Ethanol Blending Programme and Sugar Industry

About Ethanol

• Ethanol/ anhydrous ethyl alcohol having chemical formula of C2H5OH, can be produced from crops like sugarcane, maize, wheat, etc which have high starch content.
• In India, ethanol is mainly produced from sugarcane molasses by fermentation process
• Since ethanol is produced from plants that harness the power of the sun, ethanol is also considered as renewable fuel.
• As the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions and thereby reducing the occurrence of environmental pollution.

                                                                   EBP

• Ethanol Blended Petrol programme was launched in 2003 on a pilot basis and has been subsequently extended to 21 states and 4 Union Territories.
• The programme sought to promote the use of alternative and environment friendly fuels and to reduce import dependency for energy requirements.
• The government has been notifying the administered price of ethanol since 2014.
• India has set a target of 10 percent ethanol blending in petrol by 2022. 

Procurement of Ethanol

• The OMCs are to procure ethanol from domestic sources.
• The Government fixes the price of ethanol which the OMCs have to pay to procure ethanol.
•  Ethanol production in the country would increase threefold to 4.5 billion liters by 2022 from 1.41 billion liters now.
• The procedure of procurement of ethanol under the EBP has been simplified to streamline the entire ethanol supply chain.

Government Initiatives

• The government has reduced Goods and Services tax (GST) on ethanol targeted for blending from 18 percent to 5 percent in July 2018.
• To ensure the clearance of dues of farmers the government brought  out a comprehensive package of about Rs.7000 crore which includes a plan of Rs.4400 crore for increasing the ethanol capacity in the country.
• In September 2018, Cabinet Committee on Economic Affairs (CCEA) has taken a decision to provide incentives for the production of ethanol from sugar cane.

CCEA Recommendations

1. Government has announced three progressive rates for ethanol procurement based on their purity.

• Ethanol produced from 100 per cent sugarcane juice will be priced the highest.
• Ethanol produced from B grade molasses: They are made from partial sugarcane juice and will be priced lower than those produced from 100 per cent sugarcane juice.
• Ethanol produced from C grade molasses: Inferior than B heavy molasses will be priced the least
• Advisory to Oil Market Companies (OMCs): They have been advised to prioritize ethanol procurement based on the purity and give preference to ethanol made from 100 per cent sugarcane juice.

                                          National Policy on Biofuels 2018

• The Policy expands the scope of raw material for ethanol production by allowing use of Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum, Starch containing materials like Corn, Cassava, Damaged food grains like wheat, broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.

Benefits of EBP

• The move will encourage the production of ethanol and will thus reduce excess sugar in the country.
• It will increase the liquidity with the sugar mills and will help them settle the arrears of the farmers.
• It will incentivize ethanol output and will increase Investment in capacity addition of the sugar mills.
• Being one of the biggest polluters in the world and a signatory of the Paris Climate deal India’s ethanol dependence can certainly help it reduce the pollution problem.
• According to a Bloomberg New Energy Finance study ‘Next-Generation Ethanol: What’s in it for India?’, the increase in ethanol production has the potential to create over 700,000 jobs when targeting only the base potential.
• India will save at least 120 billion through EBP, thus cutting down on its import bill.

Challenges of EBP

• Sugar Mills will have to invest in distillery capacity and this will require investment which they might not afford.
• They will also have to invest in pollution control, storage and logistics which will require additional investment.
• Ethanol in India is derived from rectified spirit which in turn comes from cane molasses. Rectified spirit is also used for potable alcohol production.A higher ethanol production could have an impact on the manufacture and sale of potable alcohol which is a major source of state revenue.
• The country’s targets for ethanol-blended petrol continue to be missed largely on account of inadequate ethanol production.

Problems with diverting cane to produce ethanol

The main challenge in ethanol business is its pricing: Since ethanol is a substitute for petrol from imported crude, its pricing should be linked to the import parity price of petrol (IMPP). IMPP represents the price that importers would pay in case of actual import of product at the respective Indian ports.

Criticism

• The oil companies will want to pay lower for ethanol when the fuel prices in the market declines, thereby affecting Ethanol producers.
• The decline in ethanol price will reduce the profit margin of sugar mills, as the sugarcane purchase price remain fixed.
• If the government forces the oil companies to pay the same ethanol price even when the fuel prices fall, the oil companies will suffer losses.
• Bad weather can damage cane resulting in decline in sugar output and market price of sugar will thus increase.
• As per the estimates given in Auto Fuel Vision and Policy 2025 issued in May 2014, blended petrol is available only in 13 states and the average blend is 2%. During the sugar year 2014-15, OMCs have achieved a blending percentage of just 2.3%.

Why ethanol blending in petrol might not work for India

• India might be able to save on oil import costs by going for a greater petrol-ethanol mix, but that could strain the country’s water resources and affect food availability
• While India has become one of the top producers of ethanol in recent years, it lags top producers, the US and Brazil, by a huge margin and remains inefficient in terms of water usage.

Impact on Net Sown Area

1. To raise the ethanol blend rate to 10% India will have to increase its net   sown area from present 3% to 7%.
2. In order to achieve 20% blend rate, almost one-tenth of the existing net sown area will have to be diverted for sugarcane production which will put a stress on other crops and might increase food prices.

Way Forward

• Biofuels offers a sustainable energy option and there is an urgent need to leverage its benefits to push the Indian economy forward.
• Government should invest in R&D and incentivise the adoption of modern technologies like 2nd generation Ethanol plants etc to increase the efficiency of its Ethanol Blending Program.
• India should adopt the recommendation of Rangarajan Committee and the National Policy on Biofuel 2018, to achieve ethanol blending target of 10 percent set for 2022.
• Over all a robust ethanol ecosystem makes great sense for India in achieving  energy security and socio-economic benefits and India should make all efforts to become a world leader in this field.