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• The National Biofuel Policy 2018 envisages an indicative target of 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel by 2030.
• However, as the existing ethanol distillation capacity in the country is not sufficient to produce ethanol to achieve blending targets, the Government is encouraging sugar mills, distilleries and entrepreneurs to set up new distilleries and to expand their existing distillation capacities.

Ethanol interest subvention scheme

• Under the Ethanol interest subvention scheme, to promote setting up of molasses-based and grain-based distilleries, the government is extending financial assistance by way of interest subvention for 5 years, including a one-year moratorium against the loan availed by project proponents from banks, at 6% per annum or 50% of the rate of interest charged by banks whichever is lower.
• Interest subvention is available to only those distilleries that supply at least 75% of ethanol produced from the added distillation capacity to oil marketing companies (OMCs) for blending with petrol.

Why in News?

• The Union Cabinet has approved amendments to the National Policy on Biofuels, 2018, to advance the date by which fuel companies have to increase the percentage of ethanol in petrol to 20%, from 2030 to 2025. The policy of introducing 20% ethanol will take effect from April 1, 2023.
• The new policy would allow more feedstock for producing biofuel and foster the development of indigenous technologies.
• A 2021 report by the NITI Aayog said that “immense benefits” could accrue to the country by 20% ethanol blending by 2025, such as saving ₹30,000 crore of foreign exchange per year, increased energy security, lowered carbon emissions, better air quality, self-reliance, better use of damaged foodgrains, increased farmers’ incomes and greater investment opportunities.
• India achieved 9.45% ethanol blending as on March 13, 2022, according to the Ministry of Petroleum and Natural Gas (MoPNG). The Centre projects that this will reach 10% by the end of financial year 2022. The government first announced its plans of advancing the 20% blending target in December 2020.

Impact on engines

• A 10% blending of petrol does not require major changes to engines but a 20% blend could require some changes and may even drive up the prices of vehicles. A greater percentage of blending could also mean more land being diverted for water-intensive crops such as sugar cane, which the government currently subsidises.
• The NITI Aayog projects an ethanol demand of 10.16 billion litres by 2025, based on the adoption of vehicles. The current ethanol production capacity in India of 4.26 billion litres derives from molasses-based distilleries, and 2.58 billion litres from grain-based distilleries. This is expected to expand to 7.6 billion litres and 7.4 billion litres respectively, and will require six million tonnes of sugar and 16.5 million tonnes of grains per annum by 2025.
• The increased allocation of land also puts into question the actual reduction in emissions that blending ethanol with petrol brings about.

Related Information

Biofuels

• Biofuels are liquid or gaseous fuels produced from biomass that are generally high in sugar (such as sugarcane, sugarbeet, sweet sorghum), starch (such as corn and cassava) or oils (such as soybeans, rapeseed, coconut, sunflowers, and palms). The two most commonly used biofuels are ethanol and biodiesel.
• Pradhan Mantri JI-VAN Yojana: It provides Viability Gap Funding (VGF) to Second Generation ethanol manufacturing projects to increase availability of ethanol for ethanol blending programme.
• Categories of Biofuels:

1. First generation Biofuels are mainly produced from food crop feedstock, such as oil, sugar and starch crops, thus competing for agricultural areas used for food production.
2. Second generation Biofuels differ in feedstock which, in this case, comes from non-food plants such as agricultural crops, residues and wood (so-called lignocellulosic biomass).
3. Third generation Biofuels are produced from micro-organisms like algae. Its production is supposed to be low cost and high-yielding – giving up to nearly 30 times the energy per unit area as can be realized from current, conventional ‘first-generation’ biofuel feedstocks.
4. Fourth generation Biofuels use genetically modified (GM) algae to enhance biofuel production. Key to the process is the capture and sequestration of CO2, a process that renders fourth-generation biofuels a carbon negative source of fuel.

How ethanol production helps the sugar industry?

• There has been surplus production of sugar in the country since sugar season 2010-11 (except reduction due to drought in sugar season 2016-17); & sugar production is likely to remain surplus in the country in coming years due to introduction of improved varieties of sugarcane.
• This surplus sugar puts pressure on domestic ex-mill prices of sugar. The excess stocks which remain unsold also block funds of sugar mills to the tune of about Rs. 19,000 crore thereby affecting liquidity positions of sugar mills resulting in accumulation of cane price arrears of farmers.
• Diversion of excess sugarcane & sugar to ethanol is a correct way forward to deal with surplus stocks. Diversion of excess sugar would help in stabilizing the domestic ex-mill sugar prices and will also help sugar mills to get relieved from storage problems. It will improve their cash flows and facilitate them in clearance of cane price dues of farmers; and will facilitate mills to function in the coming years.

Reference:

1. https://www.thehindu.com/news/national/cabinet-approves-policy-to-increase-ethanol-blend-in-petrol-to-20/article65426515.ece