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What is Ethanol Blending?
Ethanol is primarily made from molasses, a by-product of the sugar industry. When there is an abundance of sugarcane on the market and prices are low, the sugar business is unable to pay farmers on time. The Ethanol Blending Programme (EBP) aims to produce ethanol-motor spirit blends in order to reduce pollution, conserve foreign exchange, and boost value addition in the sugar business, allowing farmers to erase cane price arrears.
Ethanol Blending Program
Under the Ethanol Blending Program, the central government has increased blending targets from 5% to 10%. (EBP). The EBP procurement system has been simplified in order to streamline the entire ethanol supply chain, and a remunerative ex-depot price for ethanol has been established. A “grid” that connects distilleries to OMC depots and lists the quantities to be provided has been devised to help meet new blending targets. Distances, capacities, and other sectoral demands have also been factored into the demand profile for each state. During 2015-16, sugar mills were also exempt from paying excise tax on ethanol supplied to OMCs for EBP (up to 10 August 2016). The results have been quite encouraging, with annual supply tripling. In 2013-14, only 38 crore litres of ethanol were delivered for blending, but under the amended EBP, shipments jumped to 67 crore litres in 2014-15. The ethanol supply was historically high in the 2015-16 ethanol season, reaching 111 crore litres and attaining 4.2 percent blending. In the 2016-17 ethanol season, 66.51 million litres of the 80 million litres contracted were delivered. Furthermore, in the year 2017-18 ethanol season, a letter of intent was issued for the supply of 139.51 million litres of ethanol, of which 136 million litres were signed and roughly 46.25 million litres were delivered. OMCs had a second round of tendering for bidding for the purchase of 117 million litres of ethanol under the EBP.
To lessen our reliance on OPEC (Organisation of Petroleum Exporting Countries) for our fuel needs, the government has determined to reach a 20% ethanol blend level in gasoline.
The government is pushing and motivating the sugar industry to invest in distilleries and create ethanol from B-heavy molasses in order to reach this goal. The union government has increased its purchasing price from 62.65 to 63.45. Due to this mills diverted 9,26,000 tonnes of sugar for ethanol production in 2019-20 and 3,37,000 tonnes in 2018-19. And more than 20 lakh tonnes in the year 2020-2021.
The drawback of this is India is no longer competitive in the global market as the price quoted for exporting is far greater than the other countries like Pakistan, Indonesia, Brazil, USA. In India, sugar is produced in surplus, and its price is regulated by the government. Sugar factories have benefited from the introduction of ethanol because their profit margins have increased without being overly reliant on sugar market prices. This has also aided them in making timely payments to cane-producing farmers. Soon, the price of cane will no longer be associated with the price of sugar.
On a global scale, when India achieves 20% blending and introduces flex engine vehicles, oil imports would be substantially reduced, giving India a stronger position in global discussions. Being self-sufficient would also mean that the country’s petroleum prices would be less volatile during a worldwide crisis (like the Ukraine crisis).
Associated Consequences
According to a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA), in order for India to meet its goal of 20 percent ethanol blended in gasoline by 2025 (commonly known as the E20 target), it will need to expand the area under cultivation of raw material products that can be converted into ethanol—land that can be effectively used for the production of renewable fuel and promoting India’s electric vehicle adoption initiative.
According to the IEEFA, increased food-based raw material manufacture for ethanol production may not have been the greatest use of land in a hungry state. India ranks 101st out of 116 countries in the World Hunger Index for 2021. Furthermore, according to the paper, the soil may be utilized to generate renewable energy for Electric Vehicles (EV) considerably more successfully than it can be used to plant crops for ethanol production.
According to independent analysts, existing ethanol production based on excess supply or contaminated food grains may be maintained at current levels or at E10 (10 percent ethanol-blended fuel), but the E20 objective for India may be unduly ambitious. Experts also claim that the ethanol objective will not considerably cut global warming emissions, could be harmful to the country’s food security, and will only help us get closer to energy security.
By 2025, IndiaSpend estimates that E20 will reduce GHG emissions by 5% in the transportation industry (not including life cycle emissions). “Is it worth investing so many resources to obtain only 5%?” asks the report.