AbstractThe production costs of a lignocellulosic ethanol process, both currently and projected for 2020, were compared to a corn ethanol process, to determine its economic competitiveness. A techno‐economic model was used to estimate the current production costs for a base‐case, 50 ML yr‐1 softwood facility, as well as providing a basis for cost‐reduction test cases assessing different feedstock, scaling, enzyme, and coproduct options. The progress ratio indicated that lignocellulosic ethanol could be competitive with corn ethanol by 2020, based on volumes mandated by 2007 EISA. However, cost reductions must occur across all components of the production process. The ambitious cellulase enzyme cost reductions that have been projected were shown to be challenging as cellulase costs still need to be significantly lower than those of amylase enzymes on a unit‐of‐protein basis. Opportunities for capital cost reduction relative to first‐generation plants were primarily restricted to the pre‐treatment/hydrolysis unit operations, with operational conditions such as the severity of pre‐treatment and hydrolysis residence times, significantly influencing operating costs. Alternative operating strategies, such as maximizing hydrolysis rate with shorter residence times rather than maximizing ethanol yield and using the unhydrolyzed residue for heat and power production, showed some promise. Increasing the size of the facility to 1 BL yr‐1 output substantially reduced the per unit capital costs, but not to a level competitive with an average (150 ML yr‐1) corn ethanol facility. © 2011 Society of Chemical Industry and John Wiley & Sons, Ltd