Traditional bioenergy is associated with considerable social, environmental and economic costs.

The energy efficiency of traditional biomass fuels (e.g., woodfuels) is low, putting considerable strain on environmental biomass resources, which are also important sources of fodder and green manure for soil fertility restoration as well as other ecosystem services. Inefficient biomass combustion is also a key contributor to air pollution in the homestead leading to 1.5 million premature deaths per year (WHO, 2006). Collecting fuelwood is time-consuming, reducing the time that people can devote to productive activities each day e.g., farming and education (UNDP, 2000; IEA, 2002; Goldemberg and Coelho, 2004; Karekezi et al., 2004; World Bank, 2004b; Bailis et al., 2005).

Production of modern liquid biofuels for transportation, predominantly from agricultural crops, has grown rapidly (25% per year) in recent years, spurred by concerns about fossil energy security and global warming and pressures from agricultural interest groups.

Modern liquid biofuels, such as bioethanol and biodiesel contributed only about 1% of the total road transport fuel demand worldwide in 2005 (IEA, 2006c). The main first generation products are ethanol and biodiesel. Ethanol is produced from plant-derived starch (e.g., sugar cane, sugar beet, maize, cassava, sweet sorghum), primarily in Brazil (16,500 million liters) and the US (16,230 million liters). In 2005, world production was over 40,100 million liters (Renewable Fuels Association, 2005). Sugar cane derived ethanol meets about 22% of Brazil's gasoline demand (Worldwatch Institute, 2006), much of it used in flexfuel vehicles, which can operate under different gasoline-ethanol blends (e.g., 10% ethanol: 90% gasoline). In terms of vehicle fuel economy, one liter of ethanol is equivalent to about 0.8 liters of gasoline-accounting for its lower energy content but higher octane value (Kojima and Johnson, 2005). Biodiesel is typically produced chemically from vegetable oils (e.g., rapeseed, soybeans, palm oil, Jatropha seeds) by trans-esterification to form methyl esters. Germany was the world's biggest producer (1,920 million liters) in 2005, followed by other European countries and the USA. Biodiesel production has been growing rapidly (80% in 2005) but overall production levels are an order of magnitude smaller than ethanol (REN 21, 2006). Biodiesel contains only about 91% as much energy as conventional diesel, and can be used in conventional diesel engines, either pure or blended with diesel oil (EPA, 2002). Other biofuels such as methanol and butanol only play a marginal role in markets today but may become more important in the future.

The production of liquid biofuels for transport is rarely economically sustainable.

The economic competitiveness of biofuels is widely debated and depends critically on local market conditions and production methods. The main factors determining biofuels competitiveness are (1) the cost of feedstock, which typically contributes about 60-80% of total production costs (Berg, 2004; Kojima and Johnson, 2005), (2) the value of byproducts (e.g., glycerin for biodiesel and high fructose maize syrup for maize ethanol), (3) the technology that determines the scale of the production facility, the type of feedstock and conversion efficiency, and (4) the delivered price of gasoline or diesel. Brazil is widely recognized to be the world's most competitive ethanol producer from sugar cane, with 2004- 2005 production costs of US$0.22-0.41 per liter of gasoline equivalent (vs US$0.45-0.85 per liter in USA and Europe), but the world price of sugar and the exchange rate of the Brazilian currency determine price competitiveness. Brazilian ethanol production can be competitive with oil prices at about US$40-50 per barrel (versus about US$65 per barrel in Europe and USA, if one takes agricultural subsidies into account). It is estimated that oil prices in the range of US$66-115 per barrel would be needed for biodiesel to be competitive on a large scale. In remote regions and landlocked countries, where exceptionally high transport costs add to the delivered price of gasoline and diesel, the economics may be more favorable but more research is needed to assess this potential (IEA, 2004ab; Australian Government Biofuels Task Force, 2005; European Commission, 2005; Henke et al., 2005; Kojima and Johnson, 2005; Henninges and Zeddies, 2006; Hill et al., 2006; IEA, 2006c; OECD, 2006a; Worldwatch Institute, 2006; Kojima et al., 2007). In order to promote production despite these high costs biofuels are most often subsidized (see Chapter 6).

Bioelectricity and bioheat are produced mostly from biomass wastes and residues.

Both small-scale biomass digesters and larger-scale industrial applications have expanded in recent decades. The major biomass conversion technologies are thermo-chemical and biological. The thermo-chemical technologies include direct combustion of biomass (either alone or co-fired with fossil fuels) as well as thermo-chemical gasification (to producer gas). Combined heat and power generation (cogeneration) is more energy efficient and has been expanding in many countries, especially from sugarcane bagasse (Martinot et al., 2002; FAO, 2004b; REN 21, 2005; IEA, 2006a; DTI, 2006). The biological technologies include anaerobic digestion of biomass to yield biogas (a mixture primarily of methane and carbon dioxide). Household-scale biomass digesters that operate with local organic wastes like animal manure can generate energy for cooking, heating and lighting in rural homes and are widespread in China, India and Nepal. However their operation can sometimes pose technical as well as resource challenges. Industrial-scale units are less prone to technical problems and increasingly widespread in some developing countries, especially in China. Similar technologies are also employed in industrial countries, mostly to capture environmentally problematic methane emissions (e.g., at landfills and livestock holdings)