Second-Generation Biofuels Market – Global Industry Size, Share, Trends, Opportunity, and Forecast Segmented by Application (Transportation, Power Generation and Others), Type (Cellulosic Biofuel, Biodiesel, Biogas, Biobutanol, and Others), Process (Biochemical and Thermochemical), By Region, Competition 2021-2031F

Forecast Period	2027-2031
Market Size (2025)	USD 11.88 Billion
CAGR (2026-2031)	20.88%
Fastest Growing Segment	Biodiesel
Largest Market	North America
Market Size (2031)	USD 37.06 Billion

Market Overview

The Global Second-Generation Biofuels Market will grow from USD 11.88 Billion in 2025 to USD 37.06 Billion by 2031 at a 20.88% CAGR. The Global Second-Generation Biofuels Market comprises advanced renewable fuels derived from non-food biomass, such as agricultural residues, woody crops, and waste oils, effectively mitigating competition with food supplies. The primary drivers supporting market growth include stringent government mandates for carbon reduction and a strategic emphasis on energy security to minimize reliance on imported fossil fuels. These regulatory frameworks are accelerating investment in hard-to-abate sectors like aviation and heavy transport. For instance, according to the International Air Transport Association, in 2024, global production of sustainable aviation fuel reached 1 million tonnes, doubling the volume produced in the previous year.

Despite this progress, the market faces a significant challenge regarding the high capital and operational costs associated with advanced conversion technologies. The economic viability of these fuels is often hindered by the complex logistics of sourcing and transporting low-density lignocellulosic feedstock, which creates substantial barriers to achieving commercial scalability and price parity with conventional fossil fuels.

Key Market Drivers

Supportive government policies and biofuel blending mandates are fundamentally reshaping the global second-generation biofuels market by creating guaranteed demand and reducing investment risks. Regulatory frameworks, such as the European Union's ReFuelEU Aviation initiative, are compelling fuel suppliers to integrate advanced renewable fuels into their product mixes to meet aggressive decarbonization targets. For instance, according to Air bp, starting January 1, 2025, aviation fuel suppliers at designated EU airports are required to ensure that all fuel made available to aircraft operators contains a minimum share of 2% sustainable aviation fuel. These mandates are driving substantial capacity expansions across the industry as producers race to align with statutory requirements. According to Neste, in its Annual Report 2024 published in February 2025, the company’s global nameplate capacity for renewable and circular products, including renewable diesel and SAF, reached approximately 5.5 million tons per year.

The surging demand for Sustainable Aviation Fuel (SAF) acts as a critical catalyst for market growth, driven by the aviation sector’s urgent need to lower Scope 3 emissions and achieve net-zero commitments. Major airlines are aggressively entering into long-term offtake agreements with producers to secure future supply of drop-in fuels derived from non-food feedstocks like waste oils and agricultural residues. This trend is exemplified by significant commercial partnerships aimed at scaling distribution in key logistical hubs. According to Phillips 66, in December 2024, the company signed a supply agreement with United Airlines to deliver 3 million gallons of SAF to Chicago O'Hare International Airport, with the potential to increase volumes to 8 million gallons by mid-2025. Such strategic collaborations underscore the market's pivot toward high-value, low-carbon applications that rely heavily on advanced biofuel technologies.

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Key Market Challenges

The high capital and operational costs associated with advanced conversion technologies represent the most significant barrier hampering the growth of the Global Second-Generation Biofuels Market. Unlike first-generation options, second-generation biofuels rely on lignocellulosic biomass which possesses low energy density and is geographically dispersed. This necessitates complex and expensive collection networks to aggregate sufficient feedstock for processing, thereby driving up operational expenditures. Furthermore, the sophisticated refining processes required to convert this fibrous material into drop-in fuels demand substantial upfront capital investment, making it difficult for producers to achieve the economies of scale needed to compete with established energy sources.

This economic disparity creates a formidable obstacle to achieving commercial viability and restricts market adoption to regions with heavy subsidies. The inability to reach price parity with traditional fuels discourages private investment and slows the transition from pilot projects to industrial-scale production. For instance, according to the International Energy Agency, in 2024, the production costs for advanced biofuels were estimated to be between 2.7 and 3.8 times higher than those of conventional fossil fuels. This significant cost gap directly limits the ability of second-generation biofuels to capture a larger share of the global energy market.

Key Market Trends

Strategic market consolidation through acquisitions by oil majors is fundamentally reshaping the competitive landscape of the Global Second-Generation Biofuels Market. Integrated energy companies are aggressively purchasing established biofuel producers to secure low-carbon feedstock supply chains and bypass the extensive lead times associated with greenfield project development. This trend enables traditional fossil fuel giants to immediately capture market share in renewable diesel and sustainable aviation fuel sectors while leveraging their existing downstream infrastructure. For instance, according to BP, June 2024, in a press release regarding the transaction, the company agreed to acquire the remaining 50% stake in its Brazilian joint venture Bunge Bioenergia for an enterprise value of approximately $1.4 billion, effectively taking full ownership to accelerate its bioenergy and next-generation fuel capabilities.

The emergence of marine biofuels as a key decarbonization vector is simultaneously expanding the market’s scope beyond road and aviation applications. As the shipping industry navigates tighter emissions regulations from the International Maritime Organization, vessel operators are prioritizing bio-bunkering solutions that function as drop-in replacements, requiring minimal engine retrofitting compared to alternatives like ammonia or hydrogen. This operational shift is driving significant volumes of biofuel blends through major global logistics hubs, validating the commercial scalability of these fuels in heavy transport. According to the Maritime and Port Authority of Singapore, January 2025, in its annual performance review, the port recorded a record 0.88 million tonnes of biofuel blend sales in 2024, representing a substantial increase from the 0.52 million tonnes sold in the previous year.

Segmental Insights

Biodiesel is projected to emerge as the fastest-growing segment within the Global Second-Generation Biofuels Market, driven by the escalating demand for low-carbon transportation alternatives. This growth is primarily fueled by the extensive utilization of non-food feedstocks, such as used cooking oil and animal fats, which align with circular economy principles and mitigate food security concerns. Furthermore, the segment benefits significantly from its compatibility with existing diesel infrastructure, allowing for immediate adoption without substantial vehicle modifications. Regulatory frameworks, such as the European Union’s Renewable Energy Directive, actively incentivize this shift by mandating strict carbon intensity reductions, thereby accelerating market expansion.

Regional Insights

North America holds a dominant position in the global second-generation biofuels market, driven by strong government mandates and established production infrastructure. The United States actively supports industry expansion through the Renewable Fuel Standard program administered by the Environmental Protection Agency, which incentivizes the blending of cellulosic biofuels. This regulatory support creates a stable demand framework that encourages investment in advanced processing technologies. Additionally, the region benefits from an abundant availability of diverse biomass feedstocks, further securing its leadership in the transition toward sustainable energy solutions.

Recent Developments

• In September 2024, AM Green announced the acquisition of Chempolis Oy and Fortum 3 B.V. to leverage advanced lignocellulosic feedstock processing technologies for the production of second-generation biofuels. The company committed to investing $1 billion to develop alcohol-to-jet (ATJ) sustainable aviation fuel plants with a capacity exceeding 0.5 million tons per annum by 2027. This collaboration aimed to establish a global biorefinery ecosystem that processes waste materials such as straw and bamboo into high-value green chemicals and fuels. The initiative was designed to accelerate the decarbonization of the aviation and industrial sectors through innovative technology licensing.
• In May 2024, Raízen inaugurated its largest second-generation ethanol (E2G) plant at the Bonfim Bioenergy Park in Guariba, São Paulo. The facility received an investment of R$1.2 billion and was established with a production capacity of 82 million liters per year. This plant utilized sugarcane bagasse, a biomass waste byproduct, to produce advanced biofuel without competing with food crops. The company reported that 80% of the plant's volume had already been contracted, underscoring the robust global demand for cellulosic ethanol in hard-to-abate sectors such as aviation and maritime transport.
• In February 2024, Cepsa and Bio-Oils commenced the construction of a new second-generation biofuels plant in Huelva, Spain, through a strategic joint venture. The project involved an investment of €1.2 billion and aimed to create the largest flexible production facility for sustainable aviation fuel and renewable diesel in southern Europe. The plant was designed to have an annual production capacity of 500,000 tons, doubling the joint venture's total output to one million tons per year. The facility planned to utilize organic waste, such as agricultural residue and used cooking oil, ensuring a circular economy approach for decarbonizing heavy transport.
• In January 2024, LanzaJet inaugurated its Freedom Pines Fuels facility in Soperton, Georgia, marking the launch of the world's first commercial-scale ethanol-to-sustainable aviation fuel (SAF) production plant. The facility was designed to produce 10 million gallons of SAF and renewable diesel annually by utilizing low-carbon, certified ethanol derived from sustainable sources. This development represented a milestone in the global second-generation biofuels market, as the proprietary alcohol-to-jet technology reduced greenhouse gas emissions by over 70% compared to fossil jet fuel. The project was fully funded and secured committed offtake agreements for its production for the next decade.

Key Market Players

• Abengoa Bioenergy
• Chemtex Group
• Bankchak Petroleum
• Clariant Produkte GmbH
• DuPont Industrial Biosciences
• Fujian Zhongde Energy Co. Ltd
• INEOS Bio
• KiOR Inc.
• Sundrop Fuels Inc.

By Region

North America Europe Asia Pacific South America Middle East & Africa

Report Scope:

In this report, the Global Second-Generation Biofuels Market has been segmented into the following categories, in addition to the industry trends which have also been detailed below:

• Second-Generation Biofuels Market, By Region:

• North America
• United States
• Canada
• Mexico
• Europe
• France
• United Kingdom
• Italy
• Germany
• Spain
• Asia Pacific
• China
• India
• Japan
• Australia
• South Korea
• South America
• Brazil
• Argentina
• Colombia
• Middle East & Africa
• South Africa
• Saudi Arabia
• UAE