To hasten India’s energy transition and realise the ambitious goal of net zero emissions by 2070, the government of India has directed the use of 20 percent ethanol-blended fuels (E20) in vehicles. This poses a great challenge to ethanol-producing companies, vehicle makers, car owners, and service providers.
India’s 2018 biofuel policy had envisaged enhancing the ethanol blending of petrol to 20 percent by 2030, a deadline that was later advanced to 2025. Apart from ensuring energy security and enabling the transit to a low-carbon economy, the E20 rollout is estimated to save $4 billion in fuel imports a year, according to the Niti Aayog.
However, there are various concerns about the decision. The sustainability of the ethanol policy depends on guaranteed, stable prices of ethanol, ready availability of feedstock such as molasses and grains, capacity utilisation (80 percent) of the ethanol industry, and the projected demand. Vehicle buyers consider many parameters in their purchase decision—affordability, ease of driving, vehicle functions, fuel efficiency and maintenance costs among them.
When these concerns were raised, a government press release claimed that over 11 years of ethanol supply, from 2014-15 to 2024-25, the programme saved the country Rs 1.4 lakh crore in foreign exchange and 736 lakh metric tonnes in carbon dioxide emissions.
It brushed aside the concerns expressed about lower fuel efficiency and corrosion of rubber and plastic components in vehicle engines using E20. The Niti Aayog report clearly states that the use of E20 will lead to a 6-7 percent drop in fuel efficiency of four-wheelers and 3-4 percent drop for two-wheelers, when compared to vehicles using unblended fuel.
On the other hand, there is a dearth of studies evaluating the social costs and benefits of ethanol production in India. Such an analysis would shed light on the social benefits and costs of ethanol production, including its potential to increase farmers’ incomes, employment opportunities, using up surplus grains, reducing greenhouse gases and pollution. The social cost of incentivising the production of water-guzzling crops like paddy and sugarcane in a water-stressed country like India should also be evaluated. Moreover, diverting foodgrains for ethanol production can imperil food security and increase food prices with sharply negative impacts on those already disadvantaged.
At the same time, there are no studies assessing the lifecycle costs of the ethanol policy. India’s population is projected to rise to around 1.7 billion by 2050. To meet the food needs of the world’s largest population, India needs to step up food production several fold—from 354 million tonnes in 2024-25 to around 480 million tonnes by 2050. The question is whether India will continue to have surplus foodgrains in the future to sustain its ethanol production too.
Equally importantly, has the government made a robust assessment of the economics and sustainability of ethanol production in the light of emerging transport technologies such as the potential use of hydrogen and other cleaner fuel alternatives such as electric vehicles? If obsolescence is nigh, the infrastructure for ethanol production runs the risk of becoming stranded assets in the not-too-distant future. The disposal of millions of old vehicles rendered redundant to shift to ethanol-blended fuels poses a great environmental challenge, too.
A scenario analysis up to 2050 can not only shed light on the probability of the aspects listed above, but also factor in other possible shocks. For instance, the unexpected disruption in the supply of rare metals by China, which enjoys a global near-monopoly, has jeopardised India’s plans to promote electric vehicles. Similarly, wars such as that between Russia and Ukraine have put strains on the global supply of fossil fuels. India’s import of cheap oil from Russia has irked the US, which has imposed unprecedented 50 percent tariffs on Indian goods.
There is need for an integrated assessment of demand and supply in the transport sector considering the emerging technologies, energy demand and supply including the development of energy substitutes, economics of alternative energy sources, and consumer preferences.
The terms of reference for the expert committee appointed by Niti Aayog to provide a roadmap for the gradual rollout of ethanol-blended fuels is flawed, since it has not made any social costbenefit analysis and estimated the lifecycle costs to help in policy decision. It has made a conservative estimate of the demand for ethanol-blended fuels in India, at 1,016 crore litres by 2025, based on a single parameter of growth in vehicle population, ignoring other important variables. There is no sensitivity analysis of the demand and supply estimates to inform us as to what happens if price, demand and supply expectations are not realised.
India can learn from the experience of Brazil, which is a world leader in the use of ethanol-blended fuels. The South American country and the US together account for around 80 percent of ethanol production in the world. Brazil took almost five decades to develop its ethanol sector and, today, around 75 percent of the country’s light vehicles use blended fuel. There are many lessons for India from the world’s most remarkable success on this front.
K N Ninan | Former Professor, ISEC, Bengaluru T and Lead Author, GEO-7, UNEP Nairobi
(Views are personal)
(ninankn@yahoo.co.in)
