To explore the potential of growing energy crops and then producing liquid fuels in marginal land in China, in this paper, the status quo of existing biomass resources and marginal land utilization in China have been first analyzed and the development process of biomass liquid fuels has then been reviewed. Through the investigation, we have found that alternative fuels such as bio-diesel, bio-based alcohols, ethers, and esters will be the current and future research focuses. Secondly, using ethyl levulinate (EL) as our research subject, we have explored the production capacity of growing energy crops in marginal land and their potential to prepare liquid fuels. Then, the carbon sequestration of energy crops, the carbon emissions of liquid fuels, and the influence of liquid fuels on land use changes have been deeply analyzed. This study has revealed that the potential of sweet sorghum, cassava, jatropha curcas, and switchgrass cultivation in China in producing is 75.76 million tonnes, 1.52 million tonnes, 4.57 million tonnes, and 5.16 million tonnes, respectively. Among these crops, sweet sorghum and switchgrass have a higher production capacity and are more suitable to be planted on marginal land and used to produce liquid fuels. The planting of these two crops has absorbed about a 111.11million tonnes and 7.57 million tonnes of carbon dioxide (CO2), respectively, presenting significant carbon sequestration and oxygen-producing effects. Finally, the problems in developing marginal land have been summarized. Furthermore, we have proposed policy recommendations for marginal land development, energy crop cultivation, and liquid fuel development suitable for Chinese conditions, hoping to provide essential data for China's land restoration and biomass liquid fuel development.