India Targets 20% Ethanol Blend By 2025; Where's The Roadmap?

What is challening is that not only will it need an additional supply of ethanol, it will simultaneously have to maintain a critical balance between food supplies and the environmental ecosystem, amid efforts to chart out a roadmap for the ethanol blending programme beyond 2025. "Though there have been discussions on this key issue, there is no concrete plan in place yet, this is concerning," an ethanol producer on condition of anonimity said.

Currently, New Delhi relies on first-generation ethanol, which is sourced from sugarcane and grains, something that is adding to the worries of policymakers.

An report prepared by the Indian Institute of Management-Ahmedabad (IIM-A) noted that with fuel-food conflicts imminent, the government needs to focus more on second-generation (2G) ethanol production, using non-food feedstocks to produce ethanol, bio-gas and bio-CNG.

The report titled 'Synchronizing Energy Transitions Toward Possible Net Zero For India: Affordable And Clean Energy For All' noted that achieving the target would require a paradigm shift in ethanol production and distribution.

"India needs to actively consider 2G for enhancing ethanol production as we seem to have plateaued in normal technology pathway. May be a sub-mandate of say 10 per cent to blending to come from 2G ethanol could facilitate the exercise," IIM-A Professor Amit Garg, one of the authors of the report and an expert on energy, climate change and sustainable development told The Secretariat.  

A source said Finance Minister Nirmala Sitharaman is likely to announce a host of measures to augment capacity and further incentivise ethanol producers in her forthcoming Union Budget.

Existing Production Structure

Under the “Pradhan Mantri JI-VAN (Jaiv Indhan-Vatavaran Anukool fasal awashesh Nivaran) Yojana”, the government has started providing financial support to set up several second-generation bio-ethanol projects, though these facilities are yet to start production.

Indian Oil Corporation has also set up a third-generation bio-ethanol plant at Panipat, Haryana. Third-generation ethanol is sourced from waste or sewage, among other inputs. Though this plant is operational, the thrust has to be on promoting non-food-based ethanol on a much larger scale.

India has about 350 ethanol manufacturing units.

As per official estimates, to achieve the target of 20 per cent blending by 2025-26, India needs to produce about 1,016 crore litres of ethanol. Though the total requirement of ethanol — taking into account other uses — is 1,350 crore litres (against a production capacity of about 1,380 crore litres), challenges have arisen. 

The bulk of this biofuel — about 875 crore litres — is sourced from molasses, and about 505 crore litres from grains, including maize and rice, which could lead to food shortage.

India needs a production capacity of about 1,700 crore litres of ethanol by next year, considering the plants operate at 80 per cent efficiency. This would mean the government has to increase ethanol supplies at the earliest. 

Why Is Sugarcane-Based Ethanol Problematic?

Recently, Union Minister Nitin Gadkari, in charge of road, transport and highways, asked the sugar industry to look at ways of diversification, including ethanol-diesel blending and green hydrogen production.

"I know that making sugar is not an attractive job. At the same time, because of the demand for ethanol, CNG, hydrogen and other by-products, we can increase the productivity and profitability in the industry," he said.

However, too much usage of sugarcane for the production of ethanol may distort food supplies and prices, and create environmental imbalances. Sugarcane is also a water-intensive crop.

The report has underlined the environmental hazards that arise from over-dependence on sugarcane-based ethanol. “A life cycle assessment of sugarcane-based ethanol production in these states revealed that sugarcane farming contributes the highest amount of GHG emissions of the ethanol supply chain, followed by transport,” it pointed out.

Both sugarcane and ethanol are mainly produced in Uttar Pradesh, Maharashtra and Karnataka. "The geographical concentration of ethanol production translates to large transportation costs to states that do not produce ethanol. This would further add to the transport related emissions," Post Doctoral Researcher at IIM-A Vidhee Avashia said.   

The fall in sugar production and the uncertainty related to the supply of rice are pushing ethanol producers to switch to maize. In July last year, the Food Corporation of India (FCI) imposed a ban on rice supply for ethanol production. Though FCI has now lifted the ban, sources said that issues related to rice supply have always been a point of contention.

Adding that the government currently fixes three different price bands for ethanol generated using ethanol sourced from sugarcane/sugar syrup, maize and damaged food-grain feedstock from FCI, Avashia said that there needs to be more stable outlook on prices.

"For ethanol supply year 2023-24, the government fixed different prices for ethanol from maize and damaged food-grain feedstock from FCI. However, there needs a more stable outlook on feedstock availability and their purchase prices," she said.  

Meanwhile, an S&P report said India is likely to import around 1 million metric tonnes of non-genetically modified corn from Myanmar into the southern ports of Tuticorin, Chennai and Visakhapatnam, to ease the tightness in domestic markets, amid rising demand from the ethanol industry.

Price Mismatch In Source Crops & Ethanol

According to the Grain Ethanol Manufacturers Association (GEMA), the price mismatch between the crop, which is used as a raw material, and the final product, has created uncertainties for producers. The government has fixed the ethanol procurement price, but the rise in costs of rice and maize has led to significant problems for producers of the biofuel.

The association has underscored the need for increasing the price of the plant-based fuel by at least Rs 10 per litre, to ensure smooth production.

“We are struggling, and many of us are staring at huge losses, as ethanol price has not gone up in proportion to the increase in the price of maize,” Abhinav Singal, managing director of AVJ Group, told The Secretariat.

The company’s grain-based distillery unit in Chhindwara district of Madhya Pradesh, started operations last year. Singal is now keen to set up another plant in Kota in Rajasthan.

“We are looking to set up another ethanol manufacturing plant in Kota in Rajasthan, but it is necessary to increase the price of this fuel at the earliest,” Singal said.

Though ethanol combustion does not lead to zero emissions, it reduces greenhouse gas emissions by about 70 per cent compared to conventional fossil fuels.

As part of its Ethanol Blended with Petrol (EBP) Programme, the oil marketing companies (OMCs) in India are required to sell petrol blended with ethanol.

At present, ethanol-blended petrol stands at around 15 per cent in the country, up from 1.6 per cent in 2013-14, leading to Rs 1,06,072 crore savings in foreign exchange.  

India, the world’s third-largest energy consumer, predominantly relies on imports for its energy requirements. More than 80 per cent of its total crude requirements are imported. However, with a thrust on energy security India needs to clearly spell out its plans for ethanol blending in the post 2025 phase.

The US and Brazil are the largest producers of ethanol globally, producing about 80 per cent of the biofuel. While the US primarily uses corn for ethanol production, Brazil relies more on sugarcane.

Energy Security & Ethanol In India

According to the International Energy Agency (IEA), the global fuel crisis has cast energy security as a key political priority for countries across the world — and it is a critical imperative for India given its high dependence on oil imports to meet its supply needs.

The IEA in its report said that India will become the largest source of global oil demand growth between now and 2030, while growth in developed economies and China will slow down, and then go into reverse. While the rise in demand is due to the economic development and rise in the middle class, this would mean India will have to spend more on oil imports, if necessary measures are not put in place. 

“With the projected rise in demand, we need to take steps now. A roadmap has to be urgently put in place. We need to clearly know what the plans are, once the 20 per cent blending target is met,” an analyst said.

Importantly for ethanol blending, in the post-2025 phase, keeping an eye on achieving energy security, necessary preparations and groundwork need to start on an immediate basis.