Explained: What is ethanol blending, impact on environment and challenges faced by India

• India plans to start using 20% ethanol blended petrol from 2025.
• Currently, most petrol pumps give 10% ethanol blended petrol.
• Economists argue that ethanol production in the future will have to rely more on maize and less on sugarcane and rice.

At present, when you go to fill petrol, the petrol you get is mixed with 10% ethanol and the government is looking to double this by 2025. Prime Minister Narendra Modi rolled out 20% ethanol-blended petrol in select gas stations in 11 States and Union Territories earlier this year as part of a programme to increase use of biofuels to cut emissions as well as dependence on foreign exchange-draining imports.

First, how is ethanol made?

Most of the fuel ethanol produced around the world is made by fermenting the sugar in the starches of grains such as corn, sorghum, and barley, and the sugar in sugar cane and sugar beets, as per the US Energy Information Administration.

What is ethanol blending and how does it help?

Ethanol blending is nothing but blended motor fuel containing ethyl alcohol that is at least 99% pure and is derived from agricultural products, and blended exclusively with petrol. An ethanol blended petrol helps on two counts. One, ethanol is a biofuel and so it is good for the environment. Second, it helps India as a country to cut down on its crude oil import bills.

Ethanol and the environment

Grain-based ethanol cuts greenhouse gas emissions significantly by 44 to 52% compared to gasoline, according to the US Department of Energy's Argonne National Laboratory. A report by Renewable Fuels Association says that researchers from Harvard, MIT, and Tufts have concluded that today's corn ethanol offers an average GHG reduction of 46% versus gasoline. Emerging technologies promise to boost that reduction to near 70% in the next few years, according to USDA.

So, what is the government’s plan?

The government has said it plans to push up the current 10% ethanol blended petrol to 20% in the next two years across India. This work is happening in two phases. In the first phase, 15 cities will be covered and then it will be expanded throughout the country in the next two years. Consumer Affairs Minister Piyush Goyal has said that the government is confident of achieving its target by 2025.

Is E-20 petrol available currently?

E-20 (petrol blendend with 20% ethanol) was initially available in only 84 petrol pumps in the country. A media report says that it is currently available in close to 1,000 stations. It is noteworthy here that the price of ethanol blended petrol isn’t different for the consumer.

Challenges being faced by the industry

Currently, most of the ethanol being produced uses either sugarcane on rice as its raw material. Both these crops are water intensive. A month back, when rice prices shot up, The Indian ethanol manufacturers faced a tough time as rice supply was stopped to the industry. This has led to agricultural economists like Ashok Gulati to advocate relying on maize as a policy.

Price hike demand accepted

The government hiked ethanol rates a month back after the industry demanded a hike arguing without proper returns there cannot be additional investments to boost supply. Now, the purchase price of ethanol produced from rice has been increased by ₹4.75/litre to ₹60.29/litre and for ethanol produced from maize, price has been hiked by ₹6.01/litre to ₹62.36/litre.

The reliance on sugar…

The Niti Aayog estimates that India will require 1,400 crore litres of ethanol to achieve its target of 20% blending by 2025. This, in turn, means that there is a big jump required in the production of sugar. A report by the Hindu states that out of the 550 crore litres of ethanol that has been produced since November last year, 450 crore litres came from the sugar industry.

What about falling sugar production and its impact?

Erratic rainfall in the 2023 monsoon season means that sugar production in India will be hit. In fact, a report by Reuters says that India, the second biggest producer of sugar globally, is considering banning sugar exports for the first time in seven years to fight the deficit. Moreover, sugar prices in the country have jumped by more than 3% in a fortnight to their highest level in six years.

Concerns about sugar production...

The Indian Sugar Mills Association (ISMA) has forecasted a 3.3% production fall in the current sugar year to 31.7 mn tonnes. It is roughly estimated that the country consumes 27.5mn tonnes leaving only a surplus of approximately 4 mn tonnes, as per a Systematix Institutional Equities report. This will hit ethanol production and thus the push to shift to maize by the government.

How have the sugar stocks fared?

Sugar stocks have had a mixed bag performance for most of the past year. While Balrampur Chini is up 3.4% and Dalmia Bharat Sugar is up almost 10% year-to-date, Shree Renuka Sugars and Dwarikesh Sugar have slipped over 7%.