Ethanol Blending in India: Challenges and Opportunities | UPSC

Introduction

• India is on track to meet its E20 blending target, which involves blending 20% ethanol with petrol by 2025-26 as part of its Ethanol Blending Programme. 
• Initially, the National Policy on Biofuels 2018 set the target for 2030. 
• However, following the release of the NITI Aayog’s expert committee report, ‘Roadmap for Ethanol Blending in India 2020-25’, the target was advanced to 2025-26.
• Based on the progress made so far in blending percentages and the growing ethanol production capacity, India is expected to meet its E20 goal. 
• Despite this progress, the ongoing debate over the food versus fuel dilemma continues to cast a shadow on the ethanol economy.

What is Ethanol?

• Ethanol is a renewable fuel made from various plant materials collectively known as “biomass.”
• Ethanol is produced largely from sugarcane-based molasses or grain-based sources as feedstock in India.
• The US and Brazil account for 84% of the global production followed by the European Union, China, India, Canada and Thailand.

What is Ethanol Blending?

• Ethanol blending is blended motor fuel containing ethyl alcohol that is at least 99% pure and is derived from agricultural products, and blended exclusively with petrol. 
• An ethanol blended petrol is a biofuel and so it is good for the environment and it helps India as a country to cut down on its crude oil import bills.

What is a Biofuel?

• Biofuel is any fuel that is derived from biomass that is, plant or algae material or animal waste.
•  Since such feedstock material can be replenished readily, biofuel is considered to be a source of renewable energy, unlike fossil fuels such as petroleum, coal, and natural gas.

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Common Biofuels:

• • Biodesel is the most common liquid biofuel. Europe is the biggest producer and consumer of biodiesel. It is used in diesel engines. It is made from vegetable or animal oils and sourced mainly from plants like soybean, sunflower, palm or animal fats.
  • Biobutanol is the most promising biofuel with maximum potential. It is derived from bacteria and algae.
  • Biogas is produced by fermentation of organic matter in absence of oxygen. This process is called anaerobic digestion. Organic matter used here can be paper, wood, certain plastics, dried foliage, manure, municipal waste, etc. 

Generation of Biofuels: 

Ethanol Blending Programme: Overview and Current Status

• The Ethanol Blended Petrol (EBP) program, initiated in January 2003, aims to blend ethanol with petrol to reduce pollution, conserve foreign exchange, and enhance value addition in the sugar industry. 
• This initiative helps clear cane price arrears of farmers by creating a sustainable market for ethanol.
• The program set targets of achieving a 10% ethanol blending rate (E10) by 2021-22 and a 20% blending rate (E20) by 2025-26. 
• The average ethanol blending in petrol has increased from 1.6% in 2013-14 to 11.8% in 2022-23, reflecting significant progress toward these goals.

Sources of Bio-Ethanol Production in India

Sugarcane:

• • Sugarcane produces three key products: sugarcane juice and syrup, B-heavy molasses, and C-heavy molasses.
  • Initially, the government allowed the diversion of sugarcane juice, syrup, and B-heavy molasses for ethanol production. However, due to concerns over declining sugar stocks, restrictions were placed on these diversions in December 2023.

Maize:

• • As restrictions on sugarcane-derived products increased, maize has become a more significant source for ethanol production. 
  • The use of maize for ethanol has expanded to meet blending targets, given its availability and potential for fuel ethanol production.

Surplus Rice and Damaged Grains:

• • The government has permitted the use of surplus rice and damaged grains as feedstock for grain-based distilleries, further diversifying the sources for ethanol production.

Significance of the Ethanol Blending Programme

Enhancing Energy Security:

• • India’s heavy reliance on imported fuel (86% of consumed fuel in 2021-22 was imported) exposes its energy security to global risks, such as geopolitical tensions or OPEC decisions. 
  • Ethanol blending reduces this dependence, thereby strengthening India’s energy security. For example, the Russia-Ukraine war has highlighted the vulnerability of energy-importing countries.

Reducing Import Dependency:

• • By substituting a portion of fossil fuels with ethanol, the program helps conserve foreign exchange. 
  • NITI Aayog estimates suggest that achieving the E20 target could reduce India’s crude oil import bill by approximately $4 billion annually.

Lowering Emissions:

• • Ethanol-blended petrol significantly reduces emissions like carbon monoxide (CO), hydrocarbons, and nitrogen oxides. 
  • According to NITI Aayog, a 20% ethanol blend can lower CO emissions by 50% in two-wheelers and 30% in four-wheelers, contributing to better air quality.

Supporting Rural Economy and Farmers:

• • The program promotes the cultivation of crops such as maize and paddy, providing an assured market for farmers. 
  • Oil Marketing Companies (OMCs) paid sugar mills nearly Rs 81,796 crore for ethanol supplies over seven years (until 2022), enabling the mills to clear farmers’ dues and boost the rural economy.

Job Creation:

• • The ethanol blending initiative is also a driver of rural employment. 
  • The Asian Development Bank (ADB) projects that the program could generate about 18 million jobs in rural India, contributing to economic development in these areas.

Challenges in Achieving 20% Ethanol Blending in India

Increased Maize Imports:

• • With restrictions on sugarcane-derived products, India’s reliance on maize for ethanol production has surged. 
  • Consequently, maize imports have increased from $39 million in 2022-23 to $103 million in FY 2024. 
  • NITI Aayog estimates that approximately 4.8 million hectares of additional land would be needed for maize cultivation to meet the E20 target, representing nearly half of India’s current maize cultivation area.

Financial Constraints of Sugar Mills:

• • Many sugar mills lack the financial resources to invest in biofuel plants, a situation exacerbated by their heavy regional concentration. 
  • This financial instability poses a significant barrier to expanding the Ethanol Blending Programme.

Inter-State Movement Barriers:

• • Although the central government amended the Industries Development and Regulation Act to facilitate the transportation of ethanol, only 14 states have implemented these provisions. 
  • This partial adoption hinders the transfer of surplus ethanol from states with excess production to those with shortages.

Focus on Ethanol for Liquor Production:

• • In states like Tamil Nadu, ethanol is predominantly used for liquor production rather than fuel blending, due to the lucrative nature of the liquor market. 
  • This diversion reduces the availability of ethanol for the EBP.

Vehicle Modification Costs:

• • The modification of existing petrol engines to accommodate E20 fuel involves significant costs and requires skilled manpower. 
  • With an estimated 212.7 million petrol vehicles in India (as of March 31, 2023), this transition could cause economic disruptions if not managed carefully.

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Concerns with Higher Ethanol Blending in India

Conversion of Agricultural Land:

• •   Meeting high blending targets might lead to the conversion of agricultural land from food crops to biofuel feedstocks like sugarcane and maize, potentially affecting food supply.
  • In states like Maharashtra and Uttar Pradesh, the expansion of sugarcane cultivation for ethanol production has already begun to encroach on land traditionally used for growing food crops like wheat and rice, potentially reducing the availability of staple foods.

Impact on Food Security:

• • Diverting food crops, like rice, for ethanol production could threaten India’s food and nutritional security.
  •  For example, in 2022, nearly 1 million metric tonnes of rice from the Food Corporation of India’s stocks, fit for human consumption, were sold at subsidized prices for ethanol production.

Water Availability Concerns:

• • Increasing sugarcane and rice cultivation for ethanol production could strain water resources. 
  • The Energy and Resources Institute (TERI) estimates that an additional 400 billion liters of water would be needed, raising sustainability concerns.
  • In Maharashtra, sugarcane, a water-intensive crop, consumes about 70% of the state’s irrigation water. Increasing its cultivation for ethanol production could worsen water scarcity in already drought-prone areas, threatening water sustainability.

Soil Health Degradation:

• • Monocropping for biofuel feedstock, such as sugarcane and maize, can deplete soil nutrients, leading to long-term soil degradation and reduced agricultural productivity. 
  • Continuous sugarcane monocropping in Uttar Pradesh, driven by ethanol demand, has led to soil nutrient depletion, necessitating higher fertilizer use and reducing the long-term fertility of the soil, impacting overall agricultural productivity.

Rising Agricultural Imports:

• • Increased use of maize and other crops for ethanol could lead to higher agricultural imports, impacting sectors like poultry and livestock that rely on these crops for feed. 
  • As India increases maize use for ethanol, the poultry industry, which relies heavily on maize for feed, has faced rising costs and a potential increase in maize imports, affecting the sector’s economics and food security.

Way Forward

Diversification to Advanced Biofuels:

• • The government should focus on developing 2nd and 3rd generation biofuels, which have a lesser impact on food security. For example, 2G biofuels use non-food biomass, such as agricultural waste, thus avoiding competition with food crops.

Expanding Grain-Based Distilleries:

• • India needs to invest in increasing the capacity of grain-based distilleries from the current 258 crore liters to 740 crore liters, as per the roadmap outlined by NITI Aayog.

Interest Subvention Programs:

• • The government should introduce interest subvention schemes to support the establishment of new distilleries and the expansion of ethanol production capacity, thereby easing financial constraints for sugar mills and other stakeholders.

Streamlining Supply Chains:

• • Oil Marketing Companies (OMCs) should enter into more long-term contracts with distilleries to ensure a stable ethanol supply. Additionally, facilitating the inter-state movement of ethanol is crucial for optimizing the supply chain.

Promoting Maize Cultivation in Crop Rotation:

• • Maize should be cultivated in rotation with sugarcane to maintain soil fertility, as maize is less water-intensive but can degrade soil health if grown continuously.

Increasing Fuel Ethanol Pricing:

• • Offering higher price support for fuel ethanol can reduce its diversion to the liquor industry, ensuring more ethanol is available for blending with petrol.