Cellulosic biomass is the most abundant potential source for 1G ethanol. Cellulose is a polysaccharide present in the lignocellulosic cell wall structures of plants compris­ing also hemicellulose and lignin (Fig. 4, 5, and 6). Cellulose needs to be extracted from the lignocellulosic structure by chemical digestion, to decrease its recalcitrance

Fig. 5 Chemical structure of cellulose; the glucose units are linked by 1,4-|3-D bond. Author Silvio Vaz Jr

due to the presence of lignin, followed by a hydrolysis to release glucose. The glucose can then be fermented by S. cerevisiae yeast to produce 2G ethanol (Oh et al. 2012).

Examples of lignocellulosic biomass are sugarcane bagasse and wood. Table 5 presents the chemical composition of some different lignocellulosic biomasses.

Eucalyptus, barley straw, and corn cobs are good feedstocks for 2G ethanol production because of their high cellulose content (52.7 %). Nevertheless, euca­lyptus has a high lignin content (31.9 %), which is a barrier for cellulose recovery; this is less of an issue for corn cobs (14.7 %). Other factors that also determine the best feedstock are economic factors, such as distance from the biomass to the industry, feedstock costs, and processing costs. Sugarcane bagasse is one of the most widely used feedstock to produce 2G ethanol, particularly in Brazil, where integration with 1G ethanol production from sugarcane via a biorefinery concept, can increase the profitability of the operation.

2 Analytical Techniques Applied to Biomass Chains

Biomass chains and industry typically require the use of chemical analyses that can process a large number of samples at a low cost. Such assays are not restricted only to manufacturing, but are also required in research and development (R&D). Figure 7 shows the common steps in a bioenergy chain from harvest of the bio­mass to formation of the desired products, chemical analyses may be necessary at all steps within this chain.

The quality of the biomass used determines the product quality. Therefore, reliable information is required about the chemical composition of the biomass to establish the best use (e. g., most suitable conversion process and its condi­tions), which will influence harvest and preparation steps. Conversion processes should be monitored for their yield, integrity, safety, and environmental impact. Effluent or residues should be monitored and analyzed for environmental control. Coproducts need to be monitored to avoid interference with the product yield and product purity; however, coproducts are also a good opportunity to add value to the biomass chain. Finally, products need to be monitored and analyzed to deter­mine their yields and purity and to ensure their quality relative to a recognized quality standard.

The execution of a chemical analysis follows a generic process that consists of (Atkinson 1982): (1) sampling; (2) separation; (3) detection (or measure); and (4) interpretation of results. Thus, before discussing the application of techniques, it is appropriate to consider these operations according to their status or involvement in the analysis. The location of analyte on the matrix (or inner surface) and the physical status of the sample (analyte plus matrix) defines the extraction technique used (partition, ion exchange, affinity, size exclusion filtration, etc.). The amount of sample, its purity, the type of information sought (atomic or molecular level) and its use (quantitative or qualitative) defines the detection technique. The analyte concentration has a direct influence on the techniques of extraction and detection.

As of today, it has been shown that it is scientifically and technically possible to derive the desired energy products from algae in the laboratory. The question lies, however, in whether it is a technology that merits the support and development to overcome existing scalability challenges and make it economically feasible (Mcgraw 2009). Additionally, the basic economic motivation for biofuels is that they are a convenient, low-priced, domestically producible, and a substitute for oil; an energy source that is getting costlier; and it is mostly imported from politically volatile regions (Castanheira and Silva 2010). Economic feasibility is believed to be currently the main hurdle to overcome for this technology. Current costs associ­ated to both the state of the science and technologies are sizeable and represent a main factor hampering development.

High costs often prevent the market diffusion of novel and efficient energy technologies. As microalgae biofuel is not a mature technology, it becomes important to provide a revision of technological innovation and diffusion aspects to enlighten some available options that may help overpass the barriers found by innovative technologies (Ribeiro and Silva 2013).

It is widely recognized that modern economic analysis of technological innova­tion originates fundamentally from the work of Schumpeter (1934), who stressed the existence of three necessary conditions for the successful deployment of a new tech­nology: invention, innovation, and diffusion. His seminal work has been constantly referred (Soderholm and Klaassen 2007), and each of the keywords represents differ­ent aspects; in particular, invention includes the conception of new ideas; innovation involves the development of new ideas into marketable products and processes; and diffusion, in which the new products and processes spread across the potential market.

Emergent technologies are relatively expensive at the point of market intro­duction but eventually become cheaper due to mechanisms such as learning-by­doing, technological innovation and/or optimization, and economies of scale. The combined effects of these mechanisms are commonly referred to as technological learning. Over the last decades, learning theories in combination with evolutionary economics have led to the innovation systems theory that expands the analysis of technological innovation, covering the entire innovation system in which a tech­nology is embedded. In particular, “an innovation system is thereby defined as the network of institutions and actors that directly affect rate and direction of techno­logical change in society” (Junginger et al. 2008).

In the emerging energy technologies field, there is a strong need to influence both the speed and the direction of the innovation and technological change. With that in mind, policy makers are putting their efforts on lowering the costs of renewable energy sources to support the development of renewable technologies, either through direct means such as government-sponsored research and devel­opment (R&D), or by enacting policies that support the production of renewable technologies. It is well documented (Johnstone et al. 2010; Popp 2002) that both higher-energy prices and changes in energy policies increase inventive activity on renewable energy technologies (Popp et al. 2011).

As noted by Popp et al. (2011), the higher costs of renewable energy technologies suggest that policy intervention is necessary to encourage investment. Otherwise, in the lack of public policy favoring the development of renewable energy, production costs remain too high and they do not represent an option in replacing fossil fuels.

Policies to foster innovation should not only focus on the creation and sup­ply of new technologies and innovations, but also on the diffusion and take-up of green innovations in the market place. Such policies need to be well designed to ensure that they support, do not distort the market formation, and should be aligned with competition policies and international commitments (OECD 2011).

With this purpose, several government policies have been introduced in the energy markets worldwide in an effort to reduce costs and accelerate the market penetration of renewables. Although the effectiveness of alternative policies to encourage innovation still needs to be tested empirically, it is expected that these policies will stimulate innovation in renewable energy (US DOE 2010).

In the next section, some of the policies that could enhance the development of microalgae biofuels are, therefore, revised.

As discussed in the sections above, the biochemical route seems to have better attrib­utes such as low cost and easy operation and can be operated in a smaller scale in the vicinity of feedstock production facilities. However, the major hurdle to the imple­mentation of the biochemical route in commercial scale is the pretreatment of the feedstock to produce sugars. In addition to pretreatment issue, fermentation of the pretreated hydrolyzate also remains a great challenge. The key objective of the lig — nocellulosic fermentation should be to use all of the sugars (C5 and C6) and convert them into biofuels. This could be achieved only by genetically modified microorgan­isms having additional pathways needed to convert C5 and other sugars into biofuels.

A detailed discussion of the technical hurdles w. r.t pretreatment process is pre­sented below.

1.3.1 Effect of Catalyst Loading

The data regarding effects of prepared catalysts at 623 K and 10 % loading on HDPE degradation into liquid, gas, residue, and waxy products yield are presented in Fig. 2 and Table 2. It is well noted that AlSBA-15 catalyst showed good degrada­tion activity to produce light hydrocarbon liquids while HZSM-5 catalysts having greater microporous surface area (Si/Al ratio 80 and 14) produced higher amounts of gaseous products. It is further explained that the primary cracking reactions might have occurred on the external surface which was in contact with the poly­mer. Meanwhile, the smaller fragments which were products of the initial reaction were mainly cracked within the microporous surface of the catalysts. However, the amount of coke was found to be lower as compared to the other degraded products.

In a previous study, Hwang et al. (2002) reported that the strong acid sites could accelerate cracking and deactivation reactions which resulted in the higher yield of coke as observed in case of prepared catalysts HZSM-5 and acid-treated SBA-15 in this study. Significant production of solid wax compounds using SBA-15 was also observed, and this could be due to insufficient number of acid sites in the material. Large wax formation after thermal degradation at the

Table 2 HDPE degradation-based product yield (%) by different catalysts

bottom of reactor could cause difficulty in the collection of other products such as liquid and gases. However, Mastral et al. (2006) reported that HZSM-5 pos­sessed an excellent stability that could effectively prevent the formation of coke due to its particular structure. Based on these findings, it could be concluded that the pore size, acidity, and shape are the important parameters that can affect the degradation activity of zeolitic catalysts. Similar findings have been reported by Hernandez et al. (2006) who observed that catalytic degradation using HZSM-5 yielded higher gas products during HDPE degradation. In another study con­ducted by Mastral et al. (2006) who carried out degradation process at different temperatures in a fluidized bed reactor, mesoporous materials such as SBA-15 did not show adequate degradation results. These observations confirmed our present findings as presented in Fig. 2. According to Urquieta et al. (2002), higher acidity in zeolitic catalysts might result in higher gaseous yield and a reduction in liquid yield. Again, the results confirmed findings made in this study.

The gas fraction compositions after HDPE degradation using different catalysts are shown in Fig. 3. It is noted that the catalysts HZSM-5(80) and HZSM-5 (14) exhibited the highest fraction for carbon chain C4 (37.1 and 30.2 %, respectively) and the lowest for carbon chain C5 (4.4 and 1.4 %, respectively). Meanwhile, SBA-15 and AlSBA-15 catalysts yielded the highest fraction for C3 (47.2 %) and C4 products. It should be noted that C1 products were not detected in the GC analysis. Both SBA-15 and AlSBA-15 catalysts produced more significant amount of C5 gaseous products (12.3 and 11.6 %, respectively). In the case of the mixture of HZSM-5 (80) and AlSBA-15 as catalyst, the gas carbon chain distribution was more uniform.

Findings and degradation trends using these catalysts for liquid product yield are shown in Fig. 4. The catalysts exhibited higher liquid products in favor of C8-Ci2, followed by Ci3-Ci6 and Ci7-C20. HZSM-5 (80) and HZSM-5(14) had

36.4 and 34.7 % liquid products, respectively, for C8-C12. Meanwhile, AlSBA-15 catalyst had the highest percentage of liquid products for C8-C12 (40.9 %). The pro­portion of liquid products for C13-C16 was also found to increase (37.3 %) when AlSBA-15 was used as catalyst instead of HZSM-5 catalysts as in the earlier case.

Lauro A. Ribeiro, Patricia Dias, Luis Felipe Nascimento and Patricia Pereira da Silva

Abstract Despite the challenges, depending on the local conditions and practices, renewable energy sources are already a significant contribution to the energy mix. Although this is true for electricity generation, the same does not apply for the trans­portation sector, where the available renewable sources are limited and still have a modest impact in the overall consumption. In this context, advanced biofuels such as microalgae are worldwide believed to be a better choice for achieving the goals of incorporating non-food-based biofuels into the biofuel market and overcoming land — use issues. Compared to other biofuel technologies, the most favorable factors for the cultivation of microalgae for the production of biofuels are they can be grown in brackish water and on non-fertile land, and the oil yield production is far supe­rior. Main challenges are currently the feasibility of large-scale commercialization, since the majority of economic and financial analyses rely on pilot-scale projects. Environmental issues are most likely to diverge opinions from experts. This chapter presents a review of microalgae cultivation (species, usage, processes, and culture) and biofuel production, highlighting advantages and challenges of algae biofuel.

L. A. Ribeiro (*)

School of Sciences and Technology, University of Coimbra and INESCC, R. Antero de Quental, 199, 3030-030 Coimbra, Portugal e-mail: lribeiro@inescc. pt

P. Dias • L. F. Nascimento

Management School, Federal University of Rio Grande do Sul, Av. Washington Luiz, 855, 90010-460 Porto Alegre, Brazil e-mail: patricia. dias@ufrgs. br

L. F. Nascimento

e-mail: nascimentolf@gmail. com

P. P. da Silva

School of Economics, University of Coimbra and INESCC, R. Antero de Quental, 199, 3030-030 Coimbra, Portugal e-mail: patsilva@fe. uc. pt

A. Domingos Padula et al. (eds.), Liquid Biofuels: Emergence, Development and Prospects, Lecture Notes in Energy 27, DOI: 10.1007/978-1-4471-6482-1_12, © Springer-Verlag London 2014

1 Introduction

Innovative technologies and sources of energy must be developed to replace fossil fuels and contribute to the reductions of emissions of greenhouse gases associated with their use. Biofuels are particularly important as an option by means of trans­portation that lack of other fuel options (especially trucks, ships, and aircrafts). However, alternative sources of biofuel derived from terrestrial crops such as sugarcane, soybeans, maize, and rapeseed impose pressure on food markets, con­tribute to water scarcity, and precipitate forest devastation. In this way, the sustain­ability of biofuels will depend on the development of viable, sustainable, advanced technologies that do not appear to be yet commercially viable.

In this perspective, algal biofuels are generating substantial awareness in many countries. In the United States, they may contribute to achieve the biofuel produc­tion targets set by the Energy Independence and Security Act of 2007. Likewise, in the European Union (EU), they may assist to the achievement of goals established in the recent Renewables Directive. In order to address the technical-economic barriers to the further development of this type of bioenergy, it is thus necessary to contribute with a study that incorporates biomass feedstock availability assess­ment, production, management, and harvesting in support of the upscaling of this promising technology.

Biodiesel and bioethanol are the two liquid biofuel options currently looked upon with more attention and under more vigorous development, since they can be used in today automobiles with little or no modifications of engines, for replac­ing diesel and gasoline, respectively. The Directive 2009/28/CE also targets the transportation sector fuels; in particular, each member state should reach a mini­mum 10 % share of renewable energy by 2020. Complementary, the Directive also states that this must be possible by using electricity and sustainable biofuels (i. e., based on a sustainable production). It also mentions that correct sustainability cri­teria should be adopted for biofuels, so that the rising world demand for biofuels does not destroy or damage land biodiversity and establish many others’ recom­mendations to ensure total sustainability of biofuels. An interesting point of this Directive is that, it recommends member states to incentive and support the use of biofuels that add supplementary diversifying benefits, such second — and third-gen­eration biofuels (e. g., biodiesel from microalgae or bioethanol from lignocellulosic materials). Some changes were recently proposed to the Directive 2009/28/CE (EC 2012), in particular dealing with the calculation of the carbon footprint, namely how to account for the ILUC (indirect land-use changes), and setting new goals deemed more adequate to promote the growing European biofuels industry.

In this context, the overall purpose of this literature review is to provide an inte­grated assessment of the potential of microalgae as a source to produce biofuels, while confronting it with competing emerging biofuel technologies. It is intended to provide a comprehensive state of the art technology summary for producing fuels and coproducts from algal feedstocks and to draw some insights into the fea­sibility and techno-economic challenges associated with scaling up of processes.

The most widely used analytical technologies for bioenergy chains are described

below:

• Titrimetry or volumetry determination of ions, especially by means of compl- exation reactions, neutralization or oxidation-reduction, resulting in the color change of the solution; this is the case of cation determination for feedstock and biofuels quality control (Artiga et al. 2005);

• Gravimetry determination of ions through complexation reactions, redox and precipitation, by means of drying and weighing the compound formed/ solid; this is the case of anion determination in effluent. For suspended sol­ids, it proceeds only to water evaporation and subsequent weighing of the solid

obtained. Gravimetry can be applied for feedstock and biofuels quality control (Seixo et al. 2004);

• Thermal analysis determining the water content and ash, loss of mass for con­stituents versus temperature, thermal stability, among other parameters asso­ciated with temperature effects on the material: thermal gravimetric analysis (TGA) and differential scanning calorimetry (DSC)—can be applied for pro­cesses, feedstock, and biofuels quality control (Kanaujia et al. 2013);

• Electrochemical the determination of metal oxidation states, quantification of organic and inorganic compounds, polar contaminants in effluents or products: potentiometry, voltammetry, polarography, and amperometry—can be applied for quality control of biofuels (Takeuchi 2007);

• Chromatography (liquid and gas) identification and quantification of organic compounds (volatile, semi-volatile, and nonvolatile) and inorganic, polar, and non­polar, such as sugars from sugarcane or starch, and its products of conversion pro­cesses: high performance liquid chromatography (HPLC) or ultra-high performance liquid chromatography (UPLC) with refractive index, ultraviolet-visible, diode array, fluorescence, mass spectrometry, and light scattering detectors; gas chroma­tography (CG) with flame ionization, thermal conductivity, electron conductivity, and mass spectrometry detectors—can be applied for feedstock, processes monitor­ing, and quality control of biofuels (Mischnick and Momcilovic 2010);

• Spectroscopy and spectrometry identification and quantification of organic and inorganic compounds, polar and nonpolar, such as metals and by-products in bio­fuel synthesis, by means of radiation interaction or radiation production: nuclear magnetic resonance, Fourier transform infrared, X-ray diffractometry and fluo­rescence, ultraviolet and visible spectrophotometry, atomic absorption spectrom­etry (AAS), optical emission spectrometry—can be applied for feedstock, process monitoring, and quality control of biofuels (Shuo and Aita 2013; Orts et al. 2008);

• Mass spectrometry identification and quantification of organic compounds, by means of molecular fragmentation—can be applied for process monitoring, to verify the product purity, and for metabolic engineering approaches of microor­ganisms (Orts et al. 2008; Jang et al. 2012);

• Microscopy (e. g., scanning electron microscopy, transmission electron micros­copy, and atomic force microscopy): observation of surface atomic composition and disposition of biomass components (morphology)—are frequently used for natural polymers and fibers (Hu 2008).

Table 6 presents some general uses of analytical techniques in chemical analysis of biomass for liquid biofuels production.

It is generally desirable to apply the highest possible number of techniques to obtain the greatest amount of information about a biomass. For example: Sugarcane could be analyzed by HPLC-refractive index detector to determine the sugar content, its molecular characteristics could be characterized by near-infra­red spectroscopy, and its energy content by differential scanning calorimetry. This same analytical approach could be applied to an oil crop for biodiesel production: GC-flame ionization detector for content of fat acids and esters in is grains; near­infrared spectroscopy for molecular characteristics, and differential scanning calo­rimetry for energy content.

Impressive biofuel support policies have in recent times been adopted in both the USA (with projected production of 60 billion liters of second-generation biofuel by 2022) and the European Union (with 10 % renewable energy in the transport sector by 2020). Due to the magnitude of the two markets and their sizeable biofuel imports, the US and EU mandates could become an important driver for the global development of advanced biofuels, since current scenarios from the International Energy Agency (IEA) evidence a shortfall in domestic production in both the US and EU that would need to be met with imports (US DOE 2010; EU 2010).

Although algae biofuels are not yet fully competitive in the biofuel market, many venture capital firms had made recent investments in algae fuel ventures (Oligae 2010). Accordingly, a set of policies to assist the development of microal­gae technology is being created and constantly improved. These policy incentives aim at increasing renewable energy deployment, in latu sensu, and subsequently will promote development in the algae industry.

In this context, the US Department of Energy published on May 2010 impor­tant information for the US policy trends in the “National Algal Biofuels Technology Roadmap” (US DOE 2010). This document represents the output of the National Algal Biofuels Workshop held in Maryland in 2008 and was intended to provide a comprehensive road map report that summarizes the state of algae biofuels technology and documents the techno-economic challenges that have to be met and taken into account before algal biofuel can be produced commercially.

Afterward, the US Environmental Protection Agency (U. S. EPA) suggested revisions to the National Renewable Fuel Standard program (RFS). The proposed changes intended to address changes to the RFS program as required by the Energy Independence and Security Act of 2007 (EISA). The revised statutory requirements establish new specific volume standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel that must be used in transporta­tion fuel each year. The regulatory requirements for RFS will apply to domestic and foreign producers, and importers of renewable fuel (US EPA 2013).

While cellulosic ethanol is expected to play a large role in meeting the 2007 American Energy Independence and Security Act (EISA) goals, a number of next-gen­eration biofuels show significant promise in helping to achieve the 21 billion gallon goal. Of these candidates, biofuels derived from algae, particularly microalgae, have the potential to help the US meet the new renewable fuels standard (RFS) while at the same time moving the nation ever closer to energy independence (US DOE 2010).

To accelerate the deployment of biofuels produced from algae, the American President Obama and the US Secretary of Energy Steven Chu announced on May 5, 2009, the investment of US $800 Millions on new research on biofuels in the American Recovery and Renewal Act (ARRA). This announcement included funds for the Department of Energy Biomass Program to invest in the research, development, and deployment of commercial algal biofuel processes (US EPA 2013). The funding will focus on algal biofuels research and development to make it competitive with traditional fossil fuels as well as the creation of a smooth tran­sition to advanced biofuels that use current infrastructure.

Meanwhile, in order to promote the use of energy from renewable sources, the European Parliament published on April 2009, the Directive 2009/28/EC, which estab­lishes a common framework for the promotion of energy from renewable sources, as well as it establishes sustainability criteria for biofuels and bioliquids (EU 2009).

By the end of 2010, a communication from the European Parliament has set the strategy for a competitive, sustainable, and secure energy future by 2020. The stra­tegic energy technology (SET) plan sets out a medium-term strategy valid across all sectors. Yet, development and demonstration projects for the main technologies (e. g., second generation biofuels) must be speeded up (EU 2010). The European SET plan lists several energy technologies, which will be required to bring together economic growth and a vision of a decarbonized society. It states that advanced biofuels, namely microalgae, are supposed to play a significant role. EU energy policy aims to represent a green “new deal,” which will hopefully enhance the com­petitiveness of EU industry in an increasingly carbon-constrained world. However, in our dataset, it was possible to include only three European studies. In the forth­coming years, it is expected a rise in the volume of European available data, due to both the strong European transport energy policy drivers and scenarios made avail­able by the IEA regarding Energy Technologies Perspectives 2010. In this sense, incentives and targets are to be met as well as the witnessing of a higher prolifera­tion of pilot-stage algae installations in this highly oil-dependent continent.

Since 2008, the Brazilian ethanol market has shown a growing gap between the effective supply and the potential demand for this product. The ethanol demand is being vigorously stimulated by the flexible-fuel vehicles market, which totaled 20 million units in 2013 (ANFAVEA 2013); this total represents approximately 60 % of the vehicles in Brazil. Unfortunately, the capacity to produce ethanol in Brazil was not able to follow this growth. With the increase in ethanol demand and a corresponding supply reduction, it is essential to consider that there is an opti­mal point for the consumer’s decision about using ethanol or gasoline in vehicles. Currently, for Brazilian consumers using ethanol is only viable when the price of it is at least 70 % of the gasoline price, due to the differences in the efficiency of gasoline and ethanol, which is popularly called the 70 % ratio.

According to the data shown in Fig. 6, whereas in 2008 27.1 billion liters of ethanol were produced, in 2013 it is estimated that approximately 23.4 billion lit­ers will be produced, which represents a decrease of 13.6 %. In contrast, sugar production in 2008 was 31.5 million tons, but in 2013 its estimate is 38.3 million tons, which indicates an increase of 21.5 %.

2008 2009 2010 2011

Sugarcane —•— Sugar Ethanol production

Fig. 6 The production of sugarcane, ethanol, and sugar in Brazil from 2008 to 2012. Source UDOP (2013)

Because the production areas for sugarcane remain stable, the supply of ethanol in Brazil is mainly dependent on the price of sugar in the international market, which interferes with the production process (Fig. 6).

Unlike the ethanol supply, biodiesel has several raw material substitutes, as it is not dependent on only one source of feedstock. Among the sources used for production, we can mention beef and pork fat, used cooking oil, cottonseed oil, jatrophas, canolas, castor beans, and soybean oil. With the variety of options of raw material for biodiesel production, Brazil has anticipated an increase in the ratio of biodiesel in its diesel mix.

The demand for biodiesel is now fixed at 5 % in relation to the total diesel con­sumption, which was 2.7 million cubic meters in 2012. However, the installed industrial capacity for biodiesel production can produce double what is actually processed, or 500,000 m3 per month. Therefore, it is estimated that by 2015, bio­diesel consumption will increase by 10 % and the demand will expand by 50 %.

Figure 7 shows the occupancy rate data for biodiesel plants in Brazil. Note that because there is an idle installed capacity in the regulatory period and throughout the series, the actual production is below than 50 % processing capacity.

Nevertheless, one of the constraints of the biofuels supply in Brazil is the con­centration of production. According to ANP, it is estimated that the Brazilian mid­west region represents 43 % of the total production of biodiesel, and the southern region represents 34 % of the national production. Therefore, when this combined percentage (77 %) is analyzed, a concentration on production is found in these regions, whereas in Brazil’s north and northeast regions, there is a high rate of idleness of the biofuel facilities due to the climate and agriculture characteristics in those regions, as well as a disruption of the supply chain.

This pattern of disruptions has a direct impact on the final price of biodiesel, as the logistics support in the biofuel chain extends from the primary source of the agri­cultural inputs to the delivery of biofuel to distributors at the point of consumption or in ports. The price of transportation has a significant impact on the total price, and therefore, the locations farthest from the production center have higher sales prices.

Biodiesel prices are different in each Federal Brazilian state, which is especially due to the logistical costs for transferring it, primary and secondary warehousing costs, and final distribution costs. In this context, it is clear that there are different price rela­tionships between ethanol/gasoline and diesel (Goldemberg 2007) in different areas.

The domestic market for biodiesel is made through auctions. Therefore, a nearer biodiesel refinery for feedstock production decreases the price of the prod­uct and thereby increases the local competitiveness of biodiesel.

Government strategies to encourage a regular supply and increase the com­petitiveness of biodiesel in distant regions are conducted primarily through tax incentives. This policy mainly covers disadvantaged regions, as it seeks to include family farmers in biodiesel production.

Currently, ethanol production in the USA is stimulated by mandates set by the US EPA. Renewable Fuel Standard (RFS2) creates requirements which oblige fuel blenders to mix ethanol into fuel blends. In our analysis, first, we make a projec­tion of future volume of ethanol production with mandates in place until 2040. Then, we observe how these volumes change once market penetration costs are removed. This endeavor helps us in understanding how adjustments in current fuel distribution network and car fleet could influence total amount of ethanol produced and sold in the USA. Second, we look at the projected amount of ethanol pro­duced under situation with no mandates in place. That investigation provides us with projection of possible ethanol production should the US EPA decide to waive all renewable fuel mandates. Again, we look how these estimated amounts are impacted by removal of ethanol market penetration barriers.

Our next steps include examination of changes in volume of ethanol produced as a response to increasing CO2e prices. By doing this, we are able to see what level of CO2e price stimulates higher volumes of ethanol production, and we can verify at which CO2e price ethanol production reaches volumes mandated by the RFS2. We repeat the same exercise for two cases: first one with a market situation with no mandates in place but with market penetration barriers present, second one with no mandates and no market penetration barriers. In our analysis, we assume that the presence of carbon trading markets is a substitute for the EPA mandates because car­bon trading mechanism is supposed to provide incentives similar to standard quantity requirements. Therefore, we do not examine the impact of changes in CO2e prices on the volume of ethanol produced when the EPA mandates hold. At the end, we compare CO2e price effect on ethanol produced under two scenarios: with and without mar­ket penetration barriers in place in order to look at the magnitude of impact of mar­ket penetration removal on total ethanol produced in the USA. All in all, the outcomes of these scenarios provide enough information for decision makers to assess potential benefits which could arise from introduction of carbon pricing and trading mecha­nisms as well as positive environmental and economic consequences from removing market penetration barriers. Finally, we look at the impact of technological progress on volume of ethanol produced. We investigate how decrease in processing costs of cellu — losic ethanol influences quantity of crop and cellulosic ethanol produced at three points of time (i. e., 2020, 2030 and 2040). By doing this, we attempt to quantify the level of processing cost decrease necessary for ethanol production to become cost competitive.

Biofuels are expected to enhance sustainability and minimize GHG emissions. The argument in favour of biofuels with respect to reducing emissions is that biofu­els, especially cellulosic-based biofuels, emit much less carbon dioxide than con­ventional petroleum fuels. Yet there are many economic issues that currently work against these interests, these being (1) the high production costs of biofuels, partic­ularly advanced (second-generation onwards) biofuels and (2) the comparatively low conventional fuel prices that do not yet internalize the cost of GHG emissions associated with its extraction, production and combustion. This section provides an insight into the economic issues relating to shifting towards a biofuel regime that intends to realize GHG abatement goals.

As discussed earlier in Sect. 3, the production costs of biofuels, except for sugarcane-based bioethanol produced in Brazil, are much higher than those of fossil fuels (IEA 2007; UN 2008). Furthermore, the substitution of fossil fuels with first-generation biofuels raises concerns with respect to social and ecologi­cal sustainability, and also the scope to reduce net GHG emissions (Searchinger et al. 2009). Advanced biofuels could overcome the disadvantages associated with first-generation biofuels, but they are yet to be produced en masse. The technolo­gies employed for advance biofuel work very well at a laboratory scale, but the most significant challenge is to find ways to produce these biofuels at a commer­cial scale, and at a competitive price (EMBO 2009). The EMBO report added that biofuel companies are often too optimistic with their biofuel plans given that they tend to look at projected production costs based on the availability of mature tech­nology at commercially feasible prices.

Let us consider the case of Shell and its advanced biofuels projects. In 2008, Shell was working on ten such projects, most of which have now been shut down (Shell 2013). Furthermore, none of those that remain is ready for commercializa­tion. Shell has admitted that bringing these biofuels to the market will take longer time than expected (Economist, 2013). Acknowledging the issues of producing advanced biofuels at a competitive price, and consequently the limited incentive for biofuel producers, the United States Environmental Protection Agency (EPA) revised its target for cellulosic biofuels from about 76 million litres between 2010 and 2012 to 53 million litres for 2013 (IEC 2013). The two potential drivers of a truly sustainable biofuel regime thus appear to be the following: (1) an increase in the price of fossil fuels as we move towards a post-peak oil period, or as conven­tional fuel becomes depleted and the cost of extracting unconventional fuel (from oil sands or shale) becomes uneconomical and (2) the potential decrease in the costs of biofuel production (mainly advanced) as technology slowly matures.

First, we discuss the likelihood of the former, i. e. an increase in the price of fossil fuels. Since the golden age of oil discovery in the 1950s and 1960s (Fleay 1995), the rate of oil consumption has risen steeply (Grant 2007; Leder and Shapiro 2008). Kilsby (2005) reported that the world is consuming oil four times faster than the rate at which it finds new petroleum sources. Although the quantity of world’s oil reserves and the end of the fossil fuel age are highly debat­able (Hirsch 2005; Leder and Shapiro 2008), there is little doubt that this point will eventually be reached. This does not mean that the stock of fossil fuels will run out; rather, ‘cheap oil’ will certainly come to an end (Kilsby 2005). To illus­trate, let us look at the post-peak oil period, when oil reserves and overall supply begin to shrink. In the face of rising demand, this situation would create a sub­stantial imbalance between oil supply and demand (Grant 2007), and the price of oil would rise rapidly as a consequence (Hirsch 2005; Leder and Shapiro 2008). Furthermore, as the world’s stocks of fossil fuels decrease, exploration and extrac­tion activities of the remaining reserves will become increasingly uneconomical, while the energy costs associated with doing so will also rise (Hall et al. 2008; Bardi 2009). These costs could conceivably push the oil price high enough to ena­ble the global biofuel market to evolve sustainably. From an economic perspective, one of three possibilities may occur: (1) oil is the only source of energy supplied in the economy when the price of oil is lower than the price of backstop energy; (2) both oil and backstop energy are supplied in the economy when the price of backstop energy becomes competitive vis-a-vis the price of oil; or (3) backstop energy dominates energy supply in the economy when backstop energy tech­nologies mature and the price of oil is high. At present, with pro-biofuel policies favouring first-generation biofuels, we are experiencing the case of both fossil and subsidized biofuels being supplied in the market.

The second potential driver is the technological advances in the production of advanced biofuels, such as cellulosic-based biofuels. The three main technological conversion pathways for cellulosic biofuel production are selective thermal process­ing, hydrolysis and gasification (Baker and Keisler 2011; Bosetti et al. 2012). Each of these pathways consists of two major steps. The first step involves breaking down the biomass into an intermediate product consisting of simpler substances, while the second step involves processing the same intermediate product into a commercial fuel. The technologies involved in the latter process, such as biooil and biocrude refining, are similar to those used in fossil oil refining. These technologies are relatively mature compared to the technologies involved in the first step. Fischer- Tropsch is worth mentioning here as it is one of the most cost-effective and estab­lished technologies used in the second step. The overall cost efficiency of cellulosic biofuels therefore mainly depends on technological advances for the first step of primary biomass conversion, in particular gasification and hydrolysis (Mandil and Shihab-Eldin 2010; Bosetti et al. 2012). With growing public and private funding towards research and development of advanced biofuels, these technologies are expected to mature by 2030 (Bosetti et al. 2012). Future projected costs (USD/lge) for these technological paths are summarized in the following Table 4, where it is assumed that the feedstock used is switchgrass costing USD 70/tonne.

Given that the increasing demand for biofuels cannot fully be met by first — generation biofuels derived from food crops, the market for advanced biofuels seems to be large enough to accelerate the development and commercialization of advanced biofuel technologies. At present, most of the market demand for biofuels is policy driven. For example, the recently introduced Renewable Fuel Standard 2

(RFS2) in the United States and the Renewable Energy Directive (RED) in the EU both require a reduction in GHGs emission by at least 20-35 %. This can only be achieved by increasing the share of advanced biofuels, which, in turn, creates sig­nificant demand for these fuels. Furthermore, demand comes from industries pur­suing an interest in biofuels for enhancing a socially responsible image, or because they recognize that their business will need to shift to a cost-effective renewable fuel in the future if it is to survive. For example, the US Navy has announced that it wants to source half its nonnuclear fuel from renewables by 2020 (DofNavy 2010), and particularly advanced biofuels, since these avoid the controversial food-versus-fuel issue. Likewise, major commercial airlines (e. g. United, British Airways, Lufthansa and Qantas) that are aiming to become carbon neutral by 2020 have expressed their interest in including cellulosic biofuels within their fuel mix. With the increasing costs of conventional jet fuels owing to the implementation of carbon taxes (e. g. Australia’s carbon tax requires airlines to pay more than AUD 20 per emitted ton of carbon) and increasingly stringent climate change regulatory policies around the world, the airline industry sees renewable energy as a key to its continuing growth (Qantas 2013; IFPEN n. d.).

Despite the market potential discussed above, a neoliberal approach, where only market forces prevail, will not allow advanced biofuels to reach sufficient global market penetration at the required level so as to meaningfully combat GHG emissions from the transport sector. This is because it is unlikely that conventional fuels will ever be priced—at least in the immediate future—at a level that internal­izes all external costs, including the cost of GHG emissions associated with their extraction, production and combustion. It is therefore desirable that some form of government intervention takes place so as to ensure the growth of the biofuel industry, particularly if the projected GHG emission reductions are to be realized at a lower cost than would be the case in a business-as-usual scenario.

Thus, an increased adoption of biofuels at a global level will largely depend on the position that governments take on the trade-off between the environmental and economic justification of biofuels, more so given that current pro-biofuel policies are claimed to be very costly and have a negligible net effects on emissions. For example, taking the US biofuel market into consideration, Jaeger and Egelkraut (2011) found the then approach to be 14-31 times more costly than alternatives such as increasing the gasoline tax or promoting energy efficiency improvements.

In addition, RFS2 and RED have sparked a debate over their effectiveness in reducing GHG emissions owing to potential ‘carbon leakage’ that may occur in other sectors and countries not covered by the same sustainability standards. For example, these standards would provide incentives to bioethanol producers to use relatively clean inputs (e. g. natural gas), while the dirtier inputs (e. g. coal) that might otherwise have been used are shifted to other uses not covered by the sus­tainability standards. Carbon leakage also happens at an international level when Indonesia exports sustainable biodiesel and consumes unsustainable biodiesel at home, or when the United States purchases Brazilian bioethanol to comply with its RFS2, while Brazil imports emission-intensive corn-based ethanol from the United States that does not meet RFS2. Significant volumes of bilateral trade of bioethanol between the United States and Brazil driven by their different biofuel policies have been seen in recent years, but no global changes to emissions were achieved (de Gorter and Just 2010; Meyer et al. 2013).

In the end, of course, the two potential drivers signalled above will have a more important role. In other words, for advanced biofuels to be sustainable in the long term, they will need to be economically competitive vis-a-vis conventional fossil fuels without government subsidies, especially if one takes into account an appro­priate credit allocation for emissions reduction. When the above two driving forces become more entrenched, partially as a result of strategic government intervention, the biofuel industry will be ready to operate independently and according to the precepts of free-market economics.