Dynamics of the European demand for lignocellulosic (2G) ethanol

A key approach to the path to more sustainability development is the continuous switch to second generation biofuels, which are derived from non-food resources. One of the most promising biofuels is the lignocellulosic (2G) ethanol. Because of current absence of cost competiveness, the 2G ethanol market is strongly dependent on policy support. Moreover, the production costs for 2G ethanol play a crucial role for future cost competitiveness and thereby for market development. Hence, the key question that arises is how the linkage between the policy-induced market growth and the reduction of production costs can influence the dynamics for 2G ethanol demand. To examine these dynamics and interaction in Europe over 20 years a simple System Dynamics model was developed as a part of a research project funded by the European Union. The results of simulation runs show a positive impact of learning effects resulting from build up and running of new capacities on 2G ethanol price and thereby on 2G ethanol market demand. Moreover, it has been proved that these effects are closely interlinked with considered policy incentives in form of quota regulations according the Renewable Energy Directive (RED II).