists of several dozen companies, many with small pilot or demonstration plants, which have plans to scale up production in the next several 

years. High oil prices and strong public-sector and venture-capital support 

are the industry drivers. Public-sector support is driven by multiple national 

interests: reducing the economy’s dependence on imported petroleum, minimizing the price impacts on food crops, mitigating greenhouse gas emissions, 

and enhancing rural employment opportunities. 

Based on company reports and other sources of information, total production 

capacity for next-generation biofuels, including cellulosic biofuel, biobutanol, 

and biobased petroleum equivalents, will be about 88 million gallons in 2010, 

expanding to more than 350 million gallons by 2012. Production capacity for 

cellulosic biofuel, the most significant category for next-generation biofuels 

under the 2007 Energy Independence and Security Act, is estimated at about 

10 million gallons, much less than the 100 million gallons originally mandated 

for 2010 in the 2007 Energy Independence and Security Act. In early 2010, 

EPA lowered the mandate only for 2010 to 6.5 million gallons, more in line 

with ERS’ capacity estimate. U.S. production capacity will have to accelerate 

to meet subsequent annual mandates and the long-term mandate of 16 billion 

gallons for cellulosic biofuel use by 2022.

Near-term challenges facing the next-generation biofuel sector include 

reducing high capital-investment and production costs, acquiring sufficient 

financial resources for precommercial development, and developing new 

feedstock supply arrangements. Success has been achieved in the last decade 

in reducing costs as reported by individual companies and by DOE analyses. 

Private financial resources supporting the sector may have slowed their 

increase in 2009 as the recession reduced energy demand and investor interest 

in alternative fuels. Public-sector resources helped to bolster private resources 

through the Federal stimulus bill (American Recovery and Reinvestment Act 

of 2009) and other Government programs for next-generation projects. 

The role for agriculture could be substantial as the next-generation sector 

expands. Biomass inventory studies conclude that agricultural biomass is the 

most plentiful potential feedstock relative to other sources, including forestry 

products and municipal solid waste. So far, the role for agriculture is small 

because next-generation biofuel production is very limited. A key challenge 

will be the development of supply arrangements for agricultural residues, 

energy crops, and other feedstocks. These arrangements are beginning to 

develop. The use of existing streams of biomass, such as wood waste and 

municipal solid waste, may provide some early advantages for nonagricultural biomass until supply arrangements for agricultural residues and dedicated energy crops are developed. 

Another important issue will be managing risk. The capital-investment 

and production costs of next-generation biofuel currently are high. It is an 

emerging sector and untested in the market. Two commercial plants are 

expected to be operational in 2010. Once up and running, companies will 

depend on the delivery of large quantities of biomass, subject in some cases 

Next-Generation Biofuels Poised to Expand
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to the vagaries of weather. They will have to deal with the limited market 

for ethanol as a gasoline additive as the E10 “blend wall” is approached and 

as a gasoline substitute as the market for E85 slowly develops. Given these 

elements of risk and uncertainty, investors in new operations will strive for 

maximum flexibility in terms of the kinds of feedstock they are capable of 

processing and for the kinds of biofuels that are least affected by constraints 

in the ethanol market. Developing the capacity to use multiple feedstocks and 

to produce biobased fuels that are equivalent to fossil fuels that can be used 

in current vehicles without limit and distributed seamlessly in the existing 

transportation sector may become the least risky business model to pursue. 
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BP—British Petroleum

CO—Carbon monoxide

CO2—Carbon dioxide

DOE—U.S. Department of Energy

E10—Blend of 10-percent ethanol and 90-percent gasoline.

E85—Blend of 85-percent ethanol and 15-percent gasoline.

EIA—Energy Information Administration, Department of Energy

EISA—Energy Independence and Security Act of 2007

EPA—U.S. Environmental Protection Agency

EPACT—Energy Policy Act of 2005

GHG—Greenhouse gas

H2—Hydrogen

MSW—Municipal solid waste

NREL—National Renewable Energy Lab of the Department of Energy

RFS—Renewable Fuel Standard defined in Energy Policy Act of 2005

RFS2—Renewable Fuel Standard defined in Energy Independence and 

Security Act of 2007

SRWC—Short-rotation woody crop

USDA—U.S. Department of Agriculture

Acronyms
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American Heritage Dictionary. Accessed March 15, 2010.

Biofuels Digest. Online biofuel news service. Available at: 

http://www.biofuelsdigest.com

Biomass Research and Development Initiative. National Biofuels Action 

Plan. October 2008.

Biomass Research and Development Initiative. Increasing Feedstock Production for Biofuels, Economic Drivers, Environmental Implications, and the 

Role of Research. December 2008.

British Columbia Innovation Council. Microalgae Technologies and 

Processes for Biofuel/Bioenergy Production in British Columbia. 

January 14, 2009.

Burnham, Michael. “Shell Sells Cellulosic Ethanol Blend in Canada,” 

Greenwire, June 10, 2009.

Capehart, Tom. Cellulosic Biofuels: Analysis of Policy Issues for Congress. 

Congressional Research Service, November 7, 2008.

Collins, Keith. The New World of Biofuels: Implications for Agriculture. 

USDA, Office of the Chief Economist. Presentation at Energy Information 

Administration (EIA) Energy Outlook, Modeling, and Data Conference. 

March 28, 2007.

Covel, Simona. “Alternative-Energy Companies Grow Even as Others 

Falter. Inquiries, Sales and Funding Rise in Anticipation of New Regulations—and Spending—From Obama Administration,” Wall Street Journal, 

January 13, 2009. 

Ethanol Producer Magazine. Various issues.

Environment News Service. “Kansas Gets First U.S. Cellulosic Ethanol 

Plant,” August 28, 2007.

F.O. Licht’s World Ethanol & Biofuels Report. Various issues.

Foust, Thomas D., Andy Aden, Abhijit Dutta, and Steven Phillips. “An 

Economic and Environmental Comparison of a Biochemical and a Thermochemical Lignocellulosic Ethanol Conversion Processes,” Cellulose. 

Published online: June 10, 2009. 

Green Car Congress. “Novozymes, COFCO and Sinopec to Partner on Cellulosic Ethanol from Corn Stover in China,” February 2, 2009. Available at: 

http://www.greencarcongress.com/2009/02/novozymes-cofco.html 

Huber, George W., and Bruce E. Dale. “Grassoline: Biofuels Beyond Corn,” 

Scientific American. July 2009.

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Amberwaves/September09/Features/EthanolExpansion.htm
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There are three significant conversion pathways for producing next-generation 

biofuels: one biochemical—hydrolysis, and two thermochemical—gasification and pyrolysis. Each pathway involves the breaking down of biomass into 

intermediate compounds—sugars, syngas and bio oil—and then converting 

them into various fuels, primarily ethanol, but also biobutanol, and petroleumequivalent fuels. (See box, “Pathways to Renewable Fuels”). In some cases, 

a hybrid approach is used, combining both biochemical and thermochemical 

processes. While most next-generation companies are using or planning to use 

nonfood feedstocks, there are some that may use first-generation feedstocks, 

such as corn, sugar cane and sugar beets, for production of biobutanol and 

petroleum-equivalent fuels. The primary development focus for algae-based 

fuels is reducing the production costs of the algae feedstock. 

Biochemical pathways

Hydrolysis:

1 In this process, the biomass is physically or chemically 

pretreated to open up the structure and to separate the sugar-containing 

components, cellulose (6-carbon sugar) and hemicellulose (5-carbon), from 

the nonsugar lignin, the tough substance that gives rigidity to plant material. This makes two-thirds of the biomass, the cellulose and hemicellulose, 

Appendix:

Biochemical, Thermochemical Processes

and Algae Feedstock Development 

Characterize Next-Generation Biofuels

Pathways to renewable fuels

Ethanol

Biobutanol

Hydrocarbons

Source: Virent, 2010.

Biomass

Fermentation

Aqueous 

Phase 

Reforming

Hydrolysis Sugars

Pyrolysis Refining

Bio-oils

Liquid fuels

Gasoline

Jet fuel

Diesel

Chemicals 

Hydrogen

Fermentation

FischerTropsch

Catalysis

Gasification

Syngas

Diesel

Jet fuel

Ethanol

Methanol

Ethanol

1Hydrolysis is the decomposition of 

a compound by reaction with water 

(American Heritage Dictionary).
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more accessible for further chemical or biological treatment. Enzymatic or 

acid hydrolysis is then used to break down the cellulose into simple sugars. 

Companies are experimenting with different combinations of pretreatments, 

enzymes and acids to reduce processing costs. The sugars are fermented 

using yeast or bacteria to produce a dilute solution of ethanol that is then 

distilled to fuel-grade quality (95 percent or more ethanol), similar to the 

first-generation process. 

Biobutanol: Like ethanol, biobutanol is a product of fermentation but has 

a higher energy content. Microbes are genetically modified to produce an 

alcohol with a longer hydrocarbon chain (four versus two carbons) than 

ethanol, raising its energy content above that of ethanol and closer to gasoline 

(90 versus 67 percent). Being more similar to gasoline, biobutanol can be 

more easily blended with gasoline and transported by pipeline than ethanol. 

Bioengineered: One process under this category converts sugars (from either 

cellulosic sources or first-generation feedstocks like sugarcane and corn) 

using catalysts to produce hydrocarbons. Another replaces natural genes with 

synthetic ones in microorganisms that convert sugars, not into alcohols, but 

directly into diesel, gasoline, or jet fuel. One company is developing genetically engineered algae to convert CO2 directly into oil. The oil has similar 

structure to petroleum and can be refined into gasoline, diesel, and jet fuel.

Thermochemical pathways

Gasification: Biomass is heated to a high temperature (about 800 degrees C) 

with limited oxygen. The biomass breaks down into carbon monoxide (CO), 

hydrogen (H2) and carbon dioxide (CO2). CO and H2 are combined to form 

synthesis gas, or syngas, which is cleaned, cooled, and either metabolized by 

bacteria and converted to ethanol or used as a feedstock for Fischer-Tropsch 

synthesis,2 in which the syngas undergoes a catalytic reaction to produce 

liquid hydrocarbons of various types.

Pyrolysis: Biomass is heated to a lower temperature in the absence of oxygen 

to produce bio oil, biochar (like charcoal), and pyrolysis vapors. The bio oil 

is then refined to produce various petroleum-equivalent fuels.

Algae propagation and conversion

U.S. and foreign companies are developing ways to propagate special strains 

of algae in enclosed bioreactors (tubes, plastic bags, flat tanks) or in large open 

ponds. Algae have a potentially very high biofuel yield per acre (more than 

5,000 gallons per acre). The algae are fed carbon dioxide (CO2), in some cases 

from nearby heavy CO2 emitters like coal-powered plants, cement kilns, or 

breweries. The algae are separated from the water by centrifuge or other means 

and the oil is extracted using a solvent. The oil is then processed into biodiesel, 

using first-generation technology. 

Others

Hydroprocessing technology is used to convert animal fats and vegetable oils 

into a petroleum-equivalent fuel very similar to diesel. Catalytic depolymerization involves the breaking down of feedstock molecules more directly into 

biomass-based diesel.

2Fischer Tropsch is a process

developed by German scientists Franz 

Fischer and Hans Tropsch in the 1920s 

to convert coal to liquid fuel.