Explained: Why India's 2025 Ethanol Blending Target May Not Be A Good Idea (2024)

Besides, the ethanol target will not reduce earth-warming emissions drastically, it may be detrimental to India's food security, and will only help us inch towards energy security, experts say.

Pros and Cons

Ethanol can be blended into petrol to reduce the quantity of petrol required to run a vehicle, thus reducing dependency on imported, costly and polluting petroleum. Today, India imports 85% of its oil requirements.

India's net import of petroleum was 185 million tonnes in 2020-21 at a cost of $551 billion, according to a roadmap for ethanol blending released by NITI Aayog, the Centre's policy think-tank, in June 2021. Most of the petroleum products are used in transportation and therefore, the E20 programme can save the country $4 billion (Rs 30,000 crore) annually.

Besides, ethanol is a less polluting fuel and offers equivalent efficiency at a lower cost than petrol. Availability of large arable land, rising production of foodgrains and sugarcane leading to surpluses, availability of technology to produce ethanol from plant-based sources, and the feasibility of making vehicles compliant to ethanol blended petrol (EBP) are some of the supporting arguments used in the roadmap for E20, which refers to the target as "not only a national imperative, but also an important strategic requirement".

However, increasing production of food-based feedstock for ethanol manufacturing may not be the best use of land in a hungry country, IEEFA contends. India ranked 101 of 116 countries on the World Hunger Index 2021. Further, land can be used far more efficiently for generating renewable power for Electric Vehicles (EV) than for growing crops for ethanol.

For example, you need 187 hectares worth of maize-derived ethanol to match the annual travel distance of an EV recharged from one hectare of solar energy--even accounting for losses from electricity transmission, battery charging and grid storage, stated the IEEFA report, authored by Charles Worringham, an Australia-based independent researcher.

Independent experts also believe that existing ethanol production based on surpluses or damaged foodgrains can be maintained at status quo or at E10 (10% ethanol-blended petrol), but the E20 target may be a misplaced priority for India.

What consumers gain and what they lose

Ethanol is one of the principal biofuels naturally produced by the fermentation of sugars by yeasts or via petrochemical processes. In India, it is primarily produced from sugarcane-based raw materials or certain types of heavy molasses, sugarcane juice/sugar/sugar syrup, surplus rice available with the Food Corporation of India and maize. These are known as first generation biofuels.

Since the beginning of the EBP programme in 2003, average blending ranged only in the 0.1% to 1.5% range upto 2013-14. The NITI Aayog lists a number of interventions by the government post that period, including eased tender conditions, an interest subvention scheme--a financial support scheme for distilleries--for augmentation of production capacity and more, owing to which average ethanol blending in the country reached 5% in Ethanol Supply Year (ESY) 2019-20. An ESY is from December of a given year to November of the next year.

In ESY 2021-22, India has achieved 9.45% ethanol blending, as on March 13, 2022. The Ministry of Petroleum and Natural Gas (MoPNG) aims to take this to 10% in ESY 2021-22, and in December 2020 the government advanced its target of achieving 20% blending from 2030 to 2025. But this target comes with challenges.

Ethanol can be used in vehicles calibrated to that particular degree of ethanol blending (for eg, E20) or in flex fuel vehicles that can run on pure fossil fuel or fossil fuels blended with any degree of biofuels.

There is a long way for vehicles to be E20 compatible. Vehicles made in India since 2008 are material-compatible (rubber and plastic components) with E10 and fuel-efficient compliant with E5 (5% ethanol blended in petrol), but their engines are not tuned to E10 for optimum performance. At the next stage, when E10 petrol is made available across the country, new vehicles will need engine modifications.

Besides, when using E20, there is an estimated loss of 6-7% fuel efficiency for four-wheelers which are originally designed for regular petrol and calibrated for E10; 3-4% loss for two-wheelers designed for regular, unblended petrol, and calibrated for E10, and 1-2% loss for four-wheelers designed for E10 and calibrated for E20. To offset this, the government might have to consider tax incentives on E10 and E20 fuel.

Also, the cost of flex fuel vehicles (four-wheelers) would be Rs 17,000 to Rs 25,000 higher, and of two-wheeled flex fuel vehicles Rs 5,000 to Rs 12,000 higher, compared to ordinary vehicles, tailored to run on 100% gasoline. The cost of E20 compatible vehicles is also expected to be higher by Rs 3,000 to Rs 5,000 for four-wheelers and Rs 1,000 to Rs 2,000 for two-wheelers. This level of modification and calibration of vehicles will require large scale investment in infrastructure.

"We estimate that 162 million motorised two-wheelers and 4.2 million three-wheelers on road use petrol," said Himani Jain, senior programme lead at the New-Delhi based think-tank Council on Energy, Environment and Water (CEEW). "Retrofitting the engines of such an enormous existing vehicle stock across India will require competent skilled technicians at scale, strategic and early planning of required infrastructure, and robust monitoring systems."

That said, the prices of ethanol produced in India are higher in comparison to global players, since the cost of raw materials--that is, sugarcane and food grains--are fixed by the government to support farmers. But, at present, excise duty on the landed cost of petrol at oil depots is higher than the Goods and Services Tax (GST) on the landed cost of ethanol, and the benefit is being passed on to the retail consumers.

Petrol cost Rs 105 in Delhi on May 1, and high petrol prices work in favour of EBP users. However, should the price of ethanol increase beyond that of petrol, consumers may have to pay more for ethanol-blended fuel. In such a scenario, tax (GST) breaks on ethanol may become necessary, said the NITI Aayog roadmap.

Jain of CEEW stresses that the gains from ethanol-blended petrol are miniscule as compared to the effort. "Only if there is a substantial increase in fuel prices, consumers gain from blending ethanol; otherwise the gains are not that big," she said.

"In November, when we checked, the savings were as little as 5%-6%. For OEMs (Original Equipment Manufacturers or automobile manufacturers), investing in the internal combustion engine value chain makes no sense since it has to be phased out eventually (as EVs are introduced). Apart from Brazil, nowhere else in the world are people looking at ethanol as an energy security solution," said Jain. "Overall, when it comes to our E20 target, there is net-net not so much impact (on energy security)."

But Hetal Gandhi, director of CRISIL Research, a global ratings agency, believes that EBP can be a viable option for now, as EVs will become a reality only after 2026-27.

"When oil prices were lower, the scheme (EBP) was more expensive for a consumer who is buying EBP," said Gandhi. "Right now, oil prices are high, so it is a great value proposition for consumers in terms of the amount that gets passed on to them. There is time for the EV ecosystem to get established. Until then, you proliferate CNG and you also shift demand to blended petrol."

E20 target could impact food, water security

The NITI Aayog has estimated an ethanol demand of 10.16 billion litres by 2025, based on the expected growth of vehicles. The current ethanol production capacity in India, of 4.26 billion litres derived from molasses-based distilleries, and 2.58 billion litres from grain-based distilleries, is proposed to be expanded to 7.6 billion litres and 7.4 billion litres, respectively. This will require 6 million metric tonne (MT) of sugar and 16.5 million MT of grains per annum by ESY 2025.

The IEEFA report translates this as 30,000 additional sq km of land to come under maize cultivation. With half that land, IEEFA estimates, India can generate clean electricity by 2050.

Using one hectare of land for solar power generation is far more efficient than using the same land for cultivation of any of the agricultural ethanol feedstocks. For example, an EV charged from solar energy generated on one hectare of land can drive 32 times further than an EV running on ethanol derived from one hectare of sugarcane. The difference is even higher for other feedstocks.

Use of land on this scale to grow crops for ethanol production is questionable considering India's food security concerns, the fact that sugarcane is a water-guzzling crop, and that availability of damaged or surplus grains is uncertain. For example, on average, one tonne of sugarcane can produce 100 kg of sugar and 70 litres of ethanol. Cultivation of each kg of sugar requires 1,600 to 2,000 litres of water. Hence, one litre of ethanol from sugar requires about 2,860 litres of water.

Ethanol can be produced from both maize and sugarcane.

"If we do increase the area under sugarcane cultivation, we are using land that can be used for food crops. Increasing land under food grains like maize for ethanol also makes no sense from a food security point of view, and maize also produces less ethanol as compared to sugarcane," said Ramya Natarajan, a research scientist at Bengaluru-based think-tank, Centre for Study of Science, Technology and Policy (CSTEP). "Besides, what needs to be kept in mind is that right now there might be a surplus (of grains or sugarcane) but there are so many factors like climate change that impact yield."

If the target is for E10 rather than E20, Natarajan believes it would be possible to achieve with existing availability of molasses and sugarcane juice, without need for extra land or water.

Even the NITI Aayog roadmap asks that ethanol production reduce dependency on water-intensive, first generation biofuels like sugarcane, and instead develop advanced biofuels.

"The task force on sugarcane and sugar industry estimated that sugarcane and paddy combined are using 70% of the country's irrigation water, depleting water availability for other crops," as per the roadmap. "Hence there is a need for a change in crop patterns, to reduce dependence on one particular crop and to move to more environmentally sustainable crops for ethanol production. Cereals, particularly maize, and second generation (2G) biofuels with suitable technological innovations offer promise of a more environmentally benign alternative feedstock for production of ethanol."

The National Policy on Biofuels had emphasised on 2G biofuels in 2018 too, but the E20 target put the focus back on first generation feedstock options. 2G biofuels include rice or wheat straw, corn cobs, bagasse, bamboo and other non-food feedstock. At the moment, 2G biofuels technology is at a nascent stage, due to which the roadmap has called for technological innovations.

Limited reduction in earth-warming emissions

The roadmap estimated higher reductions in carbon monoxide emissions with E20 fuel--50% lower in two-wheelers and 30% lower in four-wheelers--as compared to unblended petrol. Hydrocarbon emissions also reduced by 20% with ethanol blends compared to normal gasoline. But how does that fare in terms of absolute reduction in greenhouse gas emissions?

Our analysis says 5% of the transport sector GHG emissions will be reduced in 2025 due to E20 (not including life cycle emissions)," Natarajan says. "If you are putting in so many resources to achieve 5%, is it worth it?"

The road ahead

Natarajan's question captures the conundrum facing India: Push for enhanced ethanol production to meet the E20 target, or consider alternatives?

Land is used far more efficiently to generate renewable power for EV batteries than growing crops for ethanol, author Worringham contends in the IEEFA report.

"The ramifications of India's ethanol policy are far-reaching, and its implications for land use appear not to have been adequately considered," the report said. "A careful evaluation of both the target blending level and its timeframe is needed, considering land use, food security and other issues confronting the rural sector in particular."

The report concluded that to achieve the key goal, that is emissions reduction, alternative mechanisms--enhanced EV uptake, installation of additional renewable generation capacity to allow zero-emissions recharging, etc.--need to be evaluated.

An earlier version of this article incorrectly said that if life cycle emissions of biofuels are considered, 5% of GHG emissions in the transport sector will be reduced by 2025 because of E20. The 5% reduction in GHG emissions does not include life cycle emissions of biofuels.