India is the world’s third-largest energy-consuming nation and a significant part of India’s energy requirement is met through the oil which continues to rely on imports primarily. India’s share in global energy consumption is set to double by 2050. Rising energy demand and high reliance on imports pose significant energy security challenges. It also leads to massive foreign currency outflow. Further, excessive use of fossil fuels leads to higher carbon emissions and associated health concerns. 

   Domestically produced ethanol is a potential opportunity to reduce reliance on oil imports by blending it with conventional fossil fuels for consumption.

   India started blending ethanol in petrol on a pilot basis in 2001. The ethanol was produced as a by-product during the process of making sugar from sugarcane. However, despite the potential, no significant progress was made under the ethanol programme and ethanol production remained stagnated until recently when transformative reforms were carried out. The results are set to help not only the economy but transform farmers’ income and recharge the rural economy.

   There are two ways of manufacturing Ethanol, they are

Landscape of Opportunities

Ethanol Industry is expected to grow by 500%

   By 2025, at a 20% blending level, ethanol demand will increase to 1016 Crore litres. Therefore, the worth of the ethanol industry will jump by over 500% from around 9,000 Crore to over 50,000 Crore

Ethanol distillation capacity to grow by more than three times to 1,500 Crore litre annually

   Financial assistance scheme was introduced by DFPD during 2018-2021 to increase ethanol production capacity. • 895 proposals with a loan amount of `70,419 Crore. • Estimated 165 LMT of surplus grain to be utilized annually from 2025 to produce ethanol which would result in 30,000 crore payment to farmers. • Launch of new vehicles compatible to run on E20 fuel from 2023 and flex-fuel vehicles from 2024. This will attract new investment and create employment opportunities.

But where does the demand come from?

Ethanol Blended Petrol (EBP) Programme

   EBP was launched in January 2003. In 2006, the Ministry of Petroleum and Natural Gas directed the Public Sector Oil Marketing Companies (OMCs) to sell 5% EBP in 20 states and 4 UTs. Even though the programme started early it faced multiple inherent challenges leading to slow adoption and growth. But the programme did not meet success.

But why did it not meet success?

  • High taxation of ethanol, rate of 18% applicable
  • Procurement challenges due to infrastructure and multiple tenders in a given supply year
  • Non-inclusion of conversion of grain to Ethanol, restricting grain-based distilleries to participate in EBP
  • Limited availability of feedstock (raw material)
  • Constraints on the part of state government

How did the government overcome past defects?

  • Interest Subvention Scheme to improve and increase ethanol production capacity in the Country. Government to provide interest (interest subvention), for a period of 5 years. GST on Ethanol lowered from 18% to 5%
  • New sources of sugar & sugar syrup were introduced for ethanol production at a fixed remunerative price
  • Published “Ethanol Procurement Policy on a long-term basis under EBP Programme”
  • Allowed conversion of B heavy molasses, sugarcane juice and damaged food grains to ethanol. Fixed differentiated ex-mill ethanol price and sourcing of raw material utilised for ethanol production given priority. Marked the beginning of differentiated ethanol pricing, based on raw material utilised for ethanol production.
  • OMCs have increased their ethanol storage capacity from 5.39 Crore litres in November 2017 to 16.9 Crore litres by December 2020, thereby providing ethanol storage cover of over 20 days at their depots. The amount spent by OMCs is approximately `200 Crore – This is an ongoing process.