Market Size and Overview:

The Next Generation Biofuels Market was valued at USD 25 Billion in 2024 and is projected to reach a market size of USD 47.5 Billion by the end of 2030. Over the forecast period of 2025-2030, the market is projected to grow at a CAGR of 13.69%.

The Next Generation Biofuels market focuses on advanced fuels produced from non-food biomass sources. These biofuels are developed using cutting-edge technologies to provide cleaner and more sustainable alternatives to traditional fossil fuels. Unlike first-generation biofuels, next-gen variants rely on feedstocks such as agricultural residues, algae, municipal solid waste, and cellulosic materials. They are designed to reduce greenhouse gas emissions and dependency on food crops for fuel production. Key types include cellulosic ethanol, advanced biodiesel, biohydrogen, and algal biofuels. These fuels are gaining traction in industries like transportation, power generation, and aviation. Governments worldwide are supporting this market through policy incentives and regulatory frameworks promoting cleaner energy. The market also benefits from advancements in biotechnology, enzyme engineering, and waste-to-fuel processes. Major players are investing in R\&D to enhance yield efficiency and scalability of production. The focus remains on increasing fuel compatibility with existing infrastructure and reducing overall production costs.

Key Market Insights:

In 2024, North America accounted for over 38% of the global market share, driven by strong government mandates and advanced infrastructure. The U.S. led the region with significant investments in cellulosic ethanol and renewable diesel facilities.

Asia-Pacific witnessed a surge in biofuel adoption in 2024, capturing approximately 23% of the global share, primarily due to energy security policies in India, China, and Japan. Regional R&D partnerships and algae-based fuel trials have accelerated the growth trajectory.

By application, the transportation segment held around 62% of the market share in 2024, led by increasing demand for sustainable aviation fuel (SAF) and cleaner automotive fuels. Commercial airlines and logistics fleets are actively piloting second-generation biofuels to meet net-zero targets.

Cellulosic biofuels emerged as the dominant type in 2024, contributing over 41% of total revenue, backed by large-scale plant expansions in the U.S. and Europe. Their compatibility with existing engines and lower lifecycle emissions positioned them as a preferred choice.

In 2024, global investment in next-generation biofuel research exceeded US $3.2 billion, reflecting growing confidence in its scalability. Several government-backed pilot projects and tax incentives boosted industrial partnerships in production innovation.

Market Drivers: 

Government Regulations and Renewable Energy Mandates Are Driving Market Demand for Next Generation Biofuels

Governments across the globe are actively pushing for cleaner energy alternatives, and next generation biofuels are at the center of these initiatives. Regulatory mandates such as the Renewable Fuel Standard (RFS) in the U.S. and the Renewable Energy Directive (RED II) in the EU are compelling energy producers to blend advanced biofuels into transportation fuels. These mandates not only set blending targets but also offer tax credits, subsidies, and low-carbon fuel incentives. As a result, energy companies are investing heavily in second- and third-generation biofuel production facilities to meet compliance. Additionally, developing nations are adopting similar frameworks to reduce import dependency and address urban pollution. Such strong policy support ensures long-term demand and encourages innovation in the sector.

Technological advancements in feedstock processing are expanding commercial viability of biofuels and their adoption in the market

Breakthroughs in biotechnology and feedstock conversion processes are significantly enhancing the efficiency of next generation biofuel production. Advanced techniques such as enzyme hydrolysis, gasification, and microbial fermentation are allowing producers to convert non-food biomass into usable fuels more effectively. These innovations are making it economically feasible to use agricultural waste, forestry residues, algae, and even municipal solid waste as raw materials. Improved scalability and reduced processing time are lowering overall production costs, making next-gen biofuels more competitive with fossil fuels. Furthermore, research institutions and private companies are collaborating to develop genetically engineered microbes that boost fuel yield. This wave of innovation is critical to expanding the commercial adoption of biofuels on a global scale.

Market Restraints and Challenges:

One of the major challenges facing the next generation biofuels market is the high cost of production compared to conventional fossil fuels and first-generation biofuels. Advanced biofuel technologies often require expensive enzymes, reactors, and feedstock processing equipment, which limits affordability and scalability. In addition, many regions lack the necessary infrastructure for collection, transportation, and large-scale processing of non-food biomass and waste-based feedstocks. The absence of widespread refueling and distribution networks also hinders commercial adoption, especially in developing countries. Furthermore, technological risks associated with newer bio-refining methods raise concerns for investors. These factors collectively slow down-market penetration and discourage early-stage commercialization efforts.

Market Opportunities:

The rising global emphasis on decarbonizing aviation and marine transport presents a significant opportunity for next generation biofuels. Airlines and shipping companies are under increasing pressure to meet net-zero emission targets, making sustainable biofuels a critical alternative. Governments and international bodies are supporting this transition through incentives, mandates, and funding for pilot programs. Additionally, next-gen biofuels derived from waste and algae are gaining traction due to their low carbon intensity and scalability. As fuel standards tighten and fossil fuel alternatives become less viable, demand for advanced biofuels in long-haul and freight transport is set to surge. This creates a fertile ground for innovation, investment, and global adoption across high-emission industries.

Market Segmentation:

Segmentation by Type
•    Cellulosic Biofuels
•    Algal Biofuels
•    Biohydrogen
•    Advanced Biodiesel
•    Bioalcohols (e.g., Biobutanol, Bioethanol)

Cellulosic biofuels hold the largest market share due to their ability to convert abundant agricultural residues, wood chips, and other lignocellulosic materials into renewable fuels. These biofuels offer significantly lower greenhouse gas emissions compared to conventional ethanol, making them a preferred option under global sustainability mandates. With existing infrastructure compatibility and scalability, cellulosic ethanol and diesel have been widely adopted, especially in North America and Europe. Governments have backed this segment with strong policy support and funding for commercial-scale production plants.

Algal biofuels are the fastest-growing segment due to their high yield potential and minimal land and water requirements. Unlike traditional feedstocks, algae can be cultivated in non-arable areas and produce oils ideal for biodiesel and jet fuel. Ongoing research and pilot projects have significantly improved cost-efficiency and production scalability. This innovation, combined with rising interest from aviation and defense sectors, is accelerating the adoption of algal biofuels worldwide.

Segmentation by Feedstock

•    Lignocellulosic Biomass (e.g., crop residues, wood chips)
•    Algae
•    Municipal Solid Waste (MSW)
•    Non-food Energy Crops (e.g., switchgrass, jatropha)
•    Animal Waste & Industrial Waste
•    Others

Lignocellulosic biomass is the largest feedstock segment, primarily due to its wide availability and low cost. Derived from crop residues, forestry waste, and wood chips, it provides a sustainable and non-food-based input for large-scale biofuel production. Its high cellulose content makes it ideal for producing cellulosic ethanol and other advanced fuels. Strong policy backing and technological maturity have positioned lignocellulosic feedstocks as the backbone of next-generation biofuel infrastructure.

Algae is the fastest-growing feedstock category, driven by its high oil content, rapid growth rate, and minimal land requirement. It can be cultivated in saltwater or wastewater, reducing pressure on freshwater and arable land. Technological advancements in algae harvesting and oil extraction have significantly improved its commercial viability. With growing interest from the aviation and marine sectors, algae-based fuels are becoming a major focus for future bioenergy investments.

Segmentation by Application

•    Transportation (Aviation, Automotive, Marine)
•    Power Generation
•    Heating
•    Industrial Use
•    Others

The transportation sector dominates the next generation biofuels market, accounting for the highest share due to increasing demand for cleaner alternatives to gasoline and diesel. Aviation, automotive, and marine industries are under mounting pressure to reduce carbon emissions, making advanced biofuels a strategic solution. Sustainable Aviation Fuel (SAF) and renewable marine fuels are being rapidly adopted in developed regions. Governments and industry players are investing heavily in bio-refineries and blending mandates to meet environmental goals.

Within the transportation category, aviation is the fastest-growing sub-segment due to its urgent need for low-emission fuel solutions. Airlines are actively testing and adopting Sustainable Aviation Fuels (SAFs) made from algae, waste, and cellulosic feedstocks. Regulatory frameworks like CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) are pushing the sector toward greener alternatives. This rapid shift is making aviation a key driver of growth in the biofuels market.

Market Segmentation: Regional Analysis:

•    North America
•    Europe
•    Asia-Pacific
•    South America
•    Middle East & Africa

North America holds the largest share of the next generation biofuels market, driven by strong regulatory frameworks such as the Renewable Fuel Standard (RFS) in the U.S. The region benefits from advanced infrastructure, large-scale bio-refineries, and consistent government incentives. The U.S. and Canada lead in cellulosic ethanol and renewable diesel production, with active public-private partnerships accelerating innovation. This established ecosystem positions North America as a global hub for commercial-scale deployment of next-gen biofuels.

Asia-Pacific is the fastest-growing region in the market, fueled by rising energy demand, urbanization, and environmental regulations. Countries like India, China, and Japan are investing in algae-based fuels and waste-to-energy programs to reduce dependence on imported fossil fuels. Government policies are encouraging the use of non-food energy crops and municipal solid waste as feedstock. Rapid industrialization and support for clean energy make the region a hotspot for next-gen biofuel expansion.

COVID-19 Impact Analysis:

The COVID-19 pandemic had a mixed impact on the next generation biofuels market. On one hand, lockdowns and reduced transportation activity led to a temporary drop in fuel demand, slowing down production and investment in new biofuel projects. Supply chain disruptions also affected the availability of feedstock materials and delayed construction of bio-refineries. However, the crisis also accelerated the global conversation around energy security and climate resilience, prompting renewed interest in sustainable fuel alternatives. Governments incorporated green recovery plans into economic stimulus packages, which included funding for renewable energy projects, including advanced biofuels. As economies reopened, the market began to rebound with a stronger focus on decarbonization and long-term energy transition.

Latest Trends and Developments:

The next generation biofuels market is witnessing a surge in innovation and commercialization, especially in renewable diesel (HVO) and Sustainable Aviation Fuel (SAF), which are gaining favor in heavy transport and aviation sectors. Airlines globally are increasing SAF adoption, supported by international mandates and partnerships with biofuel producers. Waste-to-fuel technologies are rapidly advancing, allowing the conversion of municipal solid waste, used cooking oil, and agricultural residues into high-efficiency fuels. Synthetic biofuels and e-fuels, created using green hydrogen and captured CO₂, are emerging in pilot phases as futuristic alternatives. Governments are reinforcing blending mandates through policies like the U.S. Renewable Fuel Standard (RFS), EU RED III, and India’s ethanol roadmap, stimulating demand. Oil majors are forming strategic alliances with biotech firms to scale production and secure diverse feedstock sources. Despite these advancements, limited availability of cost-effective feedstock and high conversion costs remain persistent challenges. In Asia, increasing SAF production has outpaced regional demand, positioning the region as a potential global exporter by 2026.

Key Players in the Market:

•    LanzaTech
•    Gevo Inc.
•    Neste Corporation
•    POET-DSM Advanced Biofuels
•    Algenol Biotech LLC
•    Shell (Advanced Biofuels Division)
•    DuPont Industrial Biosciences
•    Abengoa Bioenergy
•    GranBio
•    Renewable Energy Group (REG)

In June 2024, BP announced to acquire a 50% stake in the BP Bunge Bioenergia JV for approximately USD 1.4 billion, gaining full control over sugarcane ethanol operations in Brazil.  Following acquisition, BP gained outright ownership of 11 mills across five Brazilian states, producing around 50,000 barrels/day of ethanol equivalent, while processing 32 million tons of sugarcane annually.