The new biofuels policy was released by the Union Government recently.
While it is high on ambition, its success will depend on how it is executed.
What is the current scenario?
The government estimates that ethanol supply of around 150 crore litres in 2017-18 could save foreign exchange worth over Rs. 4,000 crore.
Sugar industry is the key ethanol supplier for fuel blending at present, but prices offered to them for ethanol isn’t attractive.
Hence, they’ve preferred to sell off their stock to better remunerative alcohol and other industries, which has been constraining supply for blending.
Currently, rising oil prices are putting increasing pressure on the economy.
In this backdrop, the government has mooted the new “National Biofuel policy” for encouraging Ethanol use, which gives some solace.
The policy’s focus has been in addressing the supply side issues involving bio-fuels, which has long been a constraint in domain.
What does the new policy envision?
The new policy explores a wider variety of raw materials to be used as inputs to produce ethanol (which is to be blended with petrol).
Apart from sugarcane – government plans to include corn, damaged food grains, potato and even municipal solid waste as ethanol sources.
These changes are likely to reduce the cost of producing bio-fuels and improve affordability for consumers, particularly during oil price hikes.
The Centre hopes the new policy will also benefit farmers, who will be able to sell various types of agricultural waste to industry at remunerative prices.
It will also serve as an incentive for farmers to not burn their stubble and other farmland waste, which has become a menace in the regions around Delhi.
The policy also envisions a budget of 5,000 crores for supply chain infrastructure enhancement in the bio-fuel sector.
What is the way ahead?
Any bio-fuel policy must be strongly backed by sufficient technology and production scale in order to be financially feasible and implementable.
Given the current market dynamics, sugar industry’s share in the bio-fuel mix is unrivalled – thereby underscoring the need for better pricing for ethanol.
The consideration for using food grains is a tricky one as food supply chains might get affected if there aren’t proper checks.
While source diversification is indeed a positive, proper enhancement of supply-chain infrastructure to reach the final consumer will prove vital.
The government should also take steps to remove policy barriers that have discouraged private investment in building supply chains.
