Unaddressed government pricing encourages India's ongoing use of crops for energy production.
India, a global leader in ethanol blending, is facing persistent challenges in scaling up the production of second-generation (2G) ethanol. This greener alternative, which uses crop waste instead of food crops, is a potential solution to reduce planet-heating emissions, reduce oil imports, and avoid fuel production from food needed for human consumption.
Despite the Indian government's push for 2G ethanol, production remains very limited, accounting for less than 1% of the country's total ethanol production. The current major challenges are high production costs, lack of differentiated pricing, and inadequate biomass logistics.
The lack of a separate, favorable procurement price for 2G ethanol has hindered its competitiveness compared to 1G ethanol derived from food grains. This raises food security concerns due to the use of grains like rice and maize for fuel. A differentiated price was expected by April 2025 but has not been announced so far.
The Indian government launched a national program in 2019 with a budget of about ₹197 crore (US$227 million) to promote commercial and demonstration-scale 2G ethanol plants. However, out of 12 planned demonstration plants, only one is operational.
Infrastructure and logistics constraints, plus the high cost of 2G production technology, continue to limit scale-up. States like Haryana have demonstrated scalable potential with 2G plants, but progress has been slower than expected.
The government's push for ethanol blending has resulted in a reduction in the availability of grains for people and cattle and a shift in land away from food production due to the diversion of food crops like sugarcane, maize, and surplus rice for 1G ethanol production. Contained in India's ethanol blending policy of 20% ethanol in petrol by the end of 2025, there is no sub-target for 2G ethanol blending.
The lack of a separate 2G ethanol blending target leaves the greener alternative to compete for customers with the cheaper 1G ethanol. Producers argue that the government must pay a separate, appropriate price for 2G ethanol to make its production economically viable.
International collaborative efforts, such as with Brazil’s leading 2G ethanol producer Raizen, aim to improve 2G ethanol production methods and efficiency. The government is actively supporting ethanol blending targets, achieving 20% ethanol blending ahead of schedule with an overall ethanol production capacity now at 1,822 crore litres annually from 499 distilleries. However, the vast majority is from 1G ethanol.
Financial support and pricing clarity for 2G ethanol are considered critical by experts. The government has considered a separate rate for 2G ethanol and aims to have all petrol sold in the country contain 20% ethanol by October 2025. However, without decisive pricing signals and scaling of demonstration plants, progress in producing an environmentally cleaner version of ethanol may remain slow.
References:
- Economic Times
- India Brand Equity Foundation
- Ministry of Petroleum and Natural Gas
- Biofuels International
- Business Standard
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