Second-Generation Biofuels Market Size & Share, by Feedstock (Simple Lignocellulose, Complex Lignocellulose, Syngas, Algae), Application (Transportation, Power Generation), Type (Cellulosic Ethanol, Biodiesel, Bio Butanol, Bio DME), Process (Biochemical Process, Thermochemical Process) - Global Supply & Demand Analysis, Growth Forecasts, Statistics Report 2025-2037

Second-Generation Biofuels Market: Growth Drivers and Challenges

Growth Drivers

• Favorable Government Tax credits: A second-generation biofuel manufacturer, registered with the Internal Revenue Service (IRS) are eligible for a tax credit up to USD 1.01 per gallon of 2G biofuel that is: used and sold as a fuel by a business in a trade; used and sold by the purchaser in develop a second-generation biofuel mixture; retailed as a vehicle fuel. Additionally, alcohol fuel tax credits are eligible for second generation biofuel, and the credit amount is USD 0.46 per gallon for ethanol and USD 0.41 per gallon non non-ethanol biofuels.Second-generation biofuels are typically sourced from hemicellulosic or lignocellulosic biomass or cyanobacteria, cultivated algae, or lemna. To qualify, it needs to comply with the U.S. Environmental Protection Agency (EPA) and its additive registration requirements. Alcohol with a proof of less than 150, fuel that has a water or sediment content exceeding 4%, and fuel with an ash content greater than 1% are not classified as second-generation biofuels. The incentive can be utilized as a credit against the producer's income tax liability. According to current law, only qualified fuel produced in the United States for consumption within the United States is eligible for this incentive.

• High yield of Jatropha oil for biodiesel: As of 2024, Jatropha plantations were widespread across Egypt.  Jatropha propagates easily, has high drought tolerance, and has comparatively 30-50% more oil content than other oil crops. The cultivated area of Jatropha is approximately 900,000 ha globally, 120,000 ha in Africa, 760,000 ha in Asia, and around 20,000 ha in Latin America. All desert areas in New Valley and Upper Egypt governorates are considered potential areas for Jatropha plantations. Such marginal Jatropha land in Egypt covers 844 ha. The pretreatment of Jatropha seeds improves oil extraction by 24% of the internal energy of solvent extraction and 66% for mechanical extraction. Moreover, screw press type in mechanical extraction which yields an extraction of 65-90% by weight, resulting in oil output efficiency of 96%.Italy and the U.S. also observed a prominent rise in Jatropha output owing to new supportive laws. In Asia, Indonesia, Singapore, Malaysia, and China, as well as in Latin America, Argentina, and Brazil, biofuel production from Jatropha is rising exponentially. was quickly rising. Indonesia’s biodiesel generation is estimated to expand at a rate of 23% by the end of 2030, whereas biodiesel usage is projected to grow by 7% in the next decade.
• Rampant rise in electricity consumption: The worldwide electricity demand increased by 4.3% in 2024 and is anticipated to continue to grow at 4% in 2027. In the next three years, the electricity consumption will reach 3,500 TWh. Majority of the additional demand is ascribed to the emerging economies, contributing 85% of the growth. According to the EIA, significant demand came from China in 2024 and registered a CAGR of 4% the same year and is set to garner a 6% rate in 2027. The share of electricity in final energy consumption in China is 28%, which is significantly higher than the U.S. (22%) and the EU (21%).In 2024, 0.9 GW dispatchable capacity was commissioned, of which 0.4 GW was using natural gas and 0.3 GW was classified as a grid stabilization oil-based plant, while the remaining comprised biomass, process heat, and waste. As per the result of the first long-term EIA’s decarbonized power supply auction in April 2024, decarbonized power sources of 4 GW were awarded, which included 0.2 GW for biomass power, 1.1 GW in battery storage, 0.6 GW for pumped storage hydropower, 0.06 GW in hydrogen co-firing, 1.3 GW in nuclear power, and 0.8 GW in ammonia co-firing capacity.In addition, supply capacity reserved in the capacity market has been delivered since April 2024, which is expected to enhance market stability. The Ministry of Energy and Mineral Resources (MEMR) Decree Regulation 11/2024 has extended these changes to include other types of renewable energy, such as wind and biomass. It also establishes a lower local content requirement of 15% for wind projects. In 2024, renewable energy contributed 16% of power generation, with bioenergy being the leading source, accounting for more than 50% of the total. Additionally, variable renewable energy (VRE) constituted 27% of the generation mix.

Net generation for all sectors (thousand megawatthours) in 2024

Source: EIA

Challenges

• Lack of availability of feedstocks: One important aspect that could slow the second-generation biofuels market's expansion is the scarcity of feedstocks. The majority of second-generation biofuels are made from non-food feedstocks, including agricultural and forestry waste, which may be in short supply or in just certain seasons. The main cause of the limited availability of feedstocks is the potentially expensive and ineffective collection and transportation of biomass.  For instance, the need to gather agricultural waste from various sources and bring it to a central location for processing could significantly increase the price of producing biofuels. Additionally, elements including weather patterns and changes in land use could have an impact on the quantity and quality of biomass, which could have an impact on the supply of feedstocks.