Ethanol vision needs a feedstock reality check

Why in the News

The price of sugar has risen as part of the normal cycle in sugar output, at a point when ethanol production is being pushed to reduce crude oil imports. Sugarcane is one of the three feedstocks for ethanol, and the price rise has opened the broader question of whether the blending target will put pressure on crop supplies generally. About 45% of India’s ethanol now comes from maize and a further 20% to 25% from rice, with the balance produced from sugar based feedstock. E20, the blending of 20% ethanol into petrol, has been made mandatory, which fixes the demand rather than leaving it to the relative price of the feedstock. The tension is that the cheapest and highest yielding feedstock is also the base of India’s cattle and poultry feed, and its output cannot be raised quickly because genetically modified seed is not permitted for maize.

What is the E20 ethanol blending mandate?

1. About: E20 is petrol blended with 20% ethanol by volume, supplied under the Ethanol Blended Petrol Programme run by the Ministry of Petroleum and Natural Gas.
2. Why it exists: Blending substitutes a domestically produced fuel for imported crude, which reduces both the oil import bill and the foreign exchange spent on it.
3. How the ethanol is bought: Oil marketing companies procure ethanol from distilleries at administered prices fixed separately for each feedstock route, so the mix responds to policy pricing rather than to the fuel market.
4. The target date: The 20% blending target was advanced to the 2025 to 2026 ethanol supply year from the original timeline of 2030.

What decides India’s ethanol feedstock mix?

1. Current shares: Around 45% of ethanol is produced from maize and 20% to 25% from rice, with sugar based feedstock supplying the balance.
2. Yield per tonne: One tonne of maize yields 380 to 400 litres of ethanol, one tonne of rice yields 370 to 385 litres, and one tonne of sugarcane yields 220 to 280 litres.
3. Cost per tonne: Maize costs around Rs 20,000 to Rs 21,000 per tonne, rice around Rs 38,000 to Rs 39,000, and sugar approximately Rs 37,000, which places maize first on cost as well as on yield.
4. Availability: Availability also favours maize, so producers prefer it on all three counts and it stands highest in the pecking order.
5. The rice supply was a one time disposal: Excess stocks held by the Food Corporation of India (FCI), the central agency that procures and stores foodgrain, were of low quality and were sold into the market, which was sound as a disposal but cannot be the feedstock strategy going forward.

Who else is competing for India’s maize?

1. Households: Household consumption accounts for a small part of total maize demand.
2. Cattle and poultry feed: Maize supports cattle and poultry and accounts for 60% of the total feed requirement.
3. Industrial starch: Industrial use draws maize for the production of starch.
4. Ethanol as the fourth claim: Ethanol now becomes a fourth source of demand on the same domestic output.

Why can maize output not simply be expanded?

1. The seed restriction: Production using genetically modified variety seeds is not permitted for maize, so output growth has to come from existing domestic seeds.
2. Demand is fixed by notification: A mandatory E20 blend raises ethanol demand on a schedule the crop cycle cannot respond to.
3. Price pass through: Higher demand raises maize prices, and that increase trickles through to the prices of dairy, meat and related products.
4. The proposal on the table: One solution is to permit genetically modified seed for maize grown solely for ethanol production, which separates the fuel use from the food and feed chain.

What does the water accounting show?

1. Water per kilogram: Maize takes 500 to 900 litres of water per kg, sugarcane takes 1,500 to 2,500 litres and rice takes 2,000 to 3,500 litres.
2. The implication for the mix: On water use alone, more maize and less rice and sugarcane should be diverted to ethanol.
3. Incremental output still costs water: Additional maize output adds to the pressure on water resources even though maize is the least water intensive of the three.
4. A competing claim on the same supply: The parallel push to build data centres adds another heavy consumer of both power and water, which makes water supply a general constraint on the economy rather than an ethanol specific one.

Challenges to the ethanol blending programme

1. The blend reduces vehicle efficiency: Ethanol carries lower energy density than petrol, so a higher blend delivers fewer kilometres from the same volume of fuel. Eg. Efficiency losses of roughly 2% to 6% have been reported for vehicles not calibrated for a 20% blend.
   The Fix: Mandate a published efficiency rating for every vehicle model at the E20 blend, so the import saving and the mileage cost are visible together.
2. Capacity is being built against a single target year: Grain based distillery capacity added on the strength of a mandatory blend has no alternative market if the target is later revised. Eg. Grain based routes displaced sugarcane as the dominant ethanol feedstock within a few supply years.
   The Fix: Publish a rolling five year feedstock and capacity plan so investment tracks a stated trajectory rather than one target year.
3. The older fleet is not compatible: Vehicles built before blend compatible components were standardised face corrosion in fuel lines and seals at higher ethanol shares. Eg. Vehicles manufactured before 2023 were not designed to be E20 compliant.
   The Fix: Require retail outlets to stock a lower blend grade alongside E20 until the pre compliance fleet retires.
4. Food and fuel draw on the same procurement system: The agency that holds foodgrain for the public distribution system also supplies grain to distilleries, so a poor crop year forces a choice between the ration and the blend. Eg. Rice released for ethanol has been drawn from central stocks built for food security.
   The Fix: Fix a statutory buffer floor below which no grain may be released for ethanol, published before each supply year.

Conclusion

The ethanol programme is being run as an energy policy while its binding constraint sits in agriculture. Neither of the two things that would let maize output grow, approval of genetically modified seed and additional water, lies within the remit of the ministry that sets the blending target, and a mandate creates neither. What is unresolved is that a fuel target fixed by notification meets a crop supply that responds only to seed technology and rainfall, and the adjustment between the two will appear first in feed and dairy prices rather than at the pump.

Government Initiatives for Biofuels in India

1. National Policy on Biofuels, 2018: The policy classifies biofuels into first, second and third generation categories and widens the permitted feedstock base to include damaged foodgrain and surplus grain.
2. Ethanol Interest Subvention Scheme: The Centre supports new and expanded distilleries through soft loans carrying a 6% interest subvention on the borrowing.
3. Pradhan Mantri JI-VAN Yojana: It funds commercial scale second generation ethanol plants that use crop residue instead of food grain as feedstock.
4. Sustainable Alternative Towards Affordable Transportation (SATAT): This initiative of the Ministry of Petroleum and Natural Gas promotes Compressed Bio Gas produced from agricultural and municipal waste for use as a transport fuel.

Matching Previous Year Question

“Consider the following statements: Statement I: Of the two major ethanol producers in the world, i.e., Brazil and the United States of America, the former produces more ethanol than the latter. Statement II: Unlike in the United States of America, where corn is the principal feedstock for ethanol production, sugarcane is the principal feedstock for ethanol production in Brazil. Which one of the following is correct in respect of the above statements? (a) Both Statement I and Statement II are correct and Statement II explains Statement I (b) Both Statement I and Statement II are correct but Statement II does not explain Statement I (c) Statement I is correct but Statement II is not correct (d) Statement I is not correct but Statement II is correct”