India’s Biofuel Policy 2018: The Answer to the Surge in Fuel Prices

On the occasion of the World Biofuel Day, the Prime Minister stated, “We will produce 450 crore liters of ethanol in next four years from existing 141 crore liters. It will result in import savings of Rs 12,000 crore”. What makes biofuels important is the fact that not only are they eco-friendly but they also act as effective alternatives for petroleum 80% of the requirement of which is met by imports. The Ministry of New and Renewable Energy formulated the bio-fuel policy for the first time in 2003 and in 2013, the Centre successfully launched a programme, which makes it mandatory for all the petroleum companies to blend ethanol in petrol at least up to 5% for all kinds of sale purposes, i.e., the Ethanol Blended Petrol (EBP) Programme. With the initiation of this an estimate was made to achieve as much as 20% of blending of bio-fuel by 2017.

These wonders that bio-fuel and bio-diesel are intended to perform are going to pan out only if there is an adequate supply of the same on a domestic level. However that’s not the case, ethanol, which is majorly procured from Sugarcane molasses, is in great demand in liquor production. Now, the distilleries offer quite competitive pricing, at the same time this kind of demand of ethanol prompts the state governments to raise the taxes on it. Other than the liquor industry, even the production of chemicals borrows a good amount of ethanol, thus reducing the amount of ethanol at the disposal of Oil Marketing Companies. The pricing is not just competitive on account of supply side limitations and government taxes but also because of the transportation and storage costs involved. Thus, these fluctuations prevented the oil companies from reaching the target of at least 20% blending of biofuel in petrol.

The Biofuel policy of 2018, offers certain solutions to deal with the supply issues. These solutions range from expanding the raw material base from which ethanol can be procured for blending with petrol to increasing the funding for the 2nd Generation ethanol bio-refineries, which refers to producing ethanol from Municipal Waste to providing certain tax incentives and price increments, so as to incentivize the production of ethanol for sugar mills. Along with these supply side improvements, the government has raised the ethanol blending limits to 10%, which further intends to curb any slack in demand vis-à-vis the estimated increase in the supply of ethanol.

Despite these expected positives around the Biofuel Policy, it becomes difficult to ignore the areas that this new policy has ignored. To begin with let’s look at the issue of octane over which the comments are missing from the government. Several chemical components are used to catalyze the efficiency of Octane in petrol which eventually increases the efficiency of petrol. Now what the government has ignored is what can be done to curb the cancerous emissions that the catalysts for octane produce. Secondly, some thinkers have even extended contentions over the fact of why the funding on the 2nd generation of biofuels is being over-emphasized when the 1st generation of biofuels can yield more sure-shot results. Thirdly, issues have been expressed over the lack of transparency in extension of MOUs to certain companies for establishing 2nd Generation refineries which are bagging huge funds as per the new policy. Finally, propositions have been made about allowing imports of ethanol, especially when the prices at this point in time are essentially low, so as to reduce the gap in supply that shall being created for as long as the domestic supply does not gear up.

As far as the issues of Octane go, time bound imports of bio-fuels and transparency of MOUs’ distribution are concerned, it is agreeable that the problems have to be looked into, up to some extent and improvements in policy are required in these areas. However I do not agree with the opposition over the investment in the 2nd Generation bio-fuels in its entirety. It can be agreed that the pre-existing and relatively more promising 1st Generation biofuels should be invested in, so as to improve them, but keeping away from experimenting with 2nd Generation biofuels won’t be very wise because the potential of the same has not been assessed in most international models, therefore, looking at certain new areas should definitely be the way forward, but development of the pre-existing technologies should not be avoided as it will provide us with something to fall back on.

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