Ethanol 2.0 policies key for India to match Brazil as a biofuel superpower

Ethanol — a combination of two carbon, six hydrogen, and one oxygen atoms — is arguably India's favourite. When blended with fermented grapes or barley, it drives your spirits higher; when mixed with petrol, it powers your Dzire or Innova. 

Along the way, over the last decade, the fuel has cleaned the air, saved Rs 1.1 trillion in foreign exchange by substituting imported crude oil, and created a new revenue stream for farmers, the government says. The fuel has also saved 50 million tonnes of carbon dioxide equivalent in emissions in the decade to 2024. 

But it has been a somewhat rough ride for distillers and investors. A new policy to expand ethanol use intends to alleviate the bumps, with the government hearing out the industry. 

India’s top oil official told Business Standard recently that an inter-ministerial committee will discuss taking ethanol forward — beyond a 2025 blending target. “Beyond 20 per cent, what are the hard constraints we should factor in” to “increase the share of ethanol in the blending mix?” said Petroleum Secretary Pankaj Jain at the Global Biofuel Alliance’s pavilion in Baku, Azerbaijan. 

The committee will evaluate feedstock, costs, weather, and food security — before setting a new blending target and paving appropriate pathways for getting there.

  In Brazil’s footsteps

  Ethanol Blended Petrol (EBP) programme 2.0 is essential because the International Energy Agency forecasts India to be the biggest contributor to global oil demand in the years ahead, even as the country houses some of the world’s most polluted cities. Nearly all the crude oil is imported. That makes ethanol attractive from the perspective of energy security and emission mitigation, and it enhances farmers’ incomes.  

India’s national policy on biofuels was set in 2018, where the first phase of EBP set a target of 20 per cent blending of ethanol in motor fuels by 2030. In 2021, the target was pushed forward to 2025. The programme, which offered cheap loans to build distilleries, helped more than double India’s ethanol production capacity in the last four years to exceed 16 billion litres a year.   

In many ways, India is seeking to emulate Brazil in its new EBP phase: Both countries use sugarcane to make ethanol. But while Brazil is moving on to other crops after decades of ethanol use, India is still in the early stages. Brazil’s ethanol-petrol blending has reached 27 per cent and a recent future fuel law will take base blending to 30 per cent, with E100 also available at several pumps, says Deepak Ballani, director general of the Indian Sugar & Bio-energy Manufacturers Association (ISMA) in an interview. E100 is a hydrous fuel consisting of 93 per cent ethanol and 7 per cent water. 

“So their average national blending today stands at 54 per cent,” says Ballani.

  ISMA has proposed to keep base blending for all petrol at 20 per cent for two-wheelers as well as four-wheelers. Along with that, flexi options to dispense E100 fuel. 

But in some ways, India's challenges are steeper. 

  Land and water

  Unlike Brazil, India is a land- and water-scarce country, with the world’s largest population to feed. Even a 20 per cent ethanol-petrol blending mix across the country is proving hard to achieve. 

Statistically, the EBP target may make the cut in fiscal 2025-26, having averaged 14.6 per cent this ethanol year from November 2023 to October 2024, but the distribution across the country is spotty, says a senior industry official. Moreover, India cannot expect the initial acceleration in blending -- from virtually nothing to around 15 per cent in a decade — to be replicated in the future. Already, it is proving tough to step up from 13 to 20 per cent because of feedstock supply issues and sticky pricing, says a senior refining official. 

After investing Rs 40,000 crore since 2014 in setting up ethanol distilleries, the industry seems less enthusiastic about EBP 2.0, unless New Delhi addresses some concerns. On an order of importance, they include a lack of vehicles to use ethanol, feedstock issues, low prices, and question the process of ethanol allocation. 

The inter-ministerial committee must confront several hurdles that have kept ethanol blending from growing, including the use of second-generation feedstock.  

Ethanol breakers

  EBP 2.0’s primary problem is getting the automobile industry to switch to making flexi fuel vehicles, such as in Brazil, which can run on 100 per cent ethanol. But India’s biggest automakers have been reluctant to switch to vehicles running on alternate fuels citing 15-20 per cent higher costs, sugar industry officials say. 

India can achieve an overall 25 per cent blending rate by 2030 if the automobile sector moves to making flexi fuel vehicles, Ballani says. He adds that the government is looking at charging lower taxes on flexi fuel vehicles, on the lines of the low rate on electric vehicles. 

But boosting the blending rate will require an additional 8,000 million litres of ethanol by 2030-31, on top of the existing production capacity of 16,830 million litres, at a cost of Rs 35,000 crore, Ballani says. For such spending to happen, the industry would need New Delhi to continue an existing interest subvention scheme on loans, and an offtake or price mechanism. 

Subsidies on manufacturing have been humongous — low interest loans amounting to around Rs 38,000 crore have been sanctioned by the government since 2018, out of which around Rs 25,000 crore have been disbursed up to October 2024, according to ISMA data. 

   Pricing conundrum

  Other wrinkles relate to uncertainty in feedstock supplies and increasing ethanol prices in line with an existing formula. 

“Revisiting the prices of ethanol feedstock, such as sugarcane juice and B-heavy molasses, is essential for the continued success of the ethanol program,’’ said Tarun Sawhney, vice-chairman, Triveni Engineering & Industries.

  The government increased rates for ethanol sourced from maize last year while leaving sugarcane-based blending unchanged.

“Pricing should be revised dynamically because farmers always expect prices to reflect market changes,’’ said Alok Saxena, Executive Director, Gobind Sugar Mills, a unit of Zuari Industries. “Last time prices were increased, it was proportional to the cost of production and other factors.’’ 

He said the industry was asking for long-term pricing stability. Zuari is setting up a 180 KLD grain-based ethanol plant with an investment of Rs 294 crore. 

Ballani says that every time there was an increase in the FRP (fair and remunerative price) — the minimum amount mandated by the government for mills to pay farmers — the government also increased the ethanol prices under a formula. But that has not happened in the last two years. 

Last February, prior to Parliament polls, the government announced a record rate of Rs 340 a quintal at a sugar recovery rate of 10.25 per cent, about 8 per cent higher on the year. The revised FRP was applicable from October 1, 2024 but ethanol rates are unchanged. 

Some distillers demand a single price for ethanol irrespective of the feedstock. But government officials say a common price does not make sense because the cost of production and yields of different crops are very different. 

Last year, the government also restricted the use of sugarcane to make ethanol, inviting protests from the industry. Its decision was guided by a low sugar crop, which was increasingly being diverted to ethanol, leaving less sugar for groceries and thus driving up prices for households. 

Jain says sugar forecasts are difficult to make, but, in the future, there will be closer coordination between different ministries. Aside from transport fuels, the government allows imports of ethanol for use in chemical industries, which in turn would divert locally produced ethanol to be used toward meeting the EBP, he adds. 

The industry says that in a recent ethanol procurement tender for 880 million litres, state oil companies gave preference to cooperative mills, something that took the industry by surprise. 

“A transparent process will encourage more investment in new distilleries and products,” Saxena said.