What is the issue?
A consistent and flexible policy for ethanol blending is needed to derive the many advantages that it offers across sectors.
What is the need?
- To achieve the government’s target of 10% blending by 2022, the ethanol required is 300 crore litres.
- Of this, 130 crore litres is consumed by the potable alcohol sector and 60 crore litres by chemical industries, leaving only about 110 crore litres for blending with petrol.
- India’s fuel bill in 2018-19 is expected to rise by 42% to $125 billion from $88 billion in 2017-18.
- To help reduce current account deficit and to make best use of a domestically available alternate, ethanol blending with petrol for fuelling vehicles was proposed.
- It serves as an environment-friendly alternative which can help reduce India’s dependence on oil imports, thus presenting itself as a compelling option.
What are the concerns?
- The ethanol blending policy was first announced in 2002 with a target of 5% blending rate.
- However, lack of a consistent policy and the will to implement the programme effectively resulted in the average blending rate still hovering around 2.07% in 2016-17.
- Along with that, pricing of ethanol, whether to be fixed by the government or identified through tendering, created so much of hassle for the oil marketing companies.
- Also, since the price offered by the potable alcohol industry more attractive, sugar mills tend to leverage more towards them rather contributing towards ethanol blending.
- State governments, on their part, have either banned inter-State movement of ethanol or dis-incentivised it by levying taxes, affecting both demand and supply.
What are the measures needed?
- For India’s ethanol blending programme to deliver, three critical factors are essential — policy consistency, price stability and flexibility.
- Automotive Industry will have to study if engines need to be modified, with increasing blending requirements, and have to make necessary adjustments.
- Price stability - Ethanol has competing users and for OMCs to get their share for blending they should pay a remunerative price.
- Thus, for ensuring price stability, ethanol pricing should be de-linked from crude prices.
- Policy consistency - Blending ethanol with petrol will help the country manage its surplus farm output by using feedstock that goes into making ethanol.
- The national bio-fuel policy permits damaged/broken food grains apart from agri-waste to be converted into ethanol.
- Flexibility - In India, ethanol is produced after distilling molasses, a by-product of sugar.
- Sugar mills should be allowed to produce ethanol directly from cane juice or by converting molasses earlier in the process instead of producing sugar.
- This would avoid rising cane arrears due to surplus production of sugar and would also ensure better price realisation for farmers through diversification.
Source: Business Line
