Ethanol: The fuel for a new bio-economy

The aggressive target to achieve 20% of ethanol blending by 2025 will help India achieve its climate goals, address scrutiny on its sugar exports and subsidies at WTO and also relieve the burden on realisations faced by sugar mills due to excess sugar production, ultimately benefiting farmers.

• Produced from agricultural feedstocks, bioethanol is considered the most important biofuel, accounting for 65% of the global biofuel production.
• Due to high sugar production, the Indian government has shifted focus from sugar production to ethanol production, which is gaining significance.
•  According to a government notification issued in August 2020, the government has extended soft loans worth INR. 18,600 crore by banks to 362 projects with a total capacity of 600 crore litres for the enhancement and augmentation of ethanol manufacturing capacity.
• Collaboration in R&D and cross-border investment with Brazil and other prospective foreign ethanol suppliers can be considered to ramp up production of this fuel in India.

Image credit: Freepik

The ever-increasing need for fuels and food has prompted economies across the world to look for new outlets. A new trend is the processing of biofuels and bioenergy from crops. Produced from agricultural feedstocks, bioethanol is considered the most important biofuel, accounting for 65% of the global biofuel production. It can be easily manufactured using very common crops such as hemp, sugarcane, potato, cassava and corn and plays an important role in energy and economic security.

Recently, PM Narendra Modi announced that India’s target of 20% ethanol blending in petrol will be advanced by 5 years and has to be achieved by 2025. He added, “Today, a lot of emphasis is being laid on building the necessary infrastructure for the production and purchase of ethanol in the country. Most of the ethanol manufacturing units are concentrated in 4-5 states where sugar production is high, but now foodgrain based distilleries are being established to expand this to the whole country. Modern technology based plants are also being set up in the country to make ethanol from agricultural waste.”

Ethanol: Driving towards a cleaner future

• Blended with fuel at levels ranging from 5% to 27.5% to minimize fuel consumption, increase octane ratings, and decrease tailpipe emissions.
• Pure ethanol is a gasoline that contains 85% to 100% ethanol that can be used in specially built engines such as flexi-fuel vehicles.

Although the United States is the leading producer of ethanol, Brazil is the sprinter. It is the world leader in ethanol production from sugarcane. Global production increased to 10,987.52 crore litres in 2019, up from 10,758.14 crore litres in 2018. This year-on-year growth in productivity was the largest since 2010.

Table I: Ethanol share of world production

*Source: RFA analysis of public and private data sources

It is evident from the data above that the US and Brazil are two major players contributing towards ethanol production. India stands at 6^th position, contributing only 2% of the world production, whereas Argentina is the only country performing poorly among the top eight countries.

Ethanol is an agricultural commodity derived mostly from molasses, a by-product of the sugar industry. There is a glut of sugarcane and prices are low, so the sugar industry is unable to pay farmers on time. It was observed that Uttar Pradesh (150 crore litres), Maharashtra (128 crore litres) and Karnataka (78 crore litres) are the top 3 states accounting for about 83% of the total ethanol production capacity of 427 crore litres. A surplus sugar season coupled with a stronger financial incentive to convert excess sugar to ethanol should help the oil marketing companies (OMCs).

Besides, with surplus sugar in India and sugar exports from India expected to remain open for constant scrutiny by WTO members, ISMA has suggested that India needs to ensure additional supply of molasses/cane juice based ethanol production capacity of 400-450 crore litres (at all India level) to reduce sugar exports by 2 million tonnes every year till 2023. In addition, India needs to ensure increased diversion of equivalent sugar into ethanol every year over next 3 years to reduce 25% of all-India sugar surplus.

Overcoming the teething troubles

Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd. are all in the process of establishing 2G bio-ethanol plants. 1G and 2G bioethanol plants are set to play a key role in making bio-ethanol available for blending, but face challenges in attracting investments from the private sector.

Domestic production of bioethanol is not sufficient as sugar mills, the primary domestic suppliers of bio-ethanol to OMCs, were only able to supply 1.9 billion litres of bio-ethanol to OMCs, accounting for 57.6% of the overall production of 3.3 billion litres last year. Sugar mills, which are in the strongest position to manufacture bioethanol, lack the financial stability to invest in biofuel plants.

The Indian government, too, is making efforts to promote the production of ethanol. It has set state-specific ethanol production goals, advising sugar mills/distilleries in each state to use at least 85% of their existing installed capacity to produce ethanol. For example, the Ethanol Blending Programme (EBP) aims to accomplish ethanol-motor-spirit blending in order to reduce emissions, save foreign exchange and improve value addition to the sugar industry, allowing farmers to clear cane price arrears.

Under the Ethanol Blending Programme, the Central Government has increased blending targets from 5% to 10%. (EBP). Thus, India’s five-year average ethanol consumption growth of 14% has outpaced the country’s five-year average production growth of 8%.

Further, according to ISMA, the Department of Food and Public Distribution (DFPD) has given preliminary approval to 361 projects. These projects are expected to produce 13,464 kilolitres of ethanol per day (KL/day), or 444 crore litres of ethanol per annum.

However, apart from a lack of ethanol at a reasonable price in India, there are various taxes on denatured ethanol that hinder inter-state movement. In addition, there are disparities due to vague licensing and procurement laws, and non-standardised blending techniques. The automotive industry needs enough lead time to make necessary engine and other adjustments so that cars can run on higher volumes of blended gasoline. Since ethanol has a lower energy content than gasoline, ethanol-blended gasoline has a lower calorific value than regular gasoline.

According to the Ministry of Consumer Affairs, Food & Public Distribution, the government has set a deadline of 10% fuel grade ethanol blending with gasoline by 2022, 15% by 2026, and 20% by 2030. It has also recommended pushing back the deadline for obtaining a 20% ethanol-to-petroleum blend to 2025, which was just affirmed by the PM Narendra Modi. The Ministry of Road Transport and Highways requested public feedback on the adoption of E20 (Ethanol 20) as an automotive fuel in December 2020.

The government proposed some interventions to help meet ethanol-to-petroleum blend goals and to encourage ethanol as a locally produced, non-polluting, and nearly inexhaustible fuel:

• The Department of Food and Public Distribution (DoFPD) has stated that it will provide financial assistance to project developers who want to expand their ethanol distillation capability. The change is in line with the country’s goal of reaching 20% crude oil blending by 2025 and increasing ethanol production potential.
• Setting up of distilleries to manufacture 1st Generation (1G) ethanol from cereals (rice, wheat, barley, corn, and sorghum), sugarcane, and sugar beet would receive financial assistance. Additionally, assistance will be given for the conversion of molasses-based distilleries to dual feedstock.
• In current distilleries, a Molecular Sieve Dehydration (MSDH) column will be installed to transform rectified spirit to ethanol
• The government will cover interest for five years, with a one-year freeze on project backers’ ability to borrow money from banks at 6% per year or 50% interest, whichever is lower.
• Only those distilleries that would supply at least 75% of the ethanol derived from the increased distillation capability to OMCs for blending with gasoline will be eligible for the interest subsidy.

The government expects the program to help reduce India’s import dependency on crude oil. Increased blending rate would minimize reliance on imported fossil fuels while also lowering air emissions. Besides It is estimated that to produce 700 crore litres of ethanol by the sugar industry, about 60 lakh tonnes (lt) of surplus sugar would be diverted to ethanol. Therefore this diversion is also expected to help the sugar industry relieve the pressure on its industries and ultimately farmers.