India to surpass China as 3rd largest user of Ethanol

India is on course to race past China as the world’s third largest ethanol consumer by 2026 as it accelerates the transformation towards a clean energy ecosystem. Ethanol demand in India tripled between 2017 and 2021 with consumption expected at 3 crore litres in the last calendar year, the International Energy Agency (IEA) said.

“In January 2021, India brought forward its target of 20 per cent ethanol blending of gasoline to 2025 from 2030, and is aiming to start selling 20 per cent blends in 2023,” the agency said in a report.

IEA added that the country is supporting ethanol as it helps reduce oil imports, cut down air pollution and offers economic and employment opportunities for farmers. Lifting ethanol demand is also aligned with its net zero pathway. India, the world’s third largest oil importer and consumer, imported petroleum products worth more than ₹ 1.09-lakh crore in FY21.

‘Impressive progress’

The agency noted that India made “impressive progress” in increasing ethanol blending. In 2017, blending stood at 2 per cent, but by the summer of 2021 it touched 8 per cent, putting the country on track to achieve 10 per cent blending this calendar year.

“India has also increased its policy commitment. In pursuit of its 20 per cent target, the country has set guaranteed prices per litre of ethanol according to feedstock; established financial support for new ethanol capacity; released an ethanol roadmap; and is planning to mandate flex-fuel vehicles that can operate on higher ethanol blends, it pointed out.

However, the target of achieving 20 per cent blending of ethanol has “significant challenges”, IEA said adding that “Vehicle compatibility, greenhouse gas (GHG) and sustainability criteria, feedstock availability, and maintaining incentives at the right level will all require dedicated attention”. “In our accelerated case, we assume India meets these challenges and achieves its 20 per cent blending target in 2025,” IEA projected.

Compatibility concerns

A large segment of India’s existing vehicle fleet may have compatibility issues with fuel blends above E10. Retrofits are an option, but the scale of the undertaking may make that impractical. Flex-fuel vehicles or vehicles otherwise compatible with 20 per cent blends will need to be made available and consumers will need to be convinced to purchase them, IEA explained.

Clear GHG performance requirements and sustainability criteria will also help ensure ethanol production reduces emissions and avoids other impact. India estimates that ethanol blending has reduced its GHG emissions by 19 million tonnes of carbon dioxide equivalent since 2014 and its ethanol roadmap notes the need to supplement sugarcane, a water-intensive crop, with less water-intensive feedstock, IEA said.

Fixed rates

India is currently guaranteeing fixed rates for ethanol according to the feedstock it is produced from. In November, it increased the incentive rates by 1-2 per cent to encourage production, it added.

“The incentive structure and funding system will need to be carefully structured. Here, too, India can learn from other examples. Indonesia for instance has scaled back its biodiesel blending ambitions because of high costs, a situation India would like to avoid. India may also look to other models, such as targets with credit trading, as applied under the US RFS, the agency suggested.

At present, public sector oil marketing companies are selling 10 per cent ethanol blended petrol. Similarly, 5 per cent biodiesel is blended as per availability.