A focused approach to energy conservation will help rather than a policy of self-reliance
The Centre has approved a 20% ethanol blend with petrol to reduce the nation’s reliance on crude oil imports and tackle environmental challenges. Ethanol produced from grains is priced at approximately Rs 60 per litre, which is cheaper than other traditional fuels and helpful in reducing the import dependency on oil products. A recent study from NITI Aayog predicted an annual savings of around Rs 30,000 crore if ethanol-based fuel is adopted.

Opportunities, Incentives
Increasing dependency on crude oil for industrial growth and associated growth trajectory can be tackled through alternatives like biofuel. This also helps reduce the problem of air pollution and eliminate the high oil import bill. India is uniquely positioned to supply grain-based ethanol to the domestic market due to excess availability of irrigated land, low labour cost, industrial development opportunity, area under maize cultivation among others.

The US and Brazil are global leaders in the ethanol market but they use different feedstocks. The US specialises in corn-based ethanol production while Brazil excels in sugarcane-based due to climate conditions. In contrast, India has both tropical and sub-tropical climates which are suitable for cultivating both sugarcane and corn. This diversity in climate allows for a steady supply of ethanol to meet domestic demand. Since a few countries are implementing a 10% ethanol blend strategy, India could become a significant player in the global ethanol market, provided there is strong support from government institutions and infrastructure development. Additionally, the growing automobile market and the expansion of light motor vehicles in India present a significant industrial opportunity for the States to become major ethanol producers.

The Centre has increased the MSP for maize which motivated farmers to shift from wheat to maize production. The government is also encouraging the automobile industry to manufacture more flexi-fuel vehicles to cater to the domestic market and compete with the global players. Due to the intervention of the Ethanol Blending Program, greenhouse gas emissions have declined by 32 million tonnes since 2014.

Some State governments such as Bihar have initiated several incentives since the beginning of the Ethanol Production Promotion Policy, 2021. These benefits include financial assistance, exemption on stamp duty and registration fees, land, interest subvention and tax incentive, employment cost subsidy, skill development subsidy and capital subsidy. Bihar is among the front-runners in producing ethanol and is ambitious to become the largest producer. However, given the low per capita income and dependence on traditional agricultural practices, it cannot afford to experiment with monoculture farming which may cause biodiversity loss, soil degradation and water pollution.

Environmental Challenges
Recent climate-related events in the country make it hard to remain optimistic about the government’s ability to achieve its ambitious 20% blending target. Meeting this target hinges on the timely availability of feedstock but climate variations have reduced the yields of key crops like sugarcane, rice and maize. Even if the country produces enough ethanol to meet the 20% blending goal, it would require at least 10.16 billion litres of ethanol.

Simultaneously, other sectors, such as the alcohol and pharmaceutical industries, also need substantial amounts of ethanol. According to a NITI Aayog report, India needs around 13.6 billion litres of ethanol to satisfy overall demand. Independent researchers estimate that approximately 3% of the gross cropped area, or about 7.1 million hectares, needs to be dedicated to these crops. Additionally, more than 50% of maize is used by the feed industry, and future trends indicate that demand from the poultry and livestock sectors will exceed maize production.

Farmers are reducing the area under wheat and moving towards maize cultivation (Rabi) for higher produce and price realisation. This may increase the problem of food security and groundwater recharge. To meet the erratic demand for ethanol in the domestic market and earn more profit, farmers generally use more fertilizers to correct soil deficiencies. Excessive use of fertilizer and indiscriminate use of pesticides lead to a reduction in soil nutrient levels, degrade air quality and reduce the strength of natural predators of crop pests.

Lessons we can Learn
The shrinking of the perennial rivers and poor infrastructure are causing the over-extraction of groundwater for the production of crops such as paddy and maize. Since the environmental situation is becoming more vulnerable, the government should prioritise experience over hope. Professor Runge’s work on “The case against more Ethanol” about blending corn-based ethanol in the US mentioned that higher ethanol blends produce significant levels of air pollution, reduce fuel efficiency, jack up corn and other food prices and damage engines.

Ethanol blending is constrained by the engine design which is technically called “blend wall”. Most vehicles today have a limitation in engine design which permits up to 10% blending with gasoline and any upward movement leads to a loss of efficiency and more greenhouse gas emissions. India needs to learn lessons from Brazil and the US which have extensive experience in ethanol production to develop more sustainable and balanced policies for the agrarian States.

Moreover, the jump in ethanol production in the country has led to a rise in the price of feedstock. The government must safeguard its feedstock as well as food security by incentivising farmers through crop insurance subsidies and increased MSP for other competitive crops. It needs to invest more in research and development for second and third-generation technology to improve the productivity and efficiency of biofuels. Improved strategies on climate-smart and climate-resilient agriculture through more investment in research, extension and water management are needed than providing subsidies in food and fertilizers. A more focused approach to energy conservation rather than a policy of self-reliance will help reduce fuel price and also protect consumers from increasing food costs. Raising awareness about ethanol blending at fuel stations is crucial for protecting consumers’ right to choose the right product.

Authors: Prof. Barun Kumar Thakur, Faculty of Economics, FLAME University, & Rahul Kumar, Research Scholar, Gokhale Institute of Politics and Economics.