Recently, second-generation bio-ethanol (SGB), which utilizes readily available lignocellulosic biomass has received much interest as another potential source of liquid biofuel comparable to biodiesel. Thus the aim of this paper is to determine the exergy efficiency and to compare the effectiveness of SGB and palm methyl ester (PME) processes. It was found that the production of bio-ethanol is more thermodynamically sustainable than that of biodiesel as the net exergy value (NExV) of SGB is 10% higher than that of PME. Contrarily, the former has a net energy value (NEV) which is 9% lower than the latter. Despite this, SGB is still strongly recommended as a potential biofuel because SGB production can help mitigate several detrimental impacts on the environment. (C) 2010 Elsevier Ltd. All rights reserved.