Policy Flip-Flops Put India's Ambitious Ethanol Blending Plans On A Slippery Track

Accordingly, it has set ambitious targets for ethanol-blended transport fuel, but the path to meeting these targets often gets crossed by the policy of flip-flops as has happened recently. 

The result: Consumption of ethanol-blended petrol may fall short of the 15 per cent target for this ethanol supply year (ESY), November 2023-October 2024.

Between Nov 1, 2023 and March 17, 20024, ethanol blending averaged around 11.7 per cent, according to data available with the Indian Sugar Manufacturers Association (ISMA).

Commodities markets experts say such shortfalls do not bode well for India's long and sincere efforts in terms of achieving usage of ethanol as an alternative fuel.

“India embarked on an ethanol programme primarily to get rid of surplus sugar because it found that it cannot continue to subsidise sugar exports. And then the merit in this was seen in the environmental benefits attached to it” said Rahil Shaikh, Managing Director of MEIR Commodities. “We have to look at ethanol as a transportation fuel and not as an ethanol per say as it is being done now,” he added.

Also at risk are the large sums of capital that sugar mills have invested in ethanol distillery plants to ramp up production. 

The Flip-flops

Ethanol in India is produced from sugarcane as well as grains such as rice and maize. The former accounts for the bulk – 85 per cent or more – of ethanol production.

Ethanol distilleries procured subsidised rice mostly from the Food Corporation of India to produce ethanol, while for maize (which is preferred less because it’s relatively more expensive) they depended both on open market purchases and supplies from the National Agricultural Cooperative Marketing Federation (NAFED).

In July last year, the FCI abruptly stopped selling rice to ethanol producers, citing poor monsoon conditions that could affect grain production and threaten food security. 

About 100 distilleries that are solely grain-based had to bear the brunt, while dual-feed distilleries, which use sugarcane during the season and grain during the off-season, were partially hit. The latter had more bad news coming.  

In the first week of December, the government banned sugar supply for ethanol production fearing a shortfall in sugarcane production that could push up sugar prices – an undesirable outcome in an election year.

However, after the first few days of confusion, officials realised that their initial panic, triggered by an underestimation of sugar output by the ISMA, was unfounded and the fiat was reversed partially. 

Subsequently, a certain amount of sugar syrup was allowed to be converted into ethanol. The amount was capped at 1.7 million tonnes of sugar, compared to 3.8 million in the previous year.

As it happens, in January, the ISMA revised its sugar production estimate for the current sugar supply year, October 2023-September 2024, to 34 million tonnes from the earlier estimate of 33 million tonnes. 

In fact, ISMA now fears there could be a glut in the sugar market. It has since written to the government to allow the export of 1 million tonnes of sugar, so that stocks could be cleared.

However, with elections around the corner, ISMA’s request hasn’t found favour with the government. 

Reluctance Of Oil Marketing Companies

Ethanol blending has also been hit with slow procurement by Oil Marketing Companies (OMCs). The OMCs had initially pledged to lift around 700 crore litres of ethanol made from sugar and another 125 litres of ethanol from grain distillers.

But when it came to actual contracts, the OMCs signed up for just 560 crore litres of ethanol after they were advised by the government to reduce ethanol purchases because of a possible sugar shortfall in the market.

Actual offtake has been even slower, said an official at a sugar mill based in Uttar Pradesh. Between Nov 1, 2023, and March 17, 2024, OMCs have picked up just 197 crore litres of ethanol, or about a third of the full-year target.

“The contracted amount for this year is less than last year. On top of it, the lifting is not commensurate even with the lower target.” said the sugar mill official.

The nodal ministry is aware of it. “The oil companies have cited some storage issues in terms of inadequate tankage, as repair at some places going on. Still, we are hopeful that the total ethanol blending target in the financial year may be achieved” said a petroleum ministry official who didn’t want to be named.

“We have already asked the OMCs to lift ethanol in line with original contracts,” he added.

Importance of Ethanol Blending

India is now the third largest ethanol producer in the world after the US and Brazil. Brazil, the global leader in Ethanol, uses 27 per cent ethanol in every litre of petrol sold. Many European countries have mandated ethanol blending rates varying from 10 per cent to 20 per cent.

As per a roadmap prepared by Niti Ayog, as part of the National Policy on Biofuels, 2018, ethanol blending in India should reach 20 per cent by 2025-26. The government is now planning to take it up to 30 per cent by 2030.

Blending biofuels with petrol can help India withstand oil price shocks as well as restrictions on imports because of war or any other exigencies. In the last 10 years, the production of ethanol has led to a substantial reduction in the import of crude oil, resulting in saving crucial foreign exchange for the country.

“In 2022-23, with production of about 502 crore litres of ethanol, India saved about Rs 24,300 crores of foreign exchange and improved India’s energy security,” Hardeep Puri, Minister of Petroleum and Natural Gas. 

“Sugar mills have earned more than Rs 94,000 crores from the sale of ethanol, which has helped their bottom line,” Puri said.

According to government data, India currently has an installed capacity of producing more than 1,380 crore litres of ethanol annually.

Government officials say this is enough to meet the country’s ethanol blending target in the conceivable future, but without sorting out the issue of actual blending versus targets, the entire policy may well fall flat on its face. 

As India is the current President of the Global Biofuel Alliance, any shortfalls in meeting ethanol blending targets to reduce India’s carbon footprints would not only be a financial and environmental loss for India, it could also lead to a loss of face on a global stage.