The Ethanol 20 target: Managing the contradictions

India’s Ethanol Blending initiative aims to address multiple challenges like addressing the problem of food wastage and lowering India’s petrol import and carbon emissions. However, over-reliance on water-intensive crops like sugar to produce ethanol, overestimation of damaged grains, and underpreparedness of the industry could pose serious complications that need to be addressed.

• The Prime Minister released a report made by an expert committee constituted by the NITI Aayog, ‘Roadmap for Ethanol Blending in India by 2025’ on the occasion of World Environment Day on 5 June 2021.
• The aim is to increase ethanol production capacity from 700 to 1,500 crore litres, address the problem of food wastage, lower India’s petrol import and carbon emissions.
• However, there are a number of unresolved challenges to the success of this policy: irregular maize production, over-reliance on water-intensive crops like sugar to produce ethanol and an overestimation of damaged grains.
• Measures like offering incentives to promote its adoption and studying the overall environmental impact of ethanol blending are the need of the hour.

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One of the major problems that some experts point out in green policy formulation is the implicit assumption that economic prosperity and environmental sustainability cannot be pursued synergistically. They argue that it may not necessarily the case.

Consider the case of food security and excess carbon emission. Can these two challenges, so distinct in their nature, be tackled by one singular policy? India’s Ethanol Blending initiative certainly takes a crack at it. At its core, the ethanol blending policy sees merit in using a portion of the excess feedstock produced in India to make ethanol, a type of alcohol that is then blended with petrol to achieve a fuel that is cleaner & greener. In its ideal state, the policy indeed would address the aforementioned dual challenges. It redirects the excess feedstock decaying in warehouses to distilleries that make ethanol out of them. The NITI Ayog states:

Availability of large arable land, rising production of foodgrains and sugarcane leading to surpluses, availability of technology to produce ethanol from plant based sources, and feasibility of making vehicles compliant to ethanol blended petrol make E20 not only a national imperative, but also an important strategic requirement.

However, two challenges so complex do not have so simple a solution. The article goes in-depth into the ethanol policy in India; its objectives, benefits and limitations. Given the ambitious aims of the government, it is imperative to understand how exactly this new policy changes the daily life of the common man.

The Ethanol Process

The feedstock designated as ethanol raw material in India consists of sugar, rice and maize, though the main aim is to use molasses, a byproduct of sugar and hence keep the focus on sugarcane. Sugar mills will be encouraged to divert excess sugar to distilleries for ethanol production, rather than store it unnecessarily. Upon reaching these distilleries, the molasses undergo a fermentation process, which breaks down the sugar into starch, which subsequently becomes ethanol. Accordingly, maize and rice can also be processed for conversion into ethanol.

This ethanol is then blended with petrol in different quantities. A mixture of ethanol and petrol is referred to in terms of the quantity of ethanol-blended, i.e., a mixture with 10% or 20% of ethanol is referred to as E10 and E20 blend respectively. Petrol not mixed with anything will be referred to as E0 in this blog. The blended mixture offers many benefits, both direct and implicit.

However, before we consider benefits, we need to understand how it can be used as petrol. E10 and E20 petrol can only provide efficient combustion in compatible engines. Engines for four-wheelers that are calibrated for E10 can run E20 fuel with a loss of 6-7% efficiency; hence cross-compatibility between fuel types does not exist. Accordingly, a part of the Ethanol Policy is automobile upgradation where engines will gradually have to be modified to efficiently run with E20 fuel. The committee constituted by NITI Aayog has estimated that they can roll out E20 calibrated engines by April of 2025. (Chattopadhyay, 2021)

The upside of ethanol blending

For starters, the obvious benefit is the reduction in carbon emissions. A blended mixture contains less carbon, therefore letting out lesser carbon dioxide and hydrocarbons, both of which are polluting agents. An indirect benefit of ethanol usage is that feedstock crops act as carbon sinks, soaking up greenhouse gases, thereby contributing to ethanol blending’s environment-friendly credentials. The government takes the ecosystem-centric benefits a step further by researching the feasibility of ethanol production using maize, a less water-intensive crop and thus ensuring minimal wastage at any step of ethanol production.

Under the broader push for self-reliance, the ethanol policy also attempts to cut down on the oil-import bill. Petroleum product imports in 2020-21 stood at US$ 55 billion and the 20% ethanol blending policy would save at least US$ 4 billion (about Rs 30,000 crore), thereby improving India’s balance of trade substantially (Mohapatra, 2021).

The cut down on the oil-import bill is significant on more than just the economic front and plays a symbolic role in highlighting Indian self-dependence in geopolitical relations. Moreover, reliable import substitution for it in the form of alternatives like solar energy is not feasible in the short run. Therefore, the ethanol policy is a welcome step in the right direction towards a self-reliant India.

Further, the sugar industry faces a serious liquidity crunch on one front and a sugar glut on the other. Sugarcane producers are not paid their dues by mill owners in time and hence struggle to gather funds for the next cycle due to the rising cost of production. Mill owners, on the other hand, claim that they delay payments because of the quantity of sugar already stockpiled.

India is the world’s second-largest producer of sugar in the world (after Brazil) and is expected to produce about 310 lakh tonnes in 2021-22. Out of this, domestic demand stands at about 250 lakh tonnes and exports have stagnated. In such a situation, differential pricing is offered for sugar diverted to ethanol production, which augments the income of mill owners as well as empties their warehouses. This additional income would also ideally flow to sugarcane farmers and finally settle the huge arrears that have been built up.

The Limitations

It is theorized that diversion of sugar to ethanol production will prevent their wastage. However, this theory does not consider the increase in production there would be due to the increase in the Fair and Remunerative Price (FRP), a benchmark rate below which mills are not allowed to buy cane. The GoI increased the FRP to Rs 290/quintal for the upcoming agricultural season. However, this will also put mill owners, who divert excess sugar for ethanol production only to see more of its producers lining up to sell their output, hoping to take advantage of the new FRP in a quandary.

“To achieve the 20% target, India needs to expand its ethanol production to 10.2 billion liters—including 5.5 billion liters from sugarcane and a whopping 4.7 billion liters from grains,” stated the NITI Aayog. Current regulations in the country allow the production of ethanol from sugarcane, sugar, molasses, maize and damaged foodgrains unfit for human consumption. Further, surplus rice with FCI is allowed too. The major critics of the ethanol policy point out that India may find it difficult to achieve a balance between food security and ethanol blending.

By 2025-26, the government aims to produce 740 crore litres of grain-based ethanol from the current levels of 258 crore litres, which would be difficult to achieve without sacrificing at least some quantity of fine grain. The quantum of damaged grains – around 40 lakh tonnes – seem to have been overestimated (according to an article by Siraj Hussain and Jugal Mohapatra) since in 2020-21, the FCI reported non-issuable food grains of only 1,850 tonnes while it issued 688.6 lakh tonnes of food grains.

Thus, ethanol blending has not been taken up in North-East states due to non-availability of feedstock or industries. Similarly, the aforementioned article argues that the policy wrongly assumes that the entire quantity of rice, not used for issue under public distribution system, will be available for the manufacture of ethanol, or that maize will not be used to feed poultry. Although there has been a steady growth in corn output to 30.2 million MT in 2020-21 (October-September), from 22.6 million MT in 2015-16, India’s corn trade in global markets has been irregular.

Lastly, the E20 target cannot be achieved without support from the automobile industry. Industry analysts feel that the advanced target to roll out E20 calibrated vehicles by April 2025 puts undue pressure on manufacturers already burdened by regulatory compliances over pollution. 4-wheelers and 2-wheelers have been hit hard by the pandemic and in the short term, the E20 target will raise their production costs, as modifications have to be made to make engines ethanol-compliant. Vendors will also have to be handheld to develop ethanol-compatible parts.

The Suggestions

The advancement of the E20 target is a bold move given the various hurdles that have to be crossed. However, the the following recommendations could help smoothen the process:

1. To enable a pan-Indian roll-out of ethanol-blending, the fuel would need to be supplied from surplus to deficit states as per requirements so as to ensure the consistent availability of ethanol blends in the country.
2. Allowing blends between E10 & E20 such as E12 or E15 in flex fuel vehicles may make it easy for oil marketing companies (OMCs) to manage the supply and demand of ethanol in the country. Building supporting infrastructure for OMCs and incentives for vehicles compliant with higher ethanol blends will be other steps to expedite the transition to ethanol.
3. In lieu of rice and sugar, other less water intensive crops must be explored for ethanol production. For this, NITI Aayog recommends less water intensive feedstock. Corn, for instance, can benefit from a more stable market demand scenario with ethanol and measures  can be taken to increase corn output.

The E20 Target must inevitably contend with strict scrutiny as it uses one invaluable resource (food grains) to create what could be another invaluable resource (ethanol blend). Inter-ministerial coordination, an examination of the minute details of the policy and taking the industry into confidence are necessary for it to pay dividends in the long run.