Ethanol in the fast lane

A slower transition can address unanticipated impacts

The Ministry of Road Transport and Highways’ decision to allow E100 and E85 fuels, along with the registration of flex-fuel vehicles, is understandable in the light of the geopolitical outlook on oil prices in the foreseeable future and growing urban pollution, much of which is transport-related. But the wisdom of such policy speed may need to be balanced with the anticipated negative externalities associated with the ethanol journey. Already, the mandated shift to E20 from E10 five years ahead of the original schedule, prompted no doubt by prolonged supply constraints and the need to meet “Net Zero” targets, has annoyed car owners, who have reported a 7-12 per cent drop in fuel efficiency, which somewhat negates the argument of lowering fuel demand. According to the government data, however, the country has saved ₹1.9 trillion in imports of crude oil and substituted 31 million tonnes between April, when the E20 mandate came into force, and mid-October, though some analysts have questioned the arithmetic behind these calculations.

 

On the face of it, the drive towards an ethanol-powered automotive future has been a win-win. It has reportedly helped stabilise farm incomes, especially in Bihar, Madhya Pradesh, Uttar Pradesh and Karnataka, by offering a predictable market for agri-surpluses and also absorbing damaged foodgrain from the system. The fact that ethanol distilleries tend to be located close to agri-hubs also plays a role in creating employment opportunities and promotes some measure of rural development. But the long-term impacts on food security and ecology remain open questions. The impact was evident in the sugar market earlier this year, when low opening stocks and production resulted in a sharp rise in sugar prices. Meanwhile, the government has rebutted the accusation of larger diversions of the rice stocks, underlining that Food Corporation of India, the government procurement agency, only diverted damaged or broken grain for ethanol production and did not endanger the food-security programme.

 

But over time and given the uncertainties of agri-markets, the rapid expansion of the ethanol programme could well incentivise farmers to divert larger tracts of land towards sugar or maize cultivation, which raises a fresh set of problems. This is exemplified by Brazil, which is regarded as a global success story in the ethanol transition. The 25-year transition, which started in 1975, has undoubtedly helped bring about  a sharp reduction in greenhouse-gas emission but has had a deleterious effect on local ecology. As farmers there started converting more and more arable land for maize and sugarcane, they displaced livestock and cattle ranchers, who then simply cleared large tracts of the Amazon rainforest to expand. The country also faced occasional price and supply asymmetries; when global prices of sugar rose, supplies available for the ethanol programme inevitably fell. Equally, the sugar crop was diverted to ethanol producers when ethanol prices rose.

 

In India, there is also the question of whether promoting water-intensive crops like sugarcane on a large scale for the ethanol programme is warranted when agri-inputs — fertiliser, water, and electricity — are either heavily subsidised or free. On balance, given the complexities of India’s agricultural policies, it may be better to move more gradually on the ethanol transition rather than steer abruptly into the fast lane.