Prime Minister Narendra Modi had said in June that the government had decided to achieve the target of 20% ethanol blended with gasoline by 2025. Earlier, the target was set for 2030.

India is set to become the world’s third largest ethanol market after the United States and Brazil by 2026, according to a recent report from the International Energy Agency (IEA), adding that the country has tripled ethanol demand to an estimated 3 billion liters. Between 2017 and 2021.

Supported by India’s growing appetite, Asia is set to overtake Europe in terms of biofuel production by 2026, the agency said. While the annual global supply of biofuels and biofuels is set to grow by 28% from 2021 levels by 2026, reaching 186 billion litres, Asia is seen as accounting for approximately 30% of new production over the forecast period.

Government policies are seen as the main driver of demand expansion. Other factors such as aggregate demand for transportation fuels, costs and specific policy design will also play a major role.

Prime Minister Narendra Modi had said in June that the government had decided to achieve the target of 20% ethanol blended with gasoline by 2025. Earlier, the target was set for 2030.

Analysts at CRISIL recently indicated that about 16-18 million tons of gasoline sales were replaced due to ethanol blending.

The IEA report stated: “India will find it difficult to implement the 20% blending mandate in just five years, but even reaching 11% blending would make it the world’s third largest ethanol market after the United States and Brazil.”

A significant portion of India’s current vehicle fleet may suffer from compatibility issues with fuel blends greater than 10% ethanol. The IEA cautioned that “retrofits are an option, but the scale of the undertaking may make this impractical,” adding that “flex-fuel vehicles or vehicles compatible with a 20% blend should be available and consumers will need to be persuaded to purchase it.” Currently, the blending level of ethanol into gasoline is about 8.5%. Under the Ethanol Blended Gasoline (EBP) programme, the government has already reintroduced the managed price mechanism for ethanol procurement, allowing ethanol to be produced from multiple feedstocks such as heavy molasses, sugarcane juice, sugar, sugar syrup, spoiled food grains, corn and surplus rice stock with the Food Corporation of India (FCI).

State Oil Marketing Companies (OMCs) received 66.5 crore liters of ethanol in the 2016-2017 ethanol supply year (December, 2016-November, 2017), which increased to 173 crore liters in the 2019-20 supply year. As FE reported earlier, the government has already directed oil CPSEs to set up second generation (2G) bioethanol refineries in various parts of the country using agricultural residues and biomass. OMCs are in the process of constructing twelve second generation bio-refineries with investments of Rs 14,000 crore. Ethanol purchased under the EBP program falls into the 5% GST slab.

The EBP program aims to address environmental concerns, reduce the oil import bill and provide remunerative income to farmers. The purchase price of ethanol for the year of supply of ethanol 2O2O-21 was Rs 62.65/liter for sugarcane juice, Rs 51.55/liter for spoiled food grains, Rs 56.87/liter for rice supplied with FCI, 51.55/liter for corn and heavy molasses in the range of Rs 45.69/liter and 57.61 rupees/liter. Sugar mills and distilleries are free to set up ethanol plants after obtaining legal approvals and the government has already notified the interest subsidy scheme to help set up these plants.

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