Explanation:

• The Policy categorises biofuels as "Basic Biofuels" viz. First Generation (1G) bioethanol & biodiesel and "Advanced Biofuels" - Second Generation (2G) ethanol, Municipal Solid Waste (MSW) to drop-in fuels, Third Generation (3G) biofuels, bio-CNG etc. to enable extension of appropriate financial and fiscal incentives under each category.
• The Policy expands the scope of raw material for ethanol production by allowing use of Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum, Starch containing materials like Corn, Cassava, Damaged food grains like wheat, broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.
• The Policy encourages setting up of supply chain mechanisms for biodiesel production from non-edible oilseeds, Used Cooking Oil, short gestation crops.

Hence option 1st is correct.

Source: https://pib.gov.in/Pressreleaseshare.aspx?PRID=1532264
Note: ‘Bioethanol’: ethanol produced from biomass such as sugar containing materials, like sugar cane, sugar beet, sweet sorghum etc.; starch containing materials such as corn, cassava, rotten potatoes, algae etc.; and, cellulosic materials such as bagasse, wood waste, agricultural and forestry residues or other renewable resources like industrial waste;
‘Biodiesel’: a methyl or ethyl ester of fatty acids produced from non-edible vegetable oils, acid oil, used cooking oil or animal fat and bio-oil;