Recent increases in production of crop-based (or first-generation) biofuels have engendered increasing concerns over potential conflicts with food supplies and land protection, as well as disputes over greenhouse gas reductions. This has heightened a sense of urgency around the development of biofuels produced from non-food biomass (second-generation biofuels). This study reviews the economic potential and environmental implications of production of second-generation biofuels from a variety of various feedstocks. Although second-generation biofuels could significantly contribute to the future energy supply mix, cost is a major barrier to increasing commercial production in the near to medium term. Depending on various factors, the cost of second-generation (cellulosic) ethanol can be two to three times as high as the current price of gasoline on an energy equivalent basis. The cost of biodiesel produced from microalgae, a prospective feedstock, is many times higher than the current price of diesel. Policy instruments for increasing biofuels use, such as fiscal incentives, should be based on the relative merits of different types of biofuels.