India Taps in to Ethanol Driven Energy Security

By Vikal Samadariya

India, a rising global biofuel powerhouse, has been making significant strides toward achieving energy security and reducing its carbon footprint. In its quest for sustainable and alternative energy sources, India has implemented robust policies to promote biofuel production, particularly ethanol.

This green transition is not only advancing the country into the ranks of major biofuel producers but also helping diversify its energy portfolio with more renewable energy options, which is vital for reducing reliance on fossil fuels like petrol and diesel.

The country’s focus on ethanol, in particular, has become a cornerstone of its biofuel strategy, with the union government setting ambitious targets for ethanol blending with petrol and taking praiseworthy steps towards promoting ethanol production.

A Progressive Policy

The present ruling dispensation at the centre has been consistently promoting ethanol as a sustainable energy alternative, primarily through its Ethanol Blended Petrol (EBP) Programme. One of the most notable developments in recent years in India’s application of renewable energy options is the shift in ethanol blending policy that has unlocked new potential for ethanol production in India. The central government, in a landmark decision announced on 29th August 2024, has permitted sugar mills and distilleries to produce ethanol from cane juice or syrup. This marks a significant departure from earlier policies that limited sugar diversion for ethanol production in India. This step will provide greater flexibility to ethanol producers in India.

Under the new policy, ethanol can also be produced using B-heavy molasses and C-heavy molasses—by products of sugar production that previously had limited utility. Furthermore, the government has allowed grain-based ethanol distilleries to purchase up to 2.3 million tonnes of rice from the Food Corporation of India (FCI), reversing a ban to this effect  imposed last year.

These measures reflect the government’s commitment to scale up ethanol production and optimising India’s abundant agricultural resources for biofuel production.

 Diversification of Ethanol Production

India’s reliance on sugarcane for ethanol production is one of the key elements driving its biofuel policy. Sugarcane, being a water-intensive crop, presents both opportunities and challenges for ethanol production. The ability to convert sugarcane juice, syrup, and molasses into ethanol allows sugar mills in India to tap into an additional revenue stream, thereby providing opportunity to boost the Indian economy.

In addition to sugarcane, the inclusion of rice in the biofuel production process seems to be a game-changer. India, as one of the world’s largest rice producers, now has an alternative use for its vast rice reserves. The government’s move to allow rice stocks from FCI to be used in ethanol production reflects its intent to diversify raw material sources for biofuels, thereby reducing pressure on sugarcane cultivation and providing a sustainable solution for surplus grain stocks.

Ethanol Blending Grows

India’s ethanol production capacity has grown remarkably over the past few years. In 2017-18, the country had an ethanol production capacity of 518 crore liters. By 2023-24, this capacity had soared to 1,623 crore liters, demonstrating a more than threefold increase in just five years. This growth can largely be attributed to the government’s proactive approach towards fostering a greener future.

The Ethanol Blended with Petrol (EBP) Programme has been the driving force behind this surge. The programme mandates that oil marketing companies (OMCs) blend ethanol with petrol, thereby encouraging reduction in the use of pure fossil fuels.

The government has set an ambitious target of achieving 20 percent ethanol blending with petrol by 2025, a significant increase from the current blending percentage of 12 percent. In order to achieve the target of 20 percent blending by 2025, about 1016 crore litres of ethanol is required and total requirement of ethanol including for other uses is 1350 crore litres. For this, about 1700 crore liters of ethanol producing capacity is required to be in place by 2025 considering plants operate or would operate at 80 percent efficiency. The Government has estimated the demand of ethanol required for 20 percent blending by 2025 keeping in view the growth of petrol-based vehicles in two-wheelers and passenger vehicle segments & the projected sale of Motor Spirit (MS).

Boosting Investments

One of the key drivers behind India’s ethanol revolution has been the introduction of interest subvention schemes. These schemes, which have been in place since 2018, offer financial incentives to entrepreneurs and businesses in setting up ethanol distilleries or expanding existing ethanol infrastructure facilities in the country.

Under this scheme, the Union government provides an interest subsidy of 6 percent per annum or 50 percent of the rate of interest charged by banks/other financial institutions, whichever is lower, for a period of five years, including one-year moratorium. This financial support has attracted over Rs. 40,000 crore in investments across both urban and rural areas; significantly boosting India’s ethanol production capacity.

These investments have not only increased the potential for ethanol production in India but also generated employment opportunities, particularly in rural areas where sugar mills and distilleries are located.

The economic benefits extend to farmers as well, with the increased production of ethanol from sugarcane juice and molasses leading to improved cash flow for sugar mills. As a result, sugar mills have been able to make timely payments to cane farmers with increasing frequency.

In the 2022-23 sugar season, sugar mills in India cleared 98.3 percent of cane dues. This timely payment cycle has helped sustain the livelihoods of millions of farmers who rely on sugarcane cultivation as their primary source of income.

Moreover, over the last decade, sugar mills in India have earned revenue of more than Rs. 94,000 crore from the sale of ethanol. This additional revenue has allowed mills to not only invest in infrastructure and modernisation but also reduce their dependence on volatile global sugar prices. The ability to divert sugarcane for ethanol production provides a buffer during times of sugar surplus, preventing market gluts and price crashes.

Energy Security and Foreign Exchange Savings

India’s ethanol push is not just about reducing carbon emissions — it also has significant implications for the country’s energy security and foreign exchange reserves. By increasing domestic ethanol production and reducing reliance on imported petrol and crude oil, India is able to save billions in foreign exchange. In 2022-23 alone, India saved approximately Rs. 24,300 crore by producing 502 crore liters of ethanol, which replaced imported petrol in the energy mix.

This reduction in petrol imports strengthens India’s energy security by diversifying its energy sources. It also reduces the country’s vulnerability to fluctuations in global crude oil prices, which can have a destabilising effect on the economy. As the world increasingly moves towards cleaner energy, India’s growing ethanol production capacity places it at the forefront of the world’s increasing adoption of biofuels.

The Global Biofuels Alliance

India’s leadership in biofuel production extends beyond its borders. In 2023, India, along with eight other countries, launched the Global Biofuels Alliance. This international collaboration aims to promote the use of biofuels worldwide, particularly in emerging economies like Brazil, Indonesia, and India. These countries have robust biofuel policies, growing demand for transport fuels, and abundant feedstock potential, making them key players in the global biofuel market.

According to the International Energy Agency (IEA), global biofuel demand is expected to expand by 38 billion liters over the next five years, with renewable diesel and biojet fuel accounting for nearly half of this growth. India’s proactive role in this alliance positions it as a leader in promoting the adoption of biofuels globally, particularly in regions where biofuels can play a critical role in reducing emissions and achieving energy security.

Challenges

While India’s ethanol revolution is impressive, challenges remain. The agricultural sector, particularly sugarcane farming, faces environmental concerns related to water usage. Sugarcane is a water-intensive crop, and its cultivation can strain water resources in regions already facing shortages. Balancing the need for ethanol production with environmental sustainability will be a critical challenge to address for India, in the coming years.

Furthermore, while the EBP Programme has been successful, achieving 20 percent ethanol blending target by 2025 will require continued investments in ethanol’s production capacity and infrastructure. The government’s interest subvention schemes and policy support will be crucial in ensuring that the necessary capacity is in place to meet future demand for ethanol.

As India continues to scale up its ethanol production, the rippling benefits will be felt across the economy—from sugar mills and farmers to consumers and policymakers. In a world increasingly focused on sustainability and reducing carbon emissions, India’s ongoing ethanol revolution can offer a blueprint for other countries looking to transition to cleaner, more sustainable energy sources.

The writer is a Delhi-based journalist with extensive experience of working in NGOs focused on environmental issues.

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