BP and Verenium Corporation have announced a joint venture to accelerate the development and commercialisation of cellulosic ethanol, a biofuel that can be made from waste biomass products. BP’s partnership with Verenium is a reflection of the high rewards available to the first company to commercialise second-generation biofuels on a large scale.

BP and Verenium’s deal will see the building of production facilities in the US, and potentially throughout the world. Under the initial phase of the agreement Verenium will receive $90 million (€63.5 million) from BP for the rights to current and future technology held within the partnership.

Given the potential benefits of cellulosic ethanol it is unsurprising that a large oil company such as BP is seeking to accelerate its development. Whereas first-generation biofuels are made from crops such as rapeseed and sugar cane, cellulosic ethanol can be made from waste biomass such as sugarcane waste, switchgrass and wood chips. In essence, this means that second-generation biofuels are cheaper to produce, have less of an impact on the environment and are therefore more politically acceptable.

Preem Petroleum in Sweden is an example of a company that has invested in second-generation technology. In June 2008 it took a 60% stake in SunPine along with Sveaskog Forvaltnings, a supplier of sawlogs, pulpwood, and bio-fuel, and Sodra Group AB, a provider of forestry services and a producer of wind power.

The potential benefits for the first company that successfully develops the technology to produce second-generation biofuels on a large scale are significant. As well as benefiting from cheaper biofuels for their own petrol and diesel, revenues from the intellectual property rights would act as a strong contribution to the company’s bottom line.

Related Research: The Political and Environmental Landscape for Biofuels in the EU Transport Sector