International oil prices are once again on the rise, approaching the significant threshold of $100 per barrel. India’s dependence on imported crude oil and related products has reached an all-time high of 87.3 percent in the fiscal year 2023, with a substantial portion of the country’s import budget, totaling 25.8 percent, allocated to this sector. India currently ranks as the world’s third-largest consumer of crude oil and related products, indicating considerable room for expansion in consumption. Simultaneously, data from the International Energy Agency suggests that approximately 20 percent of India’s primary energy supply over the past decade has been derived from biomass, with a notable portion utilized in households. With the establishment of the Global Biofuel Alliance under India’s G20 leadership, the focus now shifts to converting this biomass into a clean bio-energy source capable of serving multiple purposes, enhancing energy security, and ensuring value for public investment.
In a bid to reduce reliance on imported crude oil, India introduced its ethanol blending program in 2003, albeit progress was sluggish for more than a decade. However, in 2022, after a concerted policy drive spanning five years, India achieved a significant milestone by attaining a 10 percent ethanol blending rate in petrol. Current plans are underway to expedite the target of reaching a 20 percent blending rate (E20) by FY25-26, advancing it by five years.
In 2022, ethanol producers supplied nearly 4.3 billion liters of ethanol, and achieving the 2025 target will necessitate substantial investments and the efficient allocation of feedstock for domestic ethanol production.
Approximately 60 percent of India’s petrol demand is attributed to two-wheelers, catering to citizens across diverse economic strata. The remaining 40 percent is contributed by four-wheelers, with expectations of gradual growth. A 2021 urban India-focused survey indicated that nearly 55 percent of respondents expressed a desire to own a four-wheeler. Additionally, a NITI Aayog report forecasts a more than 45 percent surge in petrol demand by 2030 compared to 2021. In light of these projections, ethanol blending alone is expected to have a limited impact on curtailing overall petrol consumption.
While electric vehicles (EVs) are being explored as an alternative, they may not serve as the sole solution due to trade, employment, and economic considerations related to the minerals, materials, and components required for EV production. In this context, biofuels and flex-fuel vehicles, capable of predominantly running on biofuels, warrant serious consideration. Notably, Union Minister Nitin Gadkari recently unveiled India’s inaugural flex-fuel vehicle.
The majority of India’s ethanol supply for blending originates from first-generation production, primarily utilizing sugars from food crops, notably sugarcane (84 percent) and grain (16 percent). Despite the vast potential of second-generation (2G) ethanol production technologies, progress in this area has been gradual. Even state-of-the-art facilities such as Indian Oil’s are anticipated to produce only 30 million liters of 2G ethanol. Although there are 12 similar facilities in various stages of planning and construction, they are unlikely to meet the bulk of the ethanol demand.
Given the predominance of first-generation production, addressing concerns related to the food-energy-water nexus becomes imperative. Food crops require fertilizers and water, both of which are reliant on heavily subsidized energy sources (natural gas and electricity) for production. While ethanol provides a new source of income for farmers through assured procurement, considerations related to climate change underscore the potential for significant variations in rainfall and yields, which could leave the supply chain vulnerable to shocks. India urgently requires a comprehensive assessment of these trade-offs and a well-defined research and development strategy for 2G technologies before scaling up ethanol production.
In efforts to diversify the fuel base, policy should prioritize strategies for reducing overall petrol consumption in the economy and addressing private demand for this fuel. Targeted promotion of EVs in public transportation and implementing pricing mechanisms for private vehicle usage in urban areas could facilitate the transition to higher biofuel utilization levels.
As the automotive industry grapples with the challenges of transitioning to EVs, a well-considered and implementable plan for transforming India’s transportation landscape is crucial. Such a plan not only holds the potential to reduce the import bill but also offers a valuable opportunity to transition a significant sector of the economy.
