The Future of Biofuels in an Electrifying Global Transportation Sector: Imperative,

Prospects and Challenges

Deepayan Debnath, Madhu Khanna*, University of Illinois, Urbana-Champaign; Deepak

Rajagopal, University of California, Los Angeles; and David Zilberman, University of
California, Berkeley

*Corresponding author: khanna1@illinois.edu

1
 The Future of Biofuels in an Electrifying Global Transportation Sector: Imperative,

Prospects and Challenges

Abstract

Low carbon alternatives are an imperative for decarbonizing the transportation sector. There is

growing interest in electrification of transportation but even with aggressive growth in sales, a

significant share of transportation is expected to rely on liquid fuel by mid-century. Biofuels are

appealing as low carbon fuels but those produced from food crops generate a food vs. fuel

dilemma. We discuss the prospects for expanding biofuels while mitigating the competition with

food production though a transition to second generation biofuels from biomass as well as the

potential for biotechnology to transform the agricultural sector globally to increase crop

productivity and make biofuels and food production complementary. We highlight the role for

policy, technological innovations, and institutions to achieve increased food and biofuel

production.

Keywords: Biofuels and bio-products, Biotechnology, Carbon mitigations, Electric Vehicles

JEL codes: Q10, Q20, Q42.

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 The Future of Biofuels and Electric Vehicles in Decarbonizing the Transportation Sector:
Imperative, Prospects and Challenges

There is a growing imperative to keep the rise in global temperature to less than 2 degrees

centigrade by mid-century and for drastic emissions reduction. A major target of effort to

achieve these goals is the transportation sector, which is a growing source of greenhouse gas

(GHG) emissions globally. Between 1990 and 2016 global transportation emissions have

increased by 32% and the sector accounted for 23% of the global GHG emissions in 2016. A

dominant share of these emissions (74%) are from on-road vehicles (light-duty, medium- and

heavy-duty), more than half of which are from freight transportation (IEA 2018a). The share of

the OECD countries in global transportation emissions has declined from 70% in 1971 to 42% in

2016 while that of the developing countries, particularly China, has grown substantially (figure

1). Transport sector emissions are expected to increase by 1.5 times between 2010 and 2050

under business-as-usual, with the increase in non-OECD countries being nearly threefold while

those in OECD countries are projected to increase only slightly (IEA 2017)1.

There are two basic options for reducing GHG emissions: fuel-use reduction and fuel

substitution. With increasing vehicle miles travelled globally, raising fuel efficiency is one

approach while substitution of natural gas, hydrogen, biofuels and electricity for oil offers an

alternative. We focus here on discussing the prospects for alternative fuels for transportation,

specifically biofuels and electricity, since hydrogen and methanol have yet to reach

commercialization at scale while the GHG benefits of natural gas relative to oil are limited.

Biofuels have been a particularly appealing option as a transportation fuel because they are

from renewable sources, can be used with existing on-road and non-road transportation

1
http://www.ppmc-transport.org/wp-content/uploads/2016/11/SLoCaT-1.5DS-2050-Report-2016-11-07.pdf

3
technologies and fuel distribution infrastructure. There is also remarkable agreement among

diverse organizations, ranging from IPCC to Greenpeace that bioenergy will need to contribute

25% of energy needs by 2100 to keep temperature rise to under 2-degrees (Dale et al. 2014).

Biofuels can also contribute to rural economic development and raise agricultural incomes by

increasing the potential to use land to produce high value products that are substitutes for fossil

fuels. Ambitious policies have been set since 2005 for increasing the share of biofuels in the

transportation fuel by many countries globally. By 2017, 65 countries had imposed mandates

requiring the blending of biofuels with gasoline and diesel in the transportation sector; these

mandates range from 5% to 25%2. Nevertheless, the share of biofuels in the global transportation

fuel was only 4% in 2016 (IEA 2017).

At a commercial scale, biofuels are largely being produced from crops that are also used

for food and feed; 60% and 22% of the ethanol is obtained from corn (in the US) and sugarcane

(in Brazil) respectively, while 74% of biodiesel is produced from vegetable oil, mainly soybean

oil (in Latin American countries) and palm oil (in Indonesia)3 (figure 2). This reliance on food-

crop based biofuels has led to significant resistance to use as an alternative fuel due to concerns

about diverting food to fuel and raising the price of food crops. There has also been skepticism

about the potential for these first-generation biofuels to lower the GHG intensity of

transportation fuel due to the potential for carbon leakage through indirect land use change

(ILUC). This can be caused by the biofuel-induced increase in commodity prices which can lead

to expansion of cropland around the world and loss of carbon stored in native vegetation and

2
https://www.biofuelsdigest.com/bdigest/2019/01/01/biofuels-mandates-around-the-world-2019/
3
Data complied form OECD-FAO Agricultural Outlook 1990-2028
https://stats.oecd.org/viewhtml.aspx?QueryId=84948&vh=0000&vf=0&l&il=&lang=en

4
forests. These concerns have led to a sharp decline in public sentiment about biofuels after 2008

as indicated by an analysis of media coverage of biofuels (Melton, Axsen, and Sperling 2016).

However, there is significant and even larger potential to produce biofuels from non-food

crops or dedicated energy crops, and from other sources of biomass, including crop and forest

residues (Liu and Rajagopal 2019). These second-generation biofuels from biomass have the

potential to lead to low or even negative carbon biofuels and a relatively low or negligible ILUC

effect (Dwivedi et al. 2015). However, commercialization of such fuels is yet to occur due to

technological challenges to converting biomass to fuel efficiently at commercial scale and high

costs of production (Balan 2014). In addition to supply side constraints, the potential to consume

biofuels in the form of ethanol is also constrained by conventional vehicle technology that is

limited to combusting a 10-15% blend of ethanol (E10-E15) only. With the exception of Brazil,

where 90% of new cars sold and 30% of all cars were flex-fuel vehicles (FFVs) by 2008

(Cicogna, Khanna, and Zilberman 2017), adoption of FFVs in other countries, including the US

is low. FFVs account for the largest share of alternative fuel vehicles in the US (as shown in

figure 3) and their number doubled between 1997 and 2007. However, FFV sales have declined

and stagnated since then and their share was less than 10% of the total vehicle fleet in 2017.

Consumer interest has instead been growing in battery electric and plug-in electric vehicles

(EVs) since 2005 and there has been a surge in their sales in recent years. More than one million

EVs were sold globally in 2017 and the stock of EVs has grown to over 2 million by 2018; these

are largely in China, US, and EU (IEA 2018b). However, the current share of EVs in the total

vehicle fleet globally is only 2.2% (figure 4). The lack of availability of charging infrastructure,

high battery prices, and issues with range have limited adoption. The International Energy

Agency (IEA) estimates that to keep global temperature increase below 2°C the global passenger

5
car stock should consist of at least 14% share of electric cars by 2030; this requires an annual

growth rate of about 40% between 2017 and 20304. This may be feasible if aggressive national

policies are followed to incentivize their purchase (IEA, 2018b).

However, studies show that even under the most aggressive scenario for EV sales growth,

EVs would account for at best 50% of the total fleet by 20505. Given the slow rates of vehicle

turnover, even if 100 percent of vehicles sold were electric starting today, it would still take 20 to

25 years to replace the entire vehicle fleet with electric vehicles6. Therefore, a significant share

of vehicle miles traveled are expected to rely on liquid fuels at least in the near to medium term,

particularly in developing countries where investment in infrastructure may be constrained. Even

in the developed countries, almost all non-road transportation and heavy-duty trucking are

expected to rely on liquid fossil fuels in the foreseeable future. It, therefore, appears imperative

to continue the development of low carbon biofuels that can reduce dependence on gasoline and

diesel and significantly lower the GHG intensity of transportation fuel by mid-century.

This, of course, raises the question about availability of land to significantly expand biofuel

production. Both first and second generation biofuel feedstocks will inevitably compete for

arable land, although to varying degrees. Land is expected to be increasingly scarce given a

growing population and increasing demand for open space and environmental quality and a

changing climate that may reduce agricultural productivity and lead to sea-level rise. Sustainable

intensification of crop production, greater reliance on biotechnology, and advances in genetic

4
https://www.iea.org/tcep/transport/evs/
5
https://www.fuelfreedom.org/wp-content/uploads/What-will-the-Global-Light-Duty-Vehicle-Fleet-look-like-
through-2050_FINAL_Dec2016.pdf
6
https://www.npr.org/2019/02/16/694303169/as-more-electric-cars-arrive-whats-the-future-for-gas-powered-
engines

6
engineering, reducing yield gaps across countries and reducing post-harvest loss of crops offer

the potential for increasing crop productivity and releasing land for producing biofuel crops.

Recent advances in genetic engineering have the potential to enhance supply of biofuels by

lowering the costs of producing advanced biofuels with the capacity to be grown on low quality

land and have high yields per unit land. To meet the growing supplies, policy intervention may

be needed to increase market demand for biofuels beyond blends of 10-15%. They include

incentives for adoption of FFVs and designing policies that would create the incentives for

market prices of higher ethanol blends to reflect their energy content and GHG saving.

The rest of the paper is organized as follows. The following section discusses the literature

on the current technological prospects for electrification of on-road transportation and their

potential to reduce reliance on liquid fuels and related GHG emissions, as well as findings on the

current barriers to more widespread adoption of EVs. Section three describes the experience with

food-crop based first generation biofuels and their impacts on GHG emissions and the potential

for transitioning to second generation biofuels. It describes technological advances being made

for commercialization of second generation biofuels, including recent advances in genetic

engineering, and potential environmental benefits. Section four reviews the current and future

role of genetic engineering in increasing crop yields. Policy options are discussed in section five.

The last concludes with a policy discussion on achieving the short- and medium- term GHG

emissions mitigation targets in the transportation sector.

Potential for Electrification of the Transportation Sector

The transition to EVs has long been recognized as inevitable and the main question has not

been if but when and how to manage this transition (Sperling 1996). Governments around the

world are now actively seeking to induce a shift of their vehicle fleet to EVs to reduce

7
dependence on petroleum fuels, improve air quality and mitigate climate change. Many national,

state, and local governments have announced plans to move toward all EV sales over the coming

decades and are providing public support for EVs in the form of financial incentives for vehicle

purchase or ownership, federal and state income tax credits or deductions, exemptions from sales

or value-added taxes, rebates on annual ownership fees, and waivers from emission fees (most

notably in the UK). Other forms of support for EVs include free public charging, free access to

toll roads, free parking, and access to high-occupancy-vehicle lanes. There are also a few

instances of mandates on vehicle manufacturers that require a certain share of total sales to be

comprised of zero-emission (that include hydrogen-fueled) vehicles or the buying of credits from

others to meet the requirement, most notably in the State of California and China. For a

comprehensive overview of the global EV policy landscape see Lutsey et al. (2018).

In spite of such policies, the share of EVs continues to remain low in most markets

worldwide (Green, Skerlos, and Winebrake 2014). Furthermore, while the urban air quality

benefits of EVs are unquestionable, it is clear that the climate benefits of EVs hinge on

decarbonizing the electric grid (Hawkins, Gausen, and Strømman 2012). Two major recent

trends suggest greater cause for optimism for achieving the high levels of electrification of

transportation. They are the steep declines in both the cost of battery technology and the cost of

zero-carbon electricity from solar and wind. Specifically, the cost of Li-ion batteries has declined

more than 80% in less than a decade from over $1000 per Kilowatt-hour (KWh) to $175 per

KWh between 2010 and 2019 (Goldie-Scot 2019). Battery prices are projected to continue to

decline and reach $100 per Kwh in the near future (Goldie-Scot 2019). As a result, the additional

upfront cost of an EV has declined from being 200% greater to 50% greater relative to an

internal combustion engine vehicle today. Taken together with lower life cycle fuel and

maintenance cost of EVs, the levelized cost per mile of EVs could be lower depending on the
8
discount rate and intensity of vehicle use (annual VMT) independent of the economic value of

reductions in environmental externalities.

With regard to the second major development, driven by reduction in the cost of solar

photovoltaic panels. The median installed price of utility-scale solar photovoltaic electricity

generation has fallen by two-thirds over the last decade. Together with better utilization of

installed capacity, this has resulted in power purchase agreement prices that are below $40/MWh

(levelized in real 2017 dollars), which is competitive with coal and natural gas-based electricity

generation (Bollinger and Seel 2018). Although these estimates are for the US, similar prices

have been discovered in solar and wind energy auctions in other countries as well. Thus, the

transition of the electric grid to a renewable, zero-carbon future is well and truly underway,

strengthening the environmental case for EVs as a low carbon alternative to gasoline. EVs are

also preferred to gasoline-fueled vehicles since they do not generate emissions during use and

thus avoid negative impacts on urban air quality.

Although the EV industry is making giant strides, there remain multiple barriers to

widespread electrification of transportation in the near to medium term. These barriers are

greater in some vehicle segments relative to other, and also greater in some geographic markets

relative to others. For instance, consumer automobiles such as two, three and four-wheelers, light

duty trucks, and mass transit buses are primed for high levels of electrification while there still

remain technological barriers to electrification of heavy-duty long-distance trucking, marine

freight shipping, and air travel. We now briefly describe these barriers which are a combination

of technological, behavioral-economic, environmental and political.

Technological barriers to EVs are greatest in the context of heavy-duty long-distance

trucking, marine freight, and air travel rather than personal automobiles. It is generally accepted

9
that heavy-duty commercial trucks require a range of at least 500 km between charging events. A

significant barrier to achieving this is the substantially lower energy per unit weight of fuel of

today’s Lithium-ion based batteries relative to liquid fossil fuels. For reference, today’s Lithium-

ion batteries require more than 20X weight per mile relative to fossil fuels. This translates into

reduced capacity for transporting commercial cargo given maximum weight restrictions for

commercial trucks. A second barrier is the state of direct current fast-charging (DCFC)

technology. Charging a 500-mile range class-8 commercial truck in less than 30 minutes requires

DCFCs that are rated to deliver 2 Megawatt (MW)7 and battery chemistries that can accept

charging at such power without degradation. In contrast, the fastest commercially installed

DCFC chargers are rated at about 250 KW, which translates to a financially unviable charging

time on the order of four hours. Therefore, significant improvements in battery chemistry and

fast-charging ability is required. Relative to trucking, air-travel and marine freight require even

greater range given limited potential to recharge mid-air or in the high seas, although select

segments within these applications are seen as holding potential for electrification. Furthermore,

there exist battery chemistry solutions that can allow EVs to compete with fossil fuels in these

market segments in the long-run (Schmuch et al. 2018).

In contrast, a principal barrier to electrification of personal automobiles is neither

technological nor behavioral but a deficiency in public policy. Current policies tend to provide

fixed or lump-sum vehicle subsidies but do not sufficiently incentivize investments in charging

infrastructure. EVs frequently require higher fixed cost but have lower variable costs (per mile).

Therefore, buying EVs is more profitable for high mileage buyers.

7
A two Megawatt (MW) DCFC would require 30 minutes to charge 1000 Kwh in a vehicle with a fuel economy of
0.5 miles per Kwh (i.e., 500 mile range per full charge).

10
 Fixed or lump-sum vehicle subsidies that reduce the cost of acquiring expensive EVs that

are not complemented with adequate investments in creating a wide-spread fast charging

infrastructure has meant that adoption of EVs is today practical mostly for low mileage users. Of

course, without sufficient subsidy, at low levels of usage the fuel savings will not be large

enough to deliver a rapid financial payback, which means that many of the current adopters are

high income consumers that and are not motivated by the financial benefits. Another recent

trend that offers much potential for EVs but is also hampered by the lack of investments in

charging infrastructure is the emergence of ride-sourcing (Uber, Lyft etc). However, Bauer et al.

(2019) indicate that even with a sparse network of three to four 50 kW chargers per square mile,

EVs can provide the same level of service as conventional gasoline vehicles at lower cost and

that charging infrastructure is not necessarily a significant barrier to electrification of ride-

sourcing.

Pilot testing indicates that lack of charging infrastructure presents a major barrier to

scaling up. Thus, a reliable fast charging infrastructure appears critical to induce adoption, even

with future decline in battery prices. Furthermore, a decline in oil prices and the absence of

carbon taxes could hamper EV adoption and make it remain reliant on public subsidies, which is

of course unsustainable in the long run.

Lastly, one other barrier to scaling up today’s battery technology is the scarcity of raw

materials, particularly cobalt and lithium used in making Lithium-ion batteries (Schmuch et al.

2018). Over 50% of mined cobalt comes from the politically unstable Congo, which contributes

to the metal price instability (Stinger and Ritchie 2018). Imbalances in the current rates of

growth in global demand for batteries and rates of increase in supply portend increase in Cobalt

11
prices under business as usual scenarios. However, there is already widespread recognition of

this concern and there is shift to battery chemistries that are less intensive in Cobalt.

Nevertheless, Meier et al. (2015) show that even with high rates of electrification in the

US (40% of miles travelled) and assuming 80% decarbonized electricity, an 80% reduction in

carbon emissions relative to 1990 could only be achieved with significant quantities of low

carbon biofuels assuming low or moderate travel demand growth. We now discuss the prospects

for expanding biofuel production in the future.

Experience with the First Generation of Biofuels and Future Prospects

Over the last decade, the production of both ethanol and biodiesel has increased

signficantly in response to the substantial policy support provided in the US, EU, and Brazil

(figure 2). Expansion of biofuels by 2008 was accompanied by a three-fold increase in

commodity prices and in oil prices globally and de Gorter, Drabik, and Just (2015) showed that

the presence of biofuel linked commodity prices to oil prices. Early estimates of the impact of

corn ethanol production on food crop prices ranged between 10% to 75% across studies

depending on –modeling assumptions and techniques, and time period studied; a meta-analysis

of these studies by Hochman and Zilberman (2018) estimated a 14% increase in food crop prices

due to biofuels (see review in Khanna, Rajagopal, and Zillberman 2019). Several studies have

used time series data and cointegration methods to investigate the extent to which food crop

prices were affected by ethanol prices. These studies show that the relationship varied over time

and that the impact was short-term and higher during the food crisis period (Serra and Zilberman

2013; Filip et al. 2017). Similarly, studies analyzing Brazilian sugar, ethanol, and oil data found

that the linkage between these prices has varied over time (Serra, Zilberman, and Gil 2011; Filip

et al. 2017).

12
 However, both crop acreage and prices have stablized and even declined since then.

Despite the more than doubling of corn ethanol production between 2007 and 2014, commodity

prices in 2014 had returned to levels prevailing in 2007 (Zulauf 2016). Early concerns about a

large ILUC effect have largely been dispelled by recent simulation models that allow for the

possibility of more intensification of cropland as well as by empirical evidence that shows that

land use is fairly inelastic to changes in crop prices. Li, Miao, and Khanna (2018) estimate that

the expansion in corn ethanol production led to a modest 3% increase in corn acreage between

2008 and 2014 while the increase in crop prices led to 1% increase in crop acreage by 2012 when

compared to 2008. Even this price effect was largely reversed by the downturn in crop prices

after 2012 resulting in an overall negligible effect on crop acres. Using an empirically validated

model to conduct ex-post analysis of the extent to which expiring CRP acres exited the program

due to the biofuel induced increase in crop prices, Chen and Khanna (2018) also found that only

8.3% of the conversion of grassland and CRP to cropland between 2008-2012 could be attributed

to corn ethanol.

Several studies have estimated the direct and indirect life-cycle carbon intensity of

biofuels and obtained varying estimates. Early studies argued that the direct carbon intensity of

corn ethanol is higher than that of gasoline (Pimentel and Patzek 2005) and that indirect carbon

emissions induced by corn ethanol production would create a “carbon debt” that would take 167

years to payback (Searchinger et al. 2008). Similarly high rates of indirect land use change

emissions were estimated for sugarcane ethanol in Brazil (Lapola et al. 2010). More recent

studies by Farrell et al. (2006), Wang et al. (2011) and EPA (2016) show that the direct GHG

intensity of corn ethanol is 20% to 40% lower than that of gasoline depending on the use of wet

or dry milling process and whether coal, natural gas or biomass is used as the energy source.

13
Additionally, the inclusion of positive own price yield elasticity of corn, opportunities for land

intensification, technological advancement in biofuel production; and accounting for the co-

products such as Distiller’s Dried Grains with Solubles (DDGS) use have significantly lowered

the ILUC related GHG intensity of corn ethanol form 104 gCO2e per MJ (Searchinger et al.

2008) to 8.7 gCO2e per MJ (Khanna and Crago 2012; Taheripour, Zhao, and Tyner 2017).

Carriquiry et al. (2018) found zero ILUC-related GHG emission in Brazil when land

intensification of crops and livestock production were included within the sub-national Brazilian

agriculture sector model.

These studies suggest that the agricultural sector has significant capacity to respond to

increased demands by increasing crop productivity and through technological advances that

increase the effectiveness with which commodities are converted to food, feed, and fuel

products. This is also reflected in the accompanying reduction in the cost of producing biofuels.

While the initial production of first generation biofuels was supported by policies, the expansion

of corn ethanol in the US, sugarcane ethanol in Brazil, and vegetable oil biodiesel in EU, Latin

America, and Asian countries has been accompanied by a significant downward shift in the costs

of production due to increases in productivity through “learning by doing”, and economies of

scale. In the case of corn ethanol, the generation of high valued co-products such as DDGS and

corn oil has promoted biofuel production8 (Hettinga et al. 2009; Chen and Khanna 2012).

The potential for producing the next generation of biofuels using non-food crop biomass

from crop and forest residues, dedicated energy crops, and short rotation trees is significantly

larger than that from food crops. In the US, it is estimated that 1 billion tons of biomass could be

produced to meet about 30% of the transportation fuel consumption by 2030 (Langholtz et al.

8
EIA: Ethanol producers benefiting from higher margins for distillers grains
https://www.eia.gov/todayinenergy/detail.php?id=15271#

14
2016). As compared to food crop based biofuels, high yielding energy crops can be grown

productively on low quality marginal land and produce more biofuel per unit of land. Second

generation biofuels are expected to lead to less competition with food crop production compared

to first generation biofuels, leading to a lower ILUC effect. They also have the potential to

provide a range of ecosystem benefits such as lower GHG intensity, lower soil erosion, lower

nutrient runoff, and greater biodiversity (Whitaker et al. 2018; VanLoocke et al. 2017). Hudiburg

et al. (2016) quantify the potential for 32 billion gallons of biofuel blended with gasoline in the

US to reduce GHG emissions by 7-12%, depending on the share of cellulosic biofuels in the mix

and to do so without significant negative impacts on food crop production and prices. Studies

also show conditions under which using other sources of bioenergy, such as, short rotation forest

biomass can significantly reduce GHG emissions relative to using it for conventional forest

products (see review in Khanna, Dwivedi, and Abt 2017).

Despite these benefits, commercial scale production of cellulosic biofuels is yet to

materialize. Large-scale production of cellulosic biofuels did begin to take-off in 2013-2014 with

several biorefineries commencing operations in the US, Brazil, and Italy (Peplow 2014).

However, all of these plants have now shutdown, with the exception of POET-DSM in Iowa,

mainly due to high production costs, low oil prices, and uncertainty about policy-induced

demand for cellulosic biofuels. Techno-economic analysis shows that the cost of second

generation biofuels for road transportation or for aviation is significantly higher than that of the

fossil fuels they displace (Humbird et al. 2011; Jong et al. 2015).

However, these studies are assuming a single use for the biomass through conversion to

biofuel which is a relatively low value product. For biomass conversion processes to compete

economically with petroleum refineries there needs to be more efficient utilization of the

15
biomass feedstock to produce biofuels and a range of high-value bioproducts. Advances in

genetic engineering, biotechnology, process chemistry, and engineering have the potential to lead

to a holistic concept of an integrated biorefinery that produces not just biofuel but a range of high

valued bioproducts. Additionally, a key challenge and one of the most expensive unit operations

in the process of cellulosic biofuel production is the deconstruction of the biomass through pre-

treatment to lignin, fermentable sugars, and other products. Research continues to make

advances in tailoring biomass feedstocks for efficient conversion to biofuels and bioproducts,

reducing lignin content of the feedstock while increasing sugar and developing processes for

converting the lignin to fuel and high value bioproducts (Baral et al. 2019; Jung and Altpeter

2016). Bioengineering techniques are also being developed to increase the oil (lipid) content of

plants such as sugarcane and sorghum which will make it easier to extract fuel without costly

deconstruction of the lignin (Kumar, Long, and Singh 2018). However, the complex biology of a

feedstock, together with high technical risks, need for large capital investment and lack of

assured markets for biofuels and bioproducts hinder the commercial application of technically

successful biomass-derived technologies.

The absence of market demand for biomass and the risks associated with their production

has also limited incentives for farmers to convert land from conventional crops to energy crops.

Farmer surveys show that high fixed costs of establishing these energy crops, lags of 2-3 years

between planting these crops and obtaining a harvestable yield, absence of crop insurance, and

constraints on credit to cover upfront costs are likely to lead risk-averse, loss averse, and present-

biased farmers to be less willing to produce perennial energy crops (Khanna, Louviere, and Yang

2017; Miao and Khanna, 2017; Anand, Miao, and Khanna 2019). Risk-sharing contracts,

establishment cost-share subsidies, and energy crop insurance are likely to be required to induce

16
risk-averse farmers to convert cropland from annual row crops to perennial energy crops (Yang,

Paulson, and Khanna 2016). Farmers also report low willingness to convert marginal land to

grow energy crops unless biomass prices are high because of the other environmental amenities

they obtain from that land such as landscape diversification and wildlife habitat (Skevas et al.

2016; Jiang, Zipp, and Jacobson 2018). These studies suggest that the USDOE’s estimated cost

per ton of producing 1 billion tons of feedstock in the US may be optimistic because it assumes

risk neutral farmers with no credit constraints and ease of conversion of marginal land

(Langholtz et al. 2016).

In addition to supply side constraints to the production of second generation biofuels,

there are also demand-side constraints that are hindering the potential growth of advanced

biofuels. Unlike Brazil, the consumption of ethanol in the US has been limited to a 10% share of

gasoline and created a blend wall due to slow adoption of flex-fuel vehicles and the lack of price

parity based on energy content between E10 and higher ethanol blends (E85). Similar to the case

of EVs, the absence of a thick network of retail distributors of E85 and price parity between E10

and E85 have limited demand for it by FFV owners. Policy incentives that were initially offered

to auto manufacturers for producing FFVs, through the CAFE (Corporate Average Fuel

Economy) standard, and tax credits to consumers for purchasing FFVs have gradually

disappeared. Penetration of higher blends of ethanol in the gasoline-fueled passenger vehicle

market is likely to require the development of “drop-in” fuel which can be directly substituted

for petroleum-based fuel without requiring any changes to the fleet technology, fuel storage, and

delivery infrastructure. The potential to consume higher blends of biodiesel with diesel is larger

than those of ethanol due to the absence of any blending constraints and thus in long-distance

trucking and for non-road transportation (aviation, marine and defense applications). However,

17
the competitive pressures in these sectors are likely to lead them to consume biofuels only if they

are cost-competitive with fossil fuels or if they are incentivized by policy.

While advanced biofuels from non-food crops are yet to become commercially viable, the

production of biofuels from food crops, palm oil and sugarcane are becoming increasingly

competitive with fossil fuels. Expansion of these biofuels is still constrained by policy but could

expand rapidly if oil prices were to rise or a carbon tax were to be introduced. In the absence of

technological change, this could pose significant competition for arable land at a time when

global demand for food is expected to double and climate change is threatening to adversely

affect crop yields. However, adoption of new agricultural innovation has the potential for

increasing agricultural productivity through land sparing innovations and freeing up land that

could be used to produce biofuel crops.

The Impact of Agricultural Innovation on Biofuels

In this section, we discuss various strategies to expand biofuel production without negatively

impacting food crop production. There has been much attention to the substitutability between

biofuels and food. Indeed, without technological change, introduction of biofuel is likely to

decrease the supply of grains for food. But as Rajagopal et al. (2007) argue, adoption of new

agricultural innovations may enable expansion of both food and fuel. If the availability of biofuel

markets induces technological change in the agricultural sector, it may result in biofuels and food

production being complementary to each other. These strategies include using modern crop

varieties and biotechnology to reduce yield gaps in developing countries and increase global crop

productivity and adopting improved harvest and storage technologies to reduce post-harvest loss

in developing countries.

We provide some examples of the potential to increase production of major biofuel crops

18
around the world by increasing crop productivity through greater adoption of modern

biotechnology. The availability of a biofuel option may accelerate the adoption of modern

varieties of cocoa in West Africa. West Africa produces 60% of the world’s cocoa supply using

traditional technologies that produce about 500 kg per hectare. There are existing varieties that

can provide up to two tons per hectare, which are profitable under current prices but require

investment in grafting and improved input. However, their adoption is constrained to large extent

by the local government’s concerns about the negative price effects of adoption of improved,

yield-increasing varieties given the relatively inelastic demand for cocoa. If cocoa productivity

was allowed to double, it could free up half of the land under cocoa to produce palm oil which is

also being grown in West Africa. However, implementation of such a policy requires significant

investment and the capacity to enforce regulations to preserve balanced use of the land among

competing uses.

Current palm oil yield in Africa is relatively low, both because of limited genetic material

and lack of rainfall, but it can be more than doubled with available technology (Barcelos et al.

2015; Woittiez et al. 2017; Brown 2006). Under current conditions, cocoa is slightly more

profitable than palm oil in West Africa, but with improved varieties, irrigation, and better

management practices, palm oil has the potential to compete with even improved cocoa varieties,

especially if carbon mitigation benefits are priced. Currently, there are more than 7 million

hectares of land producing cocoa in Africa. If 42% of this land is converted to palm oil, it would

produce 3.7 billion gallons of biodiesel9, which is more than 30% of Africa’s total annual diesel

consumption10. The challenge is to develop public-private partnerships that will increase the

9
42% * 7 million hectares * 1,250 gallons per hectare = 3.7 billion gallons per year
10
This calculation is based on Mulugetta (2009), which suggests that Africa’s diesel consumption totals about 10
billion gallons each year.

19
overall value added of agricultural production in West Africa by maintaining or enhancing

earnings from cocoa and producing significant amounts of biofuel11. Increasing biodiesel

production will not just enhance income for the rural sector, but will also reduce the need for

foreign exchange for fuel imports.

The adoption of yield increasing varieties can also provide a significant amount of land to

produce biofuel crops like sugarcane and corn while reducing the land currently under various

food crops. Barrows, Sexton, and Zilberman (2014) estimated that with the introduction of

genetically modified (GM) varieties, the global supply of corn, cotton, and soybeans have

increased by 10%, 20%, and 30% respectively. Klümper and Qaim (2014) found that adoption of

GM technology increases yields by an average of 22% relative to traditional varieties and that

the impact is bigger in developing countries. Kumar et al. (2008) suggest that adoption of

herbicide-resistant technologies can double rice yields in India and save other inputs. Zilberman,

Kaplan, and Wesseler (2015) suggest that adoption of GM rice varieties may increase rice yield

by 10-20%.

In the absence of other profitable uses of the land, yield increasing technologies can lower

price and returns to the land, leading to objections by farmers to the introduction of these

varieties (NRC 2010). One way to overcome these objections is to divert some portion of the

land from production of rice to production of alternative crops used for biofuels, like sugarcane

or sweet sorghum. In the case of India, sweet sorghum produces about 370 gallons of biodiesel

per acre (or about 900 gallons per hectare), and sugarcane may produce about 1000 gallons per

hectare (Brown 2006). Converting 10% of the 44 million hectares of land currently under rice in

India to sugarcane would produce 4 billion gallons annually. This is about half of India’s annual

11
Implementation of such programs may require more monitoring against deforestation.

20
gasoline consumption12 (DES(India) 2017). There is a similar potential to adopt GM varieties in

Vietnam, Thailand, or China and release a significant amount of land to grow sugarcane for the

production of ethanol in order to replace a substantial amount of their gasoline consumption. The

discovery of gene editing and other new frontiers associated with modern biotechnology provide

new avenues to increase yields. There is a large body of evidence about a substantial crop yield

gap between developed and developing countries. This crop yield gap is largely due to under-use

of modern inputs (e.g. irrigation, fertilizer) and advanced varieties in developing countries (Foley

et al. 2005) which in turn is a consequence of low prices and lack of access to markets (Neumann

et al. 2010). To the extent that increased production of biofuels raises crop prices and returns to

land, it will create incentives for farmers to adopt yield increasing technologies.

Role of Policy in Inducing Complementary Innovations in the Agricultural and

Transportation Sectors

Meeting growing demand for food and feed while increasing production of clean energy

in the transportation sector requires innovations that transform the efficiency with which we use

land and that low carbon alternatives for transportation become more cost-effective. Policies that

encourage sustainable intensification of agriculture and reduce yield gaps across the world can

allow an increase in food and fuel production without adverse impacts on the environment. This

includes (a) reducing regulatory barriers to the use of modern biotechnology as well as the

diffusion of improved varieties that increase crop productivity, (b) creating demand for low

carbon fuel and vehicle alternatives for transportation to induce economies of scale and learning

by doing and (c) institutional partnerships between governments, private sector and development

banks to invest in re-allocation of land from traditional crops and practices to modern varieties

12
This calculation assumes 8.5 billion gallons of gasoline consumption per year, as suggested by a 2018 Reuters
article.

21
and alternative crops. This transformation may have significant benefits, reduce dependence on

foreign oil and invigorate the rural sector by producing high value products.

Removal of regulatory constraints on the use of biotechnology and creating alternative

markets for agricultural feedstocks will reduce plant diseases, increase yield, and provide

incentives to enhance supply by enabling greater use of complementary inputs such as fertilizer

and pest-resistant crop varieties (Wesseler et al. 2017). An overly stringent application of the

precautionary principle in many parts of the world has impeded research and development of

locally adapted genetically modified crops and led to restrictive regulatory systems for these

crops. Adenle et al. (2018) provide a number of examples where onerous regulations driven by

concerns about perceived risks of genetically modified crops that are not well quantified have

limited crop development and its potential benefits for the populations, especially in Asia and

Africa.

Experience with the first generation of biofuels in the US and in Brazil shows that policy

support needs to be sustained over decades to be successful in increasing the scale of production

and lowering the cost of producing these fuels to make them competitive with fossil fuels. The

US government began supporting biofuels with tax exemptions starting from the Energy Tax Act

of 1978 then extending this exemption, later converting it to a tax credit and supplementing it

with an import tariff to reduce imports of sugarcane ethanol from Brazil and a volumetric biofuel

mandate since 200513. Similarly, biofuel policy has been critical for stimulating biofuel

production in Brazil. It has varied considerably over time and included a subsides, low interest

loans for infrastructure, guaranteed purchases of ethanol by the state oil company at a wholesale

price floor, a blend mandate, tax credits for ethanol-fueled cars relative to gasoline and a ceiling

13
https://edis.ifas.ufl.edu/fe974

22
on the price of ethanol relative to gasoline (Cicogna, Khanna, and Zilberman 2017). The refinery

cost of corn ethanol in the US has declined by 45% since 1983 as policy induced production

volumes have increased seventeen-fold. Similarly, high rates of learning-by-doing and reductions

in the cost of sugarcane ethanol production as cumulative production increased have been

observed in Brazil (Chen and Khanna 2012).

Policies to induce advanced biofuels in the US have only existed since 2007 and taken

the form of a blender’s tax credit and a mandate under the Renewable Fuel Standard to produce

cellulosic biofuel starting in 2013 and grow to 16 billion gallons by 2022. However, the

cellulosic mandate has never been enforced. The support of policies to induce investment in

biofuel requires strong political will to overcome concerns about the negative implications of

biofuels for the fossil fuel industry and for fuel consumers. Fuel policy in Brazil has implicitly

subsidized oil to protect fuel consumers while the cellulosic biofuel mandate in the US has been

repeatedly waived due to concerns about high costs for fuel blenders (Khanna, Nuñez, and

Zilberman 2016; NRC 2011). Miao, Hennessy, and Babcock (2012) show conditions under

which non-waivable mandates are critical to induce investment in the advanced biofuel industry.

Enforcement and expansion of performance-based policies such as the Low Carbon Fuel

Standard in California and carbon taxes/tradeable permits can be effective in creating incentives

for supplying low carbon technologies and investing in infrastructure such as E85 stations and

EV charging stations to build market demand for these technologies.

Increasing land use efficiency by overcoming the yield gap and enhancing the adoption

of sustainable high input-intensity practices will require investment in and incentives for

improved practices, seeds and inputs, and a reduction in risks at the farm-gate (Foley et al. 2011).

This transition of agricultural practices towards increased production, be it high yield varieties of

23
cocoa in Ghana or irrigation, fertilization, and improved varieties of corn in other African

countries, requires significant investment for a transitionary period. This is an institutional

challenge and opportunity for the establishment of large-scale collaboration between

multinational organizations like the World Bank, private energy suppliers, national governments,

and farmer organizations to transform agriculture in many parts of the world. Such collaboration

should include providing finance, obtaining access to biofuel and food markets, introduction of

regulations that induce sustainable production, and introduction and dissemination of new

technology. Such activities will lead to higher yield and income that will address challenges of

food security, energy security, and environmental quality.

Conclusions

Growing emissions from the transportation sector are increasing the urgency of finding

low carbon alternatives for this sector. While EVs offer a potential solution, widespread

deployment is likely to be constrained due to vehicle range limitations, infrastructure availability,

and in-applicability to long distance trucking and non-road transportation sectors. Low carbon

biofuels are a viable option given current technology for both on-road and non-road sectors.

They can also increase returns to land and provide new sources of income for the rural sector.

However, expanding their production by shifting to next generation technologies will require a

sustained commitment to mitigate climate change and to implement credible policies that

incentivize low carbon fuels. Policy certainty is critical to induce the significant investment

required in R&D and in a new generation of integrated biorefineries that can produce a range of

biofuels and bioproducts at prices that can compete with their fossil alternatives. It is also

important to induce investment in infrastructure to enable the consumption of higher blends of

ethanol, before a transition is made to drop-in-fuels. Increasing reliance on biofuel also requires

24
continuous support for research and development and pricing greenhouse gas emissions to reflect

their social costs.

The development of policies that increase reliance on biofuel will also require policy

changes that increase agricultural productivity to facilitate the production of sufficient levels of

food and biofuel feedstock. This requires more rational regulation of new biotechnologies based

on balancing their benefits, risks, and their utilization in order to increase efficiency, and thus

increase productivity, especially in the developing world. Perhaps the biggest challenge is to

establish the new institutional initiatives that would allow transformation of the agricultural

sector in many developing countries towards high input use efficiency and sustainable practices

that rely on modern technologies and enhanced human capital in the farm sector. Collaboration

between development organizations, private companies, farmers, and researchers is essential to

achieve this transformation and raise agricultural productivity that would allow biofuel and food

production to be complementary rather than in conflict with each other.

Decarbonizing of the transportation sector faces significant geo-political hurdles as it

threatens the existing allocation of resources among nations. Major technological innovations

and policy commitments are needed to induce new innovations of biofuel and agricultural

technologies and institutions to reduce greenhouse gas emissions while enhancing economic

development. This requires strong political will to develop the policies and infrastructure needed

to allow low carbon fuel technologies to become economically viable and to induce widespread

adoption. These efforts need to be sustained over a long period of time to be successful in

reducing dependence on fossil fuels and altering the current upward trajectory in GHG emissions

from transportation.

25
Acknowledgment

Deepayan Debnath and Madhu Khanna would like to acknowledge support from the USDOE

Center for Advanced Bioenergy and BioProducts and Innovation, (U.S. Department of Energy,

Office of Science, Office of Biological and Environmental Research under Award Number DE-

SC0018420). Madhu Khanna would also like to acknowledge support from NIFA, USDA. David

Zilberman would like to acknowledge support from the Global Climate and Energy Project

(Stanford Sub Award Agreement no. 640 60413992–112883-A). Any opinions, findings, and

conclusions or recommendations expressed in this publication are those of the authors and not of

the funding sources.

26
Figure 1. GHG emissions from the transportation sector

2,000 8,000

World GHG Emissions (million tonnes of CO2 equiv.)

World
GHG Emissions (million tonnes of CO2 equiv.)

1,800
7,000
US
1,600
6,000
1,400
5,000
1,200

1,000 EU 4,000
China
800
3,000
600
2,000
400 Africa
India 1,000
200
Brazil
0 0
1971 1975 1980 1985 1990 1995 2000 2005 2010 2015 2016

Note: Total emissions across the world are charted on the right axis

Source: Source: Based on IEA data from the IEA (2018). CO2 Emissions from Fuel Combustion
2018 Highlights. https://webstore.iea.org/co2-emissions-from-fuel-combustion-2018-highlights.
All rights reserved; as modified by Deepayan Debnath (accessed February20, 2019).

27
Figure 2. Ethanol and biodiesel production across major regions in the world

30,000 Canada
Ethanol Production by Country (million gallons)

Rest of the world

China
25,000 Argentina
EU
20,000
Brazil

15,000

10,000
US

5,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Brazil EU Argentina China Rest of the world Canada

10,000
Biodiesel Production by Country (million gallons)

9,000 China
Rest of the world
8,000
Indonesia
7,000
Argentina
6,000
Brazil
5,000
US
4,000

3,000

2,000 EU
1,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EU US Brazil Argentina Indonesia Rest of the world China

Source: U.S. Energy Information Administration (Oct 2018). International Energy Statistics, US
EIA. (https://www.eia.gov/beta/international/data/browser/) (accessed May 22, 2019).

28
Figure 3: Alternative fuel vehicles in the US

3,500
CNG

3,000 LPG
Alternative Fuel Vehicles (in thousands)

2,500
DSL-HYB
2,000 HYD
LNG
EV
1,500 GAS-HYB

1,000
E85
500

CNG LPG DSL-HYB HYD LNG EV GAS-HYB E85

Note (acronyms): HYD: Hydrogen, CNG: Compressed natural gas, E85: 85% ethanol, 15% gasoline,
EV: Electric vehicles, LNG: Liquefied natural gas, LPG: Liquefied petroleum gas, DSL-HYB: Diesel
Hybrid, GAS-HYB: Gasoline Hybrid

Source: U.S. Energy Information Administration (May2019). https://www.eia.gov/renewable/

afv/supply.php?fs=a&sfueltype=GAS(accessed June 10,2019).

29
Figure 4: Global production of battery electric and plug-in hybrid electric vehicles

Source:http://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes/ (accessed
June 8, 2019).

30
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