Agriculture and the science community today are actively pursuing renewable energy production. Many research and implementation efforts involve producing ethanol or other liquid biofuels from nonfood agricultural feedstocks in a cost- efficient manner. Various feedstocks are being considered including crop residues,

M. Wlodarz (*)

Department of Management, Technology and Economics, Center for Energy Policy and Economics, ETH Zurich, 8032 Zurich, Switzerland e-mail: marta. wlodarz@gmail. com; wlodarzm@ethz. ch

B. A. McCarl

Department of Agricultural Economics, Texas A&M University, College Station, TX 77843-2124, USA e-mail: mccarl@tamu. edu

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_7, © Springer-Verlag London 2014

energy crops (e. g., switchgrass, miscanthus, hybrid poplar, willow, and others), logging residues, and agriculture/forest processing by-products. At the same time, current market penetration barriers (like car capabilities, service stations, and pipe­lines) pose a significant barrier to further ethanol market expansion (Szulczyk et al. 2010; Wlodarz and McCarl 2013).

The main purpose of this chapter is to report on an economic investigation of current and future prospects for agricultural feedstock-based liquid biofuels expansion developing information on:

• Needed cost reductions in cellulosic biofeedstock-based liquid fuels production to make them competitive.

• The effects of renewable fuel mandates and carbon dioxide credit prices.

• The effect of infrastructure barriers on market penetration.

• Tipping points that stimulate cellulosic ethanol.

• Impact of carbon pricing on bioethanol production.

1 Literature Review

The possibility of second-generation biofuels production from agricultural materials has been explored by many (Tyner 1979; Apland et al. 1982; McCarl and Schneider 2000). Bioethanol from crop residues, wood residues, and energy grasses can pro­vide GHG offsets with potentially lower demand shocks in the food commodity markets. Farrell et al. (2006) found that bioethanol production on the large indus­trial scale will definitely require further development of the lignocellulosic etha­nol production technology. The need for further improvements in the biochemistry of reactions and cheaper enzymes is recognized by many (EPA 2009; Dwivedi et al. 2009; Babcock et al. 2011; Lau and Dale 2009). Wlodarz and McCarl (2013) showed that processing costs need to decrease by at least 25 % to make cellu­losic ethanol production economically viable. Chovau et al. (2013) analyzed the cost of cellulosic ethanol production and they claim that lignocellulosic ethanol will become more economical and environmentally attractive than corn ethanol. Littlewood et al. (2013) indicate production modes utilizing less costly agricultural residues, e. g., sugarcane bagasse (Alonso-Pippo et al. 2013), are preferred from an economic standpoint. Governmental subsidies or carbon emission pricing mecha­nisms (Schneider and McCarl 2003) also increase the viability of lignocellulosic bioethanol production.

There are some studies which investigate the possibility of drop-in liquid fuels such as butanol or methanol (Lee et al. 2008; Green 2011; Qureshi and Blaschek 2000; Ezeji et al. 2007). Drop-in fuels do not have corrosive characteristics so they do not require major infrastructure adjustments. Both service points and distribu­tion networks are appropriate for drop-in fuels dissemination.