Evaluations of integrated versus stand-alone cellulosic ethanol production from sugarcane bagasse/straw [5] demonstrated that some scenarios for the integration of first and second generation ethanol production in Brazil present better economic results than optimized first generation ethanol production. Integrated scenarios can increase up to about 40% ethanol production per unit of sugarcane processed and increase the internal rate of return by about 2% per year in comparison to optimized first generation ethanol production. These results show that the ethanol average cost from an integrated first and second generation ethanol production can be cost competitive with first generation ethanol and gasoline at current oil prices, if the projected process performance is achieved. The current challenge regarding cellulosic ethanol production lies in gaining a competitive and sustainable scale for achieving the consolidation of industry standards of production. Naturally, having the best conditions in relation to the cost and availability of raw materials are essential factors for the success of this strategy, and Brazil presents several advantages considering the favorable environment for integration of second generation ethanol in the efficient and well established first generation ethanol production chain.

The internal market for ethanol in Brazil has steadily increased, driven by the government mandates of 18-25% ethanol in gasoline, as well as the widespread use of flexible fuel vehicles, which can run on any fuel mix between gasoline and pure hydrated ethanol. It is expected that the existing storage, blending and distribution infrastructure of 1G ethanol will benefit the commercialization of cellulosic ethanol in Brazil.

Regarding the potential external demand for cellulosic ethanol, current trends might foster production of 2G ethanol in Brazil. In the United States, the revised Renewable Fuel Standard (RFS2) puts emphasis on both advanced biofuels and cellulosic biofuels. First generation sugarcane ethanol is classified as advanced biofuel, since it meets the threshold of 50% reductions in greenhouse gas emissions compared to fossil fuels displaced. Under the RFS2, cellulosic biofuels will have an increasing share of the biofuel market in the United States, reaching 16 billion gallons by 2022. The current trend in the European Union for reduced reliance on conventional biofuels that could potentially compete with food or fiber, and to substantially increase the share of cellulosic biofuels from crop residues, waste, woody material, can also provide incentives for growth of cellulosic ethanol production in Brazil.