The environmental impacts of biofuel crops vary considerably. Among the first — generation feedstocks (e. g. sugar cane, sugar beet, maize, cassava, wheat, oil palm, rapeseed and soya bean), some absorb more CO2 than they release. But the wider environmental costs may still be greater than the benefits. For example, rapeseed offers relatively little benefit in terms of CO2 emissions and energy dependency when its impact on land and soil is taken into account (Russi 2008). Doubts have also been raised about staple food crops. Maize, in particular, has been regarded as not producing a worthwhile amount of energy when all the inputs are taken into con­sideration (IEA 2007). That said, it is one of the more efficient (others are wheat, sugar cane and sugar beet) biofuel crops in terms of reducing in CO2 emissions. On the contrary, the production of soya bean-based biodiesel releases substantial CO2, but has been pushed in the USA in recent years when other forms of oil-rich biomass are regarded as more environment friendly for biodiesel production (Pahl 2005).

Second-generation biofuel crops such as switchgrass, alfalfa, reed canary grass, Napier grass and Bermuda grass, which are mostly perennial, have fewer environmental impacts than first-generation crops. This is because the lower fertilizer input and less-intensive farming practices that these crops require help with respect to achieving greater reductions in GHG emissions (Karp and Richter 2011). In comparison with annual crops, perennial crops can have a positive effect on environmental quality and biodiversity (Sanderson and Adler 2008). In addition, as new technologies and processes for biomass production continue to mature and lead to the commercialization of second-generation biofuels, these biocrops are likely to revolutionize the biofuel industry (Ragauskas et al. 2006). Nevertheless, the environmental costs of biofuel feedstock are mostly viewed by biofuel proponents as either insignificant because of the limited economic and ecological value of existing vegetation and land uses, or worth bearing on account of the expected future benefits (MAPA 2006).

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.

In Europe, most of the biofuel used in transportation is essentially sourced from biodiesel, which accounts for 78.2 % of the total energy content (10.9 mil­lion tons in 2011), as opposed to 21 % for bioethanol (2.9 million tons in 2011) (EurObserv’ER 2012).

Compared to USA and Brazil, and also to the European biodiesel sector, the EU fuel alcohol sector is rather small. Nowadays, the monthly production in USA is higher than the EU production per year. In 2008, a record in terms of imports in EU was registered. Total imports of bioethanol (fuel and non-fuel) are estimated to have reached 1.9 billion liters (increasing by 400 million compared to 2007), most of which (between 1.4 and 1.5 billion liters) came from Brazil (ePURE) (Shikida 2002; Ferreira Filho and Horridge 2009).

The EU is the world major player in biodiesel production with a share of 57 % of total world production in 2009. In the same year, biodiesel represented about 73 % of total biofuels produced in Europe (Biofuels-platform 2012).The European 2 Indirect land-use change (ILUC) can occur when land currently cropped for non-energy pro­duction is diverted for biofuel feedstock cultivation. The diverted crops must then be compen­sated for by converting other natural land, usually native systems (Ravindranath et al. 2009). Direct land-use change (dLUC) occurs when additional cropland is made available through the conversion of native ecosystems such as peatlands, forests, and grasslands, as well as by return­ing fallow or abandoned croplands into production. Particularly, when virgin land, such as rain­forest or peatland, is converted to agricultural land, the initial induced carbon losses can only be compensated after many decades of biofuels production (Ravindranath et al. 2009).

biodiesel industry consolidates its position at an international level despite a lower increase in its growth rate of production in 2010 when compared to previous years. For example, with a 9.5 million tons of biodiesel produced in 2010, EU bio­diesel production registered an increase of 5.5 % on the basis of the previous year. However, that stands below the increase in production of 17 % registered in 2009 and in the previous years (35 % in 2008). In 2011, the production decreased by 10 % when compared to 2010 (Fig. 5).

Currently, the production capacity of European biodiesel has reached approximately 22 million tons. The number of existing biodiesel facilities in July 2011 was 254 with a slight increase compared to 2009 due to the start of a few new production units (EBB 2011). This strong industrial basis is the result of considerable investments in biodiesel production planned before 2007. These investments are in reliance to the ambitious objectives for biofuels consumption given by EU authorities (EBB 2010). In 2011, Germany and France remained by far the leading biodiesel producing nations, while Spain confirmed its position of the third European biodiesel producer, ahead of Italy.

Within the EU, the first four largest biodiesel-producing member states that account for two-thirds of total production are Germany (33 % of total European pro­duction), followed by France (18 %), Spain (7 %), and Italy (5.6 %) (EBB 2013). Table 6 shows the biodiesel production and consumption of the countries of EU.

According to the European Biodiesel Board, in the first two-quarters of 2011, for the first time, the entire European production slightly decreased. Increased imports from third countries such as Argentina, Indonesia, and North America are mostly likely to have contributed to lessen European domestic production.

According to the EurObserv’ER (2012), biofuels consumption in transport con­tinued to increase in the UE at a slower pace though. It should stabilize at around 13.9 Mtoe in 2011 compared to 13.6 Mtoe of consumption in 2010. Thus, growth was only 2.7 % between 2010 and 2011, down from 13.9 % between 2009 and 2010, 24.6 % between 2008 and 2009, and 41.7 % between 2007 and 2008.

The biofuel market is very geographically concentrated, with a limited number of member states (Germany, France, Spain, Italy, UK, and Poland) representing over 78 % of EU-27 consumption.

The EU is the world’s largest biodiesel producer, consumer, and importer. The shift from tax incentives to mandates across Europe has been one of the key rea­sons for the growing amount of biodiesel imports. This shift can be attributed to a previous loss in fuel tax revenues for member states, causing a reduction of tax exemptions and compensation via mandates. Without tax exemptions, biodiesel was not price competitive against fossil diesel, even though the price of fossil

diesel increased. Under a mandate, fuel suppliers tend to opt for blending low-cost biofuels causing the increase of biodiesel imports (Ecofys 2011).

Imported biofuels in the EU come from a range of countries, with considerable changes in the list of countries from which the EU imported biofuels year by year, thus reflecting the impact that EU tariff preferences can have on such imports. This is demonstrated in Table 7 that depicts changes in EU biodiesel imports from 2008 to 2010 (European Commission, SEC 130 2011).

Looking at the trade volumes, in 2010, Argentina and Indonesia were the main exporters. The imports from USA and Canada reduced considerably regarding the previous years due to the application of the EU anti-dumping and countervailing duties for biodiesel.

The manner in which the economic stakeholders conduct their activities has increasingly distanced from the neoclassical conception, where the price system coordinates the markets. The new institutional economics (NIE) has for decades strived to demonstrate how the functioning of economics is influenced not only by economic and social institutions, but also by how the economic actors adapt to form governances or coordinate negotiations (Zylbersztajn 2005). In other words, formal and informal institutions strive to understand the processes in order to obtain efficiency in the business markets, including individual actions to coordi­nate business affairs in each market.

In the article “The nature of the firm,” Coase (1937), a researcher at NIE, pre­sents a firm as another area of resource allocation. Several works of Coase evi­dence the constant concern with the negotiations faced by a firm, pointing to specific interest on transaction costs (TCs) as a real barrier to market efficiency. Thus, if the company is a complex transaction unit, it is because the market and the overall business integration are not the only institutions that define economic efficiency, thus having to pay attention to the formal and informal agreements.

The ideas of Coase (1937) represented a step forward for economic studies, since until then the firm was known as a production function where inputs were transformed into end products. In the neoclassical view, the firm was an optimiz­ing entity, totally indifferent to its internal structure and its determining environ­ment, with the exception of prices.

According to the author, setting up the firm, represented by a set of agreements governing internal transactions, takes place because of the costs the actors to use in the price mechanism to organize production, given that this cost is related to discovering the relevance of the prices.

Thus, selecting the coordination mechanism to be used (firm or market) depends on the costs incurred, that is, the costs of discovering the prices prevailing in the mar­ket (information collection), the negotiation costs, setting up a contract, and the costs necessary to carry out inspections to ensure that the terms of the contract are met. The author designated these costs as TCs, thus explaining the existence of the firms.

The transaction concept is defined by Williamson (1993) as the transformation of an asset transferred across technologically separable interfaces. Zylbersztajn (1995) considers transactions as exchanges of property rights associated with goods or services.

“When people realize that what they want is more valuable than what they have (…)” (Barzel 1982, p. 27), transactions take place at any point of time and in any place.

However, as these transactions can take on a variety of forms, a completely sys­tematized framework is necessary to meet the objectives of such transactions. It is within this context that the institutions’ significance expands in order to enable coordinating the economic transactions, showing the limits of traditional analysis models and driving forward studies on transaction cost economics (TCE), the best known topic of NIE. Transactions, according to these approaches, will always be analyzed in a dual mode, which is the two agents under negotiation, the one that buys and the one that sells.

The theoretical framework of NIES deepens on the general concept of the firm, now as a set of agreements directing the internal transactions, rendering their anal­ysis more complex since it considers that the economic agents interact not only to reduce the production costs, as proclaimed by the orthodox economy, but also the costs related to the transactions.

According to Williamson (1975), TC can be defined as costs related to the mechanisms involved in the economic transaction, which are the negotiation costs, to obtain information, monitor performance along the chain, and ensure compli­ance with the agreements and also with recurring agreements. Thus, by includ­ing TC in the microeconomics analysis of the firm and of the markets, a series of costly procedures are considered before and after the negotiation, rendering a more complex nature to the business in terms of economic decisions. While the orthodox economic theory focuses on the process of determining the optimal allo­cation of resources by businessmen allegedly endowed with full rationality at deci­sion times, the objective of NIE is to identify the entrepreneurs’ best coordination method for their economic transactions in environments of uncertainty and, there­fore, the limiting forces for decision making (limited rationality). Thus, TCs are different from production costs as they depict how relationships are processed and not the technology used in a specific productive process. By breaking away from neoclassical economics, the individual preconized by NIE is not the same individ­ual as that of mainstream economy. “Homo economicus,” typified by a rational person with full information to maximize decision making for neoclassicism, is now defined by limited rationality and opportunism in an environment character­ized by uncertainty.

The concept of limited rationality was introduced as an important element of NIE by Williamson (1975) and preconized by Simon (1978). Richter (2001) and North (1990) refer to the individual’s cognitive limitations, who is not able to always be a maximizer despite wanting to be. Not much more can be added to this aspect since it is an unchallenged human condition. The mental shortcuts routinely used by economic agents for their market decisions are the first arguments for the problem of not achieving maximizing profits.

The theoretical framework of NIE discusses the role of institutions in two dif­ferent analytical levels: macroinstitutional and microinstitutional.

The part of NIE concerned with the relationship between institutions and eco­nomic development was the macroinstitutional type. From a macroanalytical point of view, the relationship of the institutional environment studied is composed of the economic, social, and political interactions and the individuals in a society. Thus, the importance of formal and informal rules and property rights is addressed by its contribution to the efficiency of the system.

As for the microanalytic type, focused on in this chapter, it addresses the under­standing of the rules governing specific transactions. Accordingly, TCE seeks to understand what factors drive up TCs and what mechanisms could be used to reduce them.

TCE enables to intensify the firm, now seen as a set of internal transactions governed by a set of contracts. This renders their analysis more complex, because the agents’ relationship is not only to reduce operating costs—as proclaimed by classical economics—but also to reduce TC—as suggested by NIE (Bonfim 2011).

TCE assumes that the question of economic organization is first of all a prob­lem of governance. Hence, it seeks to explain the different organizational forms that exist in the market and their contractual arrangements, highlighting the insti­tutional environment and its interaction with the organizations.

Williamson (1985), by proposing the firm as a governance structure of transac­tions, can determine if it will be a specific contract from a perfect market rela­tionship, if it will prefer a mixed form or if it will define the need for vertical integration, from the principles that minimize production costs (covered by neo­classical economics), added to the TC. For analytical purposes, the author pro­poses three basic governance forms, namely: [12]

Williamson (1991a, b) clarifies that hierarchy, market, and the hybrid form resulting from the combination of the former two are generic forms of economic organization. They are differentiated by their coordination and control mecha­nisms and their ability to respond to changes in the environment. Thus, the firm’s choice for governance structure—hierarchy, market, or intermediate form—will depend on the nature of the transactions. Williamson (1985) identifies three key attributes in transactions, determining the variation of TCs, namely frequency, uncertainty, and asset specificity.

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.

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.

First-generation biofuels are relatively cheaper to produce than advanced biofuels (second-generation biofuels and beyond), but they still cost more than equivalent fossil fuels, and are also problematic from a sustainability perspective, as discussed in chapter “Environmental Issues in the Liquid Biofuels Industry”. Although advanced biofuels could address the latter issue, commercial production is yet to commence because of the higher start-up and operational costs associated with these production processes. This section will provide a comparison of the produc­tion costs of biofuels vis-a-vis fossil fuels.

The feedstock for first-generation biofuels, i. e. edible crops, accounts for nearly 55-70 % of the total production cost (IEA 2008). As a result, first-generation bio­fuels, in general, are unable to compete effectively with fossil fuels (UN 2008), particularly when government subsidies and other incentives are removed from the equation. Only sugarcane-based bioethanol produced in Brazil, which costs USD 0.25-0.35 per litre of gasoline equivalent[2] (lge), is competitive with gasoline at USD 0.34-0.42 per litre (i. e. USD 40-50 per barrel) (IEA 2007).[3] By way of con­trast, the cost of corn-based ethanol in the United States and sugar beet-based etha­nol in the EU vary between USD 0.60-0.80/lge (IEA 2007)—much higher than the then price of gasoline. Likewise, the cost of producing biodiesel from animal fat, vegetable oil, tallow fat and palm oil varies between USD 0.40-0.50, 0.60-0.80, 0.60-0.85 and 0.82-0.86/lde,[4] respectively (IEA 2007; RFA 2007), all higher than production costs of petroleum-based diesel. For some feedstocks, such as cooking oil, commercializable by-products could lower its effective cost (Demirbas 2009).

Second-generation biofuels are produced from the cellulosic content of inedible plants. While the cost of such feedstock is comparatively lower, it still represents around 36 % of the net production cost of the biofuel (USDA 2010). Processing — related expenses, including chemicals such as enzymes, are substantial. Although technological advances have significantly lowered the cost of cellulosic ethanol (Wyman 2008), the processing technique employed continues to be most signifi­cant determinant of the fuel’s net production costs. The IEA (2007) estimated the cost of second-generation bioethanol and biodiesel at approximately USD 1.00/lge (assuming feedstock price of USD 3.6/GJ) and USD 0.90/lde (assuming feedstock price of USD 3.6/GJ), with a potential reduction to USD 0.50/lge and 0.70-0.80, respectively, by 2017. Furthermore, the cost of setting up a second-generation biofuel refinery is potentially up to ten times that of establishing an equivalent first-generation production unit (Eisentraut 2010). While this additional outlay partially negates the advantage of using lower-cost feedstocks, larger plants may be able to capture economies of scale and achieve some cost savings (UN 2008). Nevertheless, high capital investments are a major concern, particularly for those plants being proposed in less developed countries (Eisentraut 2010).

Eisentraut (2010) theoretically deduced the cost of second-generation biofuels pro­duced in different countries by assuming capital costs to be 50 % of the total produc­tion costs, feedstock 35 %, operation and maintenance, energy supply for the plant, and other expenses between 1 and 4 % each. Table 3 summarizes these estimates.

Eisentraut (2010) also compared the probable production cost of second-generation biofuels if an oil price of USD 120/bbl is assumed. He concluded that bioethanol and biodiesel would cost USD 1.09 and 1.07, respectively, in the short term. In the long term, prices are projected to fall to USD 0.72 and 0.73, respectively, which would be lower than gasoline and rapeseed biodiesel, and also competitive with first-generation bioethanol. The above figures should be considered in tandem with the then price of fossil fuels. This, however, does not greatly change the cost efficiency of biofuels as the cost of biofuels continues to increase with the rise in price of feedstock and other inputs (OECD 2011). In addition, these costs are purely economic and do not include the various environmental costs typically included in life-cycle analyses (LCAs), as explored in chapter “A Comparison Between Ethanol and Biodiesel Production: The Brazilian and European Experiences”. Other costs associated with production, and that of first-generation biofuels in particular, relate to storage, especially given the seasonal nature of biofuel production (Moreira and Goldemberg 1999; Karp and Richter 2011).

Brazil has diverse sources of energy. Among the countries that produce fuel-based renewable energy, Brazil stands out in its ethanol production from sugarcane. This feedstock has shown the highest levels of technical and economic efficiency com­pared to other cultures used for ethanol production.

The Brazilian ethanol program began in 1975 with the National Ethanol Program, which was called “ProAlcool.” This program was created to encourage ethanol production to replace gasoline as the standard road transportation fuel. The program aimed to reduce oil imports, which compromised the trade balance, and reduce the country’s energy dependence (Moreira and Goldemberg 1999; Hira and Oliveira 2009).

In addition to these main goals, this program was intended to promote other advantageous consequences, such as: (1) a reduction in the economic disparities between Brazil’s highly industrialized southeast and less-industrialized northeast regions; (2) an increase in the national income from exploring the maximum potential of resources (particularly land and labor); and (3) stimulation of the national sector for capital goods, which would increase the demand for agricul­tural machinery and distillation equipment (Hira and Oliveira 2009).

The Brazilian Ethanol Program was a great success until 1990. This success was a result of several national and international factors that supported the devel­opment and implementation of ethanol fuel. In the domestic market, the Brazilian government subsidized agricultural production, financed up to 80 % of the con­struction of new refineries, reduced taxes on ethanol-fueled vehicles such as the excise tax (IPI), and subsidized ethanol at gas stations (setting the price of alcohol as 64.5 % of the gasoline price). In foreign markets, the rise in oil prices and the decline in sugar exports contributed to the increase in ethanol production.

After setting the structure from 1989 to 1990, ProAlcool suffered a major cri­sis. The rise of the international price of sugarcane increased Brazil’s exports of it and thereby compromised the supply of this feedstock for ethanol production, which exhibited a significant decrease. Thus, the Brazilian government was forced to import ethanol to meet the domestic demand created in the previous period (Puerto Rico et al. 2010).

Due to market fluctuations, the 1990s were marked by the deregulation of the sugarcane industry. The main decisions in this period included gradual cuts of subventions that were related to the price guarantees on exports, the elimination of production and trade controls by the government, and the official shutdown of ProAlcool (Hira and Oliveira 2009; Puerto Rico et al. 2010).

During this period, farmers and industries started being reorganized and new government agencies were created for the purpose of chain organization. After the crisis of 1990 and the reorganization of the sugarcane sector, a new boost for the sugar and ethanol industry came with the introduction of “flex-fuel” vehicles in March 2003, which led to the inclusion of new choices of fuel in gas stations. The government offered new incentives to the emerging market with tax benefits by offering the same advantages granted to ethanol vehicles (Kojima and Todd 2005). According to Goldemberg (2007), the rapid rise and success of this market hap­pened because of the maturity of the ethanol industry, the reduction of produc­tion costs (the learning curve), increasing economies of scale, and mastery of the manufacturing techniques for flexible-fuel vehicles.

Ethanol production is a promising market due to the growing global demand. There are different raw materials that may be used in this industry. Therefore, it is necessary to develop the ethanol industry to meet the domestic and foreign demand and promote the country’s development.

In addition to ethanol, another recent source of agro-energy in Brazil appeared: biodiesel. Law No. 11.097-05 established the mandatory introduction of biodiesel in the Brazilian energy matrix in the form of a mixture of 2 % biodiesel (B2) by volume with fossil-fueled diesel (Federal Law 2005). Based on this law, resolution No.6/2009/CNPE stated that B5 would become mandatory in 2013. However, the development of the biodiesel industry enabled enforcement of this resolution in January 1, 2010 (ANP 2010).

Currently, biodiesel is manufactured primarily from soybean oil, which is one of the most valued commodities in the international market. There are public policies for the encouragement of diversification of the feedstock to be used in biodiesel. A variety of options such as soybeans, canolas, peanuts, sunflowers, and cotton is present in the southeast, midwest, and south regions of Brazil. In addition, the north region is able to produce biodiesel from babassu palms and castor beans.

However, with the exception of soybeans, there are no structured and efficient sup­ply chains for these alternative crops, which limit the organized, stable, and cheap sup­plies that can be delivered to the biofuel industry. Regarding the public policies that foster the acquisition of diverse raw materials from companies producing biodiesel, the Ministry of Agrarian Development (MDA) created the so-called Social Fuel label. This label ensures that companies that buy raw materials primarily from family farm­ers obtain special conditions such as lower interest financing by the Brazilian National Bank for Economic and Social Development (BNDES) and other accredited financial institutions; in addition, these firms receive the benefit of tax rates as Pasep/COFINS with reductions of the differentiated coefficients (Garcez and Vianna 2009). It is intended by the government that this percentage shall increase to 10 % by 2014, as biodiesel production already has an installed industrial processing capacity.

Advances in the bioenergy production sector in Brazil have been achieved by developing the industry, and these advances are related to the learning curve that has occurred in this market. Among the improvements, we highlight the development and multiplication of new varieties of sugarcane with high levels of production, progress in the agricultural technology that is employed, cost reductions in the har­vest, the development of new equipment, and the management of agricultural waste. These factors and others have ensured the success of the Brazilian biofuel program.

Fuel mixes with ethanol content higher than 10 % might face constraints because of fuel market infrastructure with more flex-fuel vehicles being needed and distribution networks adjusted (Szulczyk et al. 2010). Based on data and projections made by the Energy Information Agency (EIA) in the 2009, Annual Energy Outlook (The U. S. Department of Energy 2009) future penetration costs of E85 are estimated. Calculations reflect the EIA projected increasing differ­ence between price of wholesale ethanol and gasoline as penetration increases (as discussed Beach et al. 2010). Table 3 presents estimation of market penetra­tion costs for ethanol. These costs are additional costs of infrastructure modi­fication, adding to feedstock costs, transportation costs, and processing costs incurred in refineries.

Biomass components mainly include lignocellulose, extractives, lipids, pro­teins, simple sugars, starches, H2O, hydrocarbons, ash, and other compounds (Kumar et al. 2009). Lignocellulosic biomass chemically consists of three main fractions: (1) cellulose (CH1.67Oo.83), (2) hemicellulose (CH1.64Oo.78), and (3) lignin (C1oH11O35). Cellulose is a polymer of glucose (a C6 sugar), which can be used to produce glucose monomers for fermentation to, for example, bioethanol. Hemicellulose is a copolymer of different C5 and C6 sugars including, for exam­ple, xylose, mannose, and glucose, depending on the type of biomass. Lignin is a branched polymer of aromatic compounds. The cellulose present in lignocellulosic biomass is resistant to hydrolysis. Therefore, to produce bioethanol or biobutanol from lignocellulosic biomass via biochemical route, it is essential that the biomass is pretreated in order to enable hydrolysis of the cellulose into sugars. Different pretreatment technologies have been developed (steam explosion, treatment with acids or bases, etc.) (Table 3), but the common purpose of these technologies is to break open the lignocellulosic structure. The primary goal of feedstock improve­ment should be to enhance the quality and efficiency of the pretreatment process, which would necessarily involve pretreatment efficiency and enzyme efficacy.