India is an energy starved country and rely heavily on imports to meets its energy demand. There is still a huge gap in demand and supply. In this process it ends up ballooning its current account deficit and losing valuable forex reserves. Controlling current account deficit has been a difficult job for finance ministers of India. India also has to keep maneuvering its strategy to take into account the political uncertainty in the world.
India imports more than 80% of crude oil needed to meet its domestic demand which has increased steadily over the years. This will further increase as more vehicles are added on Indian roads. Currently there are only 20 cars (approximately) for every 1000 people, which is way below the vehicle penetration in developed countries.
How do we reduce this dependence on foreign oil provided India doesn’t have large oil reserves. How do we plan to address the future demand? Of course there can’t be just one solution and Indian policy makers have to look for multiple options in the pursuit of energy security.
Bio-ethanol offers one such solution. Bio-ethanol is a biofuel made by fermentation of carbohydrates found in sugar or starch crops such as corn and sugarcane. This can be blended with petrol in some percentages to be used as a vehicle fuel. Although, ethanol can be used as fuel in its purest form but vehicles are usually not designed for it. However, many modern vehicles are being designed for petrol blended with ethanol.
Many countries have adopted ethanol blending to petrol (gasoline) to reduce their dependence on fossil fuels. Brazil has been the pioneer in using ethanol as vehicle fuel. It launched its biofuel programme in 1976. Currently close to 94% of cars sold in Brazil are flexible fuel cars that can handle ethanol blends. Another advantage of using ethanol is that it leads to lesser pollution as compared to petrol.
India already has a national biofuels policy which currently mandates 5% ethanol blending (E5) with petrol and with present government going aggressive on biofuels the policy mandates to achieve 10% ethanol blending (E10) by end of 2016 . However, its implementation on ground has been lethargic with Oil Marketing Companies (OMCs) only achieving 3% ethanol blending so far.
There is a huge demand and supply gap for ethanol in domestic market and if the objective is to arrest imports then there is no point in going to international markets for procurement of ethanol. Additional challenges such as inter state taxes and other trade restrictions makes ethanol blending less attractive.
Governments should reconsider all taxes levied on ethanol to incentivise its production and its use in blending. Currently, it levies 12.5% excise duty on ethanol. Government must also look beyond sugar mills for ethanol which are the main source of ethanol used for blending in petrol in India. Relying only on Sugar mills for ethanol shall not work. To meet 10% ethanol blending target, OMCs need 230 crore litres of ethanol. This is unlikely to be fulfilled from sugar mills as their installed capacity is just 240 crore litres. India should plan for more dedicated capacity to produce bio-ethanol to meet its blending targets.
Sugar mills in India produce ethanol from molasses which is a byproduct produced in manufacturing of sugar. Ethanol can also be produced directly from cane juice which is the common practice in Brazil where sugar production is regulated by diverting part of cane juice for production of ethanol. Sugar mills in India should also adapt themselves to not only produce ethanol from molasses but also directly from cane juice. This will help sugar mills to regulate sugar production.
Presently sugar mills in India are in deep financial distress as they sit on record sugar production and global sugar prices being less than cost of manufacturing. If sugar mills are able to increase ethanol production which is economically viable too then this will help them financially. In Brazil, out of the total cane available for crushing, 45% goes for sugar production and 55% for the production of ethanol directly from sugarcane juice. This gives the sugar industry in Brazil an additional flexibility to adjust its sugar production keeping in view the sugar price in the international markets.
Government will also have to ensure that automakers start producing flexi fuel vehicles so that their engines are compatible for ethanol-blended petrol. Manufacturers will have to make changes in engine parts which are not compatible with the blended alcohol-petrol fuel, due to corrosive tendency of ethanol. While Maruti Suzuki and Honda Cars India have made their cars E10 (a fuel mixture of 10% anhydrous ethanol and 90% gasoline sometimes called gasohol) compliant others are yet to make the switchover.
As per report from Mckinsey, 10% ethanol blending can save $1.7 bn in forex for India. This is huge and our government must make every endeavor to create an ecosystem for making ethanol blending programme successful.
|Gaurav Mittal is an engineering graduate from IIT Roorkee and a management graduate from XLRI Jamshedpur. He holds about a decade of industry experience working with several multinational organisations.
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