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.
