Conventional biofuels derived essentially from food-based feedstocks (e.g. oil seed crops) have seen their production costs increase in recent years due to high food prices. Advanced biodiesels from lignocellulosic feedstocks are just beginning to be produced at first-of-a-kind plants at commercial production scales. In 2012, 24 billion litres of biodiesel was produced globally virtually all of this from conventional processes.

Conventional biodiesel production costs are dominated by feedstock costs. Between 2005 and 2012 feedstock costs for biodiesel increased by 87% for soybean and 49% for rapeseed oil, with production costs averaging an estimated USD 1.3/litre of diesel equivalent in 2012. Biodiesel produced from palm oil in Malaysia and Indonesia was estimated to have lower production costs, around USD 1/litre.

Advanced biodiesel production methods are still at an early stage of commercialisation. However, with around 15 advanced biofuel plants planned to be online within the next few years, the emerging cost data suggest the outlook to 2020 is positive given the high cost reduction potential. IRENA analysis estimates that increased investment in R&D and additional experience in commercial-scale projects could reduce production costs from between USD 0.8 to USD 1.3/litre of diesel equivalent today to between USD 0.6 to USD 1.1/litre of diesel equivalent by 2020, making advanced biodiesel technologies competitive with fossil fuels.However, this will require some of the technology pathways being explored today to prove their reliablity at commercial scales.