Ethanol Gambit: E85 push must be matched by a long-term transport strategy

The Ministry of Petroleum and Natural Gas recently launched E85 fuel, a blend containing 85 per cent ethanol and 15 per cent petrol, as part of India’s effort to reduce oil imports and build a domestic biofuel economy. The move follows the nationwide rollout of E20 petrol and is intended to pave the way for flex-fuel vehicles (FFVs), which can run on a wide range of ethanol-petrol blends. Meanwhile, the government has also exempted E22, E25, E27 and E30 petrol from excise duty, signalling support for higher ethanol blends. The tax relief is more than a fiscal measure. It creates a demand-side incentive for fuels beyond E20 and provides a commercial pathway for deploying the surplus ethanol-production capacity, which has emerged after the rapid expansion of domestic distillation capacity. Together, these measures underline the government’s commitment to expanding the role of ethanol in India’s energy mix. At the same time, recent statements from within the government suggest that India may first move to E25 before transitioning to FFVs and E100 fuel. This calls for careful consideration of the country’s transport fuel strategy at a time when the automobile industry is looking for policy certainty.  

This matters because fuel standards cannot be altered by automobile manufacturers without incurring large compliance costs in the short run. Every increase in ethanol content requires engineering changes, recalibrating engines, testing, certification, and modifications to components exposed to fuel. Unsurprisingly, sections of the industry have expressed reservations about frequent changes in blending targets. The government’s enthusiasm for ethanol is understandable. Higher blending reduces dependence on imported crude oil, strengthens energy security, and creates a market for domestically produced biofuels. In a world marked by geopolitical uncertainties and volatile oil prices, these are legitimate policy objectives. Brazil’s success with FFVs is often cited as evidence that such a transition is feasible and beneficial. 

However, India’s current vehicle fleet is overwhelmingly designed for conventional fuels and E20. E85 can be used only in specially designed FFVs, of which there are very few on Indian roads. Building a nationwide ecosystem of compatible vehicles, fuel stations, and supply chains will take time and require substantial investment. The economics of that also deserves closer scrutiny. Ethanol contains less energy than petrol, resulting in lower fuel efficiency. Estimates suggest mileage can fall by 20-30 per cent when vehicles run on E85. A lower retail price per litre, therefore, does not automatically translate into lower running costs for consumers. Unless pricing adequately compensates for the loss in fuel economy, consumer acceptance could remain limited. Then there is the question of feedstock. India’s ethanol programme relies heavily on sugarcane and sugar-based products. While ethanol may help lower lifecycle emission, sugarcane is among the most water-intensive crops grown in the country. Expanding ethanol production without addressing water stress and resource allocation could create new environmental pressures even as it seeks to solve another. 

The larger issue is where biofuels fit into India’s long-term transport strategy. Electric mobility and ethanol-based fuels must be viewed as complementary rather than competing pathways. While electric vehicles offer a route to decarbonisation, they also depend heavily on critical minerals and battery-supply chains, which remain concentrated in a handful of countries. Ethanol, by contrast, is produced domestically and can strengthen energy security. A growing interest in compressed biogas also reflects the search for transport fuels that make productive use of agricultural and livestock waste, support farm incomes, and reduce import dependence. A diversified approach may, therefore, make strategic sense.