Note: I am teaching a one-shot class on advanced biofuels this November. While this class is to high school kids, it will still require a lot of organized content to throw at them, so I am gathering my thoughts here.
The problem of liquid transportation fuels, in many ways, is filled with less than perfect solutions brought on by our limited development of technology. Corn ethanol is the biggest bogeyman, although these days I'm less certain that its demise is inevitable, for other reasons. The other, lesser-known equivalent is biodiesel, which is a much better fuel in terms of EROEI, GHG balance and competition with food resources. Unfortunately, the size of the resource is miniscule compared to fuel requirements of the world. While new methods of biodiesel production are out there that will make the fuel more easily and make better use of its byproducts (an area I once did research in), the fact remains that the amount of oil that can be gotten from plants and animal wastes aren't going to be making up more than 2-3% of the total liquid fuel supply, simply by virtue of the fact that there will never be enough oil to go around (and yes, I am discounting algae). Plant starch is easier to find in nature than oil, hence the scale of ethanol production from starch being much larger than biodiesel production, which can draw only from the pool of oilseed and rendered animal byproduct markets. The largest resource is, of course, lignocellulosic biomass itself, which is the feedstock of choice for all next generation biofuels that you'll see in the next few years.
So what to do with all this biomass? There has been a lot of focus on fermentation routes from the biofuels community. This is the result of a confluence of infrastructure and human capital from the ethanol industry and amazing players in enzyme engineering. Enzyme engineering is so good these days that tough cellulosic feedstocks can actually be hydrolyzed into sugars and fermented using parts of the corn ethanol fermentation train. A great example of this is POET's Project Liberty, which will derive a great deal of its cost advantage from being built "over the fence" from a corn ethanol plant.
The other route I feel is getting much less attention is gasification. In this general category of processes, fast pyrolysis of biomass quickly turns most of it into carbon monoxide, hydrogen, and ash/char residue, and the gas is swept downstream into other uses. People have been doing fast pyrolysis for a long time. Before oil products became abundant, many chemicals were made using coal tar from pyrolysis. Steam gasification (a process using steam as a heating medium) of lignite is featuring prominently in coal-to-chemicals industry in China. For example, most of the growth in PVC-making over the past few years has been from vinyl production based on acetylene, which in turn is derived from ethylene and coal-bsed sodium carbide.
I'm cautiously optimistic about gasification as a route to biofuels. It has a few things going for it over biofuels and a few things going against it.
There are some strong arguments in favor of gasification. It can be done at much smaller scale than fermentation and still be economical, for example. This solves a big problem of biomass-to-biofuels, since logistics are much easier if you can build modular, smaller plants in many locations to minimize transportation distance for feedstock - or even transport your production units by railcar. Gasified products could also be easily transportable by pipeline to promote a hub-and-spoke model.
Another big plus is that gasification produces something that is identical to a common petrochemical feedstock: syngas. It doesn't matter if you get the syngas from methane, a dead tree or old plastics in a garbage dump, it's all the same. Water-gas shift it and you can turn it into something useful. A big chunk of the entire petrochemical industry has been figuring out ways to use syngas for more than half a century. Biofuels, on the other hand, have only really been gaining ground for the last ten years. That's a lot of expertise gasification operations can tap into.
While most people might have heard of the Fischer-Tropsch process, F-T is not a likely contender. Some might point to Apartheid South Africa or Nazi Germany as countries that used F-T gasoline, but as a professor of mine once said, "Fischer-Tropsch is a clear sign of desperation." Instead, we might see conversion to methanol, ethanol or, my personal favorite, dimethyl ether.
A good rule of thumb is that the greater the number of processing steps from feedstock to product, the less economical it will be. For cellulosic fermentation, we have:
Feedstock --> Lignin Separation --> Hydrolysis/Liquefaction --> Fermentation --> Separation --> Product
For gasification to biofuels, we have
Feedstock --> Gasification --> Water-Gas Shift --> Synthesis --> Product
People more familiar with the processes will likely quibble with me over the details, because different people are trying different things. However, the overall picture remains the same.
There are also a few big disadvantages. The largest of these has ironically turned out to be industrial inexperience at handling biomass. Developing the necessary equipment has not turned out to be so easy as picking up a bunch of secondhand paper processing units. Range Fuels learned this the hard way. It's not linked because the website went down on Halloween, but it was already essentially a zombie company since January when they laid off workers in Georgia. Their problem was using bark, hog and wood unsuitable for paper production. Cheap feedstock means nothing if you can't chip or screw-feed your wood into a gasifier.
The other big barrier seems to be that investment is stalled for lack of viable outputs. I mentioned methanol and ethanol; those are fine to make (particularly methanol), but they are low value, low-margin fuels with problems running in traditional engines. This is why most of my optimism for gasification-based biofuels has been focused on dimethyl ether, which can be produced by dehydrating methanol or via a one-step catalytic process. DME has good energy density and features a very high cetane number, making it almost a drop-in substitute for diesel fuel. I say almost because while a diesel engine doesn't have to be modified to use it, the fuel lines and injectors do.
So if they're so great, then, why haven't we seen these biofuels? Part of the reason is that they haven't been given a lot of attention. Industrial policy in America tends to pick sexy winners. We saw this with subsidies for wind, solar photovoltaics and corn ethanol and little corresponding attention paid to smaller and more mature technologies, like solar thermal power generation and simple biomass firing. Although policy has finally caught up with good engineering feasibility in those cases, it hasn't yet gotten into Washington's thick skull that gasification might well be a viable route to fuels.
There's also the fact that despite our experience in turning syngas into anything we want, there's little movement into fuels because more money can be made on chemicals. Fuel will always be a marginal product. As a coworker of mine jokes, if you can get it to make interferon, then you're always set. The same might apply to a higher-value-added chemical like butadiene, which must be otherwise obtained from steam cracking of naphtha or heavy oil, or linear alpha-olefins, which are even rarer products from the same process. All of those go into rubber, and prices for them are set to go up.
That being said, even the biomass gasification-to-chemicals people are pioneering the technology, and will likely have some of their expertise spill into the gasification-to-fuels section. I'm hopeful that we'll see more from the gasification-to-fuel players in the coming years.