India’s bio-fuel strategy continues to focus on use of non-food sources for production of bio-fuels: sugar molasses for production of ethanol for blending with gasoline, and non-edible oilseeds for production of bio-diesel for blending with petro-diesel. The government’s current target of five percent blending of ethanol with petrol has been partially successful in years of surplus sugar production, but falters when sugar production declines. The commercial production of bio-diesel for blending with petro-diesel has been very small due to inadequate feed stocks.

Bio-Fuels Policy Overview

India’s Bio-fuel Drivers:

• The cornerstone of India's energy security strategy is to focus efforts toward energy self-reliance and developing renewable energy options like biofuels vis-à-vis fossil fuels.
• Adoption of environmentally friendly biofuels to meet improved vehicle emission norms.
• Developing an alternative usage for crops like sugarcane and its by products as feedstock for biofuels to support farm income.
• Improve utilization of wastelands and other unproductive land for cultivation of biofuel feed stock.
• Enhance rural employment and livelihood opportunities by promoting production and marketing of biofuel feed stocks

With a rapidly growing economy and rising population, India is the fifth largest and one of the fastest growing petroleum oil consumers in the world. With limited domestic crude oil reserves, India meets over 72 per cent of its crude oil and petroleum products (diesel, aviation fuel, etc.) requirement through imports. Energy demand in the transport sector is growing relatively high due to the growing economy and rising private vehicle ownership, particularly four-wheelers. Due to rising oil consumption and relatively flat domestic production, India is increasingly dependent on imports to meet its petroleum demand.

India's oil import expenditure has grown nearly three fold since 2004/05 due to high global oil prices and growth in domestic consumption of petroleum products, which is a serious concern to the Government of India (GOI). Consequently, the GOI is looking at ways to promote production and use of biofuels to contain rising oil imports and substitute fossil fuel for future energy use.

The current growth in transport activity is a significant environmental concern given the fact that India's carbon emissions are growing at an average of 3.2 per cent per annum, making it one of the top five global contributors to carbon emissions. The GOI transport policy targets Euro-III and Euro IV norms for vehicles, which will require clean quality fuel, thus necessitating the adoption of biofuels.

India is one of the world's leading producers of sugarcane and sugar. Sugar molasses [4], a byproduct of the sugar industry, is used for production of most of the rectified spirits (alcohol) produced in India, including ethanol for fuel. Due to the cyclical nature of sugarcane and sugar production in India, sugarcane farmers and the processing industry experience periodic market gluts of sugarcane, sugar and molasses production impacting prices and farm incomes. The GOI has been focusing on encouraging sugarcane juice/sugar molasses usage for ethanol production to bring stability in farm incomes.

Biodiesel production efforts are focused on using non-edible oils from plants (Jatropha curcas, Pongamia pinnata and other tree borne oilseeds) and animal fats like fish oil. The focus is to encourage the use of wastelands and other unproductive land for the cultivation of these relatively hardy 'new' biofuel crops. The GOI does not want biofuel feedstock crop cultivation to compete with food crops for scarce agricultural land and water. An estimated 55.3 million hectares are considered wasteland in India, which could be brought into productive use by raising biodiesel crops. The GOI policy is also driven by the fact that biofuel crop cultivation in wastelands would provide additional employment to the vast rural population in India. There is some question as to the definition of „wastelands? as some grazing or less intensive dry land farming may be taking place on these „wastelands?. Nevertheless, biodiesel production from non-edible oilseeds, etc. is still in the research and development stage in India.

Food security is a national priority for India due to its one billion plus population (about one-fourth are below the poverty line), rising domestic demand for food, stagnating agricultural productivity, and limited scope for expansion in area under crop cultivation. Consequently, the GOI cannot afford to allow/promote the use of food feedstock for biofuel - cereal grains for ethanol production or edible oils for biodiesel production - as is done in other biofuel producing countries. India is one of the leading importers of vegetable oil in the world as growing demand from Indian consumers outstrips domestic production. Furthermore, production of grains like wheat, corn and coarse cereals has been growing slowly in recent years raising concerns about potential scarcity. High global prices for food has been a major concern for the government, which does not want to further aggravate the crisis by promoting the use of food commodities for biofuels.

In summary, India's strategy for promoting biofuels is two pronged:

• Promote the use of ethanol derived from sugar byproducts of molasses/juice for blending with gasoline.
• Promote the use of biodiesel derived from non-edible oils and oil waste for blending with diesel

Ethanol Policy

The commercial production and marketing of ethanol-blended gasoline started in January 2003, when the Ministry of Petroleum and Natural Gas launched the first phase of the ethanol blended petrol (EBP) programme that mandated blending of five per cent ethanol in gasoline in nine states (out of a total of 29) and four union territories (UT) (out of a total of six). The programme was implemented only partially as ethanol was not consistently available from the sugar industry for petroleum companies [6] due to a decline in sugarcane/sugar production in sugar marketing years 2003/04 and 2004/05. Ethanol supplies available to oil companies came to a virtual halt by September 2004.

The strong recovery in sugar and molasses production during Indian sugar marketing year (MY) 2005/06 (October/September) resulted in a renewed interest in the ethanol programme. In August 2005, the government completed an agreement between the sugar industry and petroleum companies to enable the purchase of ethanol, and the ethanol programme restarted in a limited number of designated states and union territories. With a strong resurgence in sugarcane/sugar production in MY 2006/07, the GOI announced the second phase of the EBP programme in September 2006 that mandated five per cent blending of ethanol with petrol (gasoline) subject to commercial viability in 20 states and eight Union territories. In late September 2006, the petroleum companies floated open tenders for procurement of over 1.8 billion litres of ethanol from domestic producers over a period of three years. After a series of negotiations with domestic producers, the petroleum companies contracted for over 1.4 billion litres of ethanol for the EBP programme at Rs. 21.50 per litre over a period of three years starting in November 2006.

The implementation of the EBP in many states was delayed as petroleum companies and ethanol suppliers negotiated with state governments over high state taxes, excise duties, and levies, which made the ethanol supply for blending commercially unviable in several states. While the ethanol supply for the EBP programme gathered momentum towards the end of MY 2006/07, lower than anticipated sugar production during MY 2007/08, and the consequent short supply of sugar molasses, led to a slowdown in ethanol supplies for the EBP programme in most states. High molasses prices made the supply of ethanol at the negotiated prices economically unviable to most suppliers. Industry sources report that ethanol supplies for the EBP programme have come to a virtual halt in most states since October 2008. Industry sources estimate that only about 540 million litres of ethanol have been supplied for the EBP programme by the end of April 2009, during the first two and a half years of the 3-year contract period.

The GOI had initially planned to launch the third stage of the EBP from October 1, 2008, wherein (i) the ethanol blend ratio was to be raised from five per cent to 10 per cent and (ii) five per cent blending was to be made mandatory across the country in all states. However, due to the short supply of sugarcane and sugar molasses in MY 2008/09 and forecast short supplies in MY 2009/10, the government has deferred the proposed implementation of the third phase of the EBP. Currently, the government does not allow use of imported ethanol for the EBP programme as the focus is on developing domestic production capacities.

Efforts to produce ethanol from other feed stocks like sweet sorghum, sugar beet, sweet potatoes, etc. are at an experimental stage in India. The government supports research for identifying sweet sorghum cultivars suitable for semi-arid wasteland that can be used for ethanol production. Some public and private sector research organizations have also initiated research into the utilization of second generation biofuel feed stocks like crop cellulose waste for the production of ethanol.

The government does not provide any direct financial assistance or tax incentive for the production or marketing of ethanol or ethanol-blended petrol. However, the GOI offers subsidized loans (2 per cent below market rate) from the government–held Sugarcane Development Fund for up to a maximum of 40 per cent of the project cost to sugar mills for setting up an ethanol production unit. The government does research and development of ethanol production undertaken by both public and private sector organizations.

Bio-diesel Policy

In April 2003, the GOI launched a National Mission on biodiesel that identified Jatropha curcas as the most suitable tree-borne oilseed for the production of biodiesel , and focused on promoting plantations of Jatropha on “wastelands”. The GOI?s Planning Commission set an ambitious target of 11.2-13.4 million hectares to be planted with Jatropha by 2012, in order to produce sufficient biodiesel to blend at 20 per cent with petro-diesel.

The Ministry of Rural Development was designated as the nodal ministry for the Mission that will launch the demonstration phase wherein 400,000 hectares area will be brought under Jatropha planting over a five-year period (2003-2008). The demonstration phase will involve identifying suitable Jatropha cultivars, developing nurseries and providing subsidized planting material to farmers in various agro-climatic regions. Several state governments and official entities have been proactive in the adoption of the biodiesel programme, but with varying degrees of success. Besides the state governments, the Indian Railways, a government owned entity, has launched an ambitious Jatropha plantation project on railway land adjoining railway tracks. The demonstration phase will be followed by a self-sustaining expansion of Jatropha cultivation on 11.2-13.4 million hectares. Several government, international and private research organizations are involved in research and development of Jatropha – collecting and identifying elite germplasm; evaluation trials for growth, seed yields and oil content; hybridization; developing location specific agronomic practices; and farmers training.

In October 2005, the Ministry of Petroleum and Natural Gas announced a “biodiesel purchase policy,” in which oil companies would purchase biodiesel and blend it with high-speed diesel (HSD) at a five per cent blending ratio. This was to take place in 20 procurement centers spread across major producing areas in the country, effective January 2006. The biodiesel was to be procured at a pre-determined price (reviewed every six months by the ministry), which currently is Rs. 26.5 (55 U.S. cents) per litre. Market sources report that the cost of production of biodiesel is 20 to 50 per cent higher than this purchase price, resulting in no sales of biodiesel at these centers.

The government does not provide any direct financial assistance for the production of biodiesel or for investment in plants and necessary facilities. Although the central government has exempted biodiesel from the central excise tax (four per cent) and some state governments provide excise tax exemptions, most state governments do not provide any sales tax exemptions for biodiesel or biodiesel blended diesel. However, the central government and several state governments provide fiscal incentives for supporting planting of Jatropha and other non-edible oilseeds.

Ministries Involved in the Biofuels Sector

India has been pursuing a two-fold strategy for promotion of biofuels by: a) providing budgetary support for research, development and demonstration of technologies; and b) promoting private investment through fiscal incentives. Several ministries are involved in policymaking, regulation, promotion, and development of the biofuels sector in India.

In addition, various state governments have drafted policies and set up institutions for promoting biofuels in their respective states. Several states have also formed rules for allocation of wastelands to various entities for the plantation of biodiesel feedstock crops.

New Biofuel Policy Still On Its Way

A draft National biofuel Policy formulated by the Ministry of New and Renewable Energy had been approved by the Cabinet Committee in September 2008, but has not been formally announced. The proposed biofuel Policy outlines the approach, strategy, targets, fiscal and financial incentives of various aspects of biofuel research, development, purchase policy, capacity building and legislation for encouraging the use of biofuels.

Key features of the proposed new policy are:

• An indicative target of 20 per cent blending of petrol and diesel with biofuels by 2017.
• Promote biodiesel production from non-edible oilseeds in waste/degraded/marginal lands.
• Discourage plantations in fertile, irrigated premium farm land.
• Focus on domestic production of biodiesel feed stock and not permit imports.
• Recommend minimum support prices for biofuel crops like Jatropha and other non-edible oilseeds with provisions of periodic revisions.
• Recommend a minimum purchase price for the purchase of ethanol based on the cost of production and import price. The biodiesel price will be based on the prevailing price of diesel.
• Take steps to ensure unrestricted movement of biofuels within and outside states.
• Removal of taxes and duties on biodiesel.
• Set up of an inter-ministerial National biofuel Coordination Committee under the Chairmanship of the Prime Minister and a biofuel Steering Committee under the Chairmanship of the Cabinet Secretary for high level coordination and policy guidance or review on various aspects of biofuels development in India.

Industry sources expect that the biofuel Policy may be once again reviewed by the new government in the light of international crude oil price movement and limited domestic supplies of biofuel. The National biofuel Policy would further require approval by the new Parliament, which may take some time.

Courtesy: USDA Foreign Agricultural Service – GAIN Report

Indiabiznews, August 05, 2009