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Government’s justification on restricting ethanol production from SCJ and BHM

Ethanol, a vital biofuel for blending with petrol, plays a pivotal role in reducing carbon emissions and diminishing dependence on fossil fuels. The Government of India, aiming for a 20% ethanol blending target by 2025, has actively promoted the Ethanol Blended Petrol (EBP) Programme. However, a notable development occurred on December 7, 2023, when the government prohibited the utilization of sugarcane juice (SCJ) and B-heavy molasses (BHM) for ethanol production. The justification cited the imperative need to ensure an ample supply of sugar for domestic consumption, triggering discussions among stakeholders in the ethanol and sugar industries. This report delves into the rationale behind the ban and its ramifications for both sectors.

Capacity planning:

The government underscores that, by 2025, the total ethanol requirement for blending and industrial uses will be 1350 crore litres, necessitating a production capacity of 1700 crore litres. As of November 30, 2023, the existing ethanol production capacity stands at approximately 1380 crore litres. While this appears nearly sufficient, it hinges on optimal plant operations and the absence of supply disruptions.

Supply increase and achievements:

Government claims boast a remarkable surge in ethanol supply to Oil Marketing Companies (OMCs), escalating over 13 times from 38 crore litres in ESY 2013-14 to around 502 crore litres in ESY 2022-23. The blending percentage has concurrently ascended from 1.53% in ESY 2013-14 to the targeted 12% in ESY 2022-23. These achievements are attributed to government interventions since 2014, encompassing remunerative prices, financial support for ethanol production, diversification of feedstocks, and facilitating the establishment and expansion of distilleries.

Government support:

Financial support for ethanol production from diverse feedstocks, including CHM, damaged food grains, maize, SCJ, and BHM, has been a focal point of government assistance. Running from July 2018 to April 2022, various ethanol interest subvention schemes involve the government covering 6% per annum or 50% of the interest rate charged by banks/financial institutions, whichever is lower, on loans extended to ethanol projects for five years, with a one-year moratorium. The government has also set remunerative prices for ethanol from different feedstocks.

Benefits of ethanol blending:

The ethanol blending programme contributes significantly to the economy, environment, and farmers. Key benefits include the utilization of surplus maize and paddy for ethanol production, enhancing liquidity for sugar mills, reducing import dependency on crude oil, and mitigating climate change impacts through carbon emission reduction.

Feasibility of diverting sugarcane:

Advocates for diverting sugarcane for ethanol production highlight a surplus of sugar in the country, estimated at around 310 lakh tons in SS 2023-24, exceeding the domestic consumption of 287 lakh tons. Government policies incentivize ethanol production, encouraging the diversion of sugarcane. This move also stabilizes ethanol production, reducing dependence on fluctuating molasses availability tied to sugar production.

Challenges and concerns:

Despite the potential benefits, concerns and challenges persist:

The anticipated decline in sugar production in SS 2024-25 due to lower cane acreage and adverse weather conditions raises concerns about diverting sugarcane without impacting domestic sugar availability.

A delicate balance is required to ensure success for both the ethanol and sugar industries, potentially necessitating exploration of alternative feedstocks like cellulosic ethanol.

Addressing the impact on sugar prices and logistical challenges is crucial for the successful implementation of the ethanol blending programme.

Conclusion:

The government’s decision to ban ethanol from SCJ and BHM is substantiated by overall growth in ethanol production capacity, increased supply, and achievements in blending targets. The emphasis on financial support, benefits to farmers and the sugar industry, and the feasibility of diverting sugarcane aligns with the government’s commitment to ethanol blending. However, a judicious consideration of challenges and potential impacts is imperative to ensure a balanced approach and sustainable growth in both the ethanol and sugar industries. Therefore, the government should periodically review the ban, making necessary adjustments based on the evolving situation and stakeholder feedback.

Disclaimer: The views and opinions expressed in the article by Dilip Patil, Managing Director of Samarth SSK Ltd., are solely his own.

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