3. Production Costs of Biofuels

The production cost of biofuels is one of the key determinants of the commercial viability of biofuels and its social costs of promoting through fiscal stimuli and regulations. Estimates of production costs for different types of biofuels vary widely and are evolving over time (see Fig. 3.1). The sources of variability depend on the category/feedstock/production technology. The costs of first generation biofuels, whose production technologies are matured with commercial production, are influenced mostly by costs of feedstock. In the case of corn-based ethanol, for example, feedstock accounts for about 70 % of the total production costs. For biodiesel, the share of feedstock in total costs of production is even higher, reaching 85–90 %. The recent price volatility in agricultural commodities further contributed to the higher costs of biofuels. In the case of second generation biofuels, much less is known in terms of both process technologies and costs, as there is little experience on commercial production. The available costs are ex-ante estimates with assumptions changing in each estimate (Klein-Marcuschamer et al. 2012). Also, technology pathways for converting cellulosic biomass into biofuels are associated with technical and cost uncertainties.