Prepared by Dr. K.S. Kavi Kumar

Biofuels and India

Biofuels are acquiring importance due to their potential to mitigate greenhouse gas emissions. Biofuels are largely considered supplementary to the transport fuels. The two most important biofuels today are ethanol and biodiesel. India has extensive programs for the use of biofuels to supplement transport fuels, and it aims to blend 20 percent of transport fuels with biofuels (both bio-diesel and bio-ethanol) by 2017.

1.0 Biofuel Production in India

India is the fifth largest primary energy consumer and fourth largest petroleum consumer in the world. Growing population and rapid socio-economic development has spurred an increase in energy consumption across all major sectors of the economy. Given limited domestic energy resources, most energy requirements are met through imports. It is estimated that India meets more than 76 percent of its petroleum demand through imports. Import expenditure on petroleum products in 2009-10 is estimated at over $83 billion, about four times higher than in 2003-04 (see figure 1).
Figure 1 Energy Supply Philippines

The average consumption of petroleum products in India is estimated as follows: Transport – 51 percent; Industry – 14 percent; Commercial buildings and others – 13 percent; Domestic – 18 precent; and Agriculture – 4 percent. It is clear from this distribution that transport sector accounts for major share of petroleum products consumption. Given the growth in Indian economy, rise in domestic spending levels, and improvement in road infrastructure, the energy demand across the transport sector is likely to be higher. India’s on-road vehicle population has increased from 49 million to more than 65 million vehicles over the last five years and is expected to grow annually by 8 to 10 percent. Diesel and gasoline based oils meet more than 95 percent of the requirement for transportation fuel.

The current growth in transport activity and the corresponding increase in petroleum consumption is likely to pose serious challenge to India’s greenhouse gas mitigation. Given that India is the world’s fourth largest contributor of greenhouse gas emissions, the Government of India’s transport policy is aiming at adoption of clean and green fuels. Concerned about the economic, environmental and energy security aspects, the GoI is looking for use of alternate fuels to meet energy demand in a technically efficient, economically viable and environmentally sustainable manner.

Ethanol
India produces conventional bio-ethanol from sugar molasses, while production of advanced bio-ethanol is still in research and development phase. India has about 330 distilleries that produce about 4 billion liters of rectified spirit (alcohol) per year. Of the total distilleries, about 115 have the capacity to distill 1.8 billion liters of conventional ethanol per year sufficient to meet the 5 percent blending mandate.
Figure 1 Energy Supply Philippines

The supply of ethanol for blending is directly affected by the fluctuations in sugarcane production in India. The ethanol supply for the blending purpose has been severally impacted during 2008-09 by the short supply of sugar molasses and continued high demand for alcohol from other competing industries. During that year the ethanol available for blending was about 100 million liters, as against the requirement of about 600 million liters. With higher market prices in potable liquor and chemical industries, the ethanol suppliers preferred diverting their supplies to these industries instead of supplying ethanol at the prevailing price of Rs. 21.50 per liter for the ethanol blending program. The scenario continued to be bleak even during 2009-10 for the ethanol blending program.

There is considerable scope for increasing sugarcane yields from the existing acreage, which in turn would enable higher production of ethanol from sugarcane juice. However, there is only a limited scope for increasing the area under sugarcane as it is water intensive crop. Since production of ethanol from sugarcane juice requires additional investment for technological modifications in the sugar mills, most mills are closely assessing the market demand for ethanol and the government’s ethanol policy before making the necessary investments.
Besides irregular availability of molasses, a plethora of high taxes and levies have adversely affected ethanol blending in several states (particularly sugar/alcohol deficit states). Most states have a number of varying rules and regulations to control alcohol for the potable liquor industry, which are also applicable to the ethanol for blending purposes. Thus, availability of ethanol for blending with petrol is not affected exclusively by the sugarcane production alone, and to a significant extent it is also influenced by the regional policies.

Biodiesel
There are about 20 large capacity biodiesel plants (10,000 to 100,000 tons per year) in India that produce biodiesel from edible oil waste, animal fat and non-edible oils. Commercial production of biodiesel from jatropha and non-edible oilseeds is small, with estimates varying from 140 to 300 million liters per year. The biodiesel produced is sold to the unorganized sector (irrigation pumps, agricultural usage, diesel generators etc.) and to experimental projects carried out by automobiles and transport companies. Some sales happen to the state owned transport companies also.

There has been no commercial sale of biodiesel across the biodiesel purchase centers set-up by the GoI as the government notified biodiesel purchase price (Rs. 26.50 per liter) is well below the estimated biodiesel production cost (about Rs. 30 to 40 per liter). Inefficient marketing channels and lack of feedstock supply (jatropha seeds) are among some of the major factors that have contributed to high production costs.

Several corporations, petroleum companies and private companies have entered into memorandum of understanding with state governments to establish and promote jatropha plantations on government-owned wastelands or contact farming with small and medium farmers. However, only a few states have been able to actively promote jatropha plantations. While there is a very little foreign sector presence in the biodiesel production, a recent collaborative agreement between General Motors, U.S. Department of Energy and the Central Salt and Marine Research Institute, Bhavnagar heralds many such initiatives in future. This collaborative agreement explores the potential of jatropha plantations as a source of alternative fuel and sustainable energy crops for biodiesel production in India over a five year partnership.

2.0 Biofuel Policy – India

The drivers of India’s biofuel policy regime include:
• Energy security concerns – ever increasing energy demand necessitates search for renewable energy alternatives such as biofuels given India’s limited fossil-fuel reserves
• Environmental concerns – growing climate change and local pollution concerns make it imperative to search for environmentally friendly alternatives such as biofuels
• Wasteland utilization – to improve utilization of wasteland and other unproductive land through cultivation of biofuel feedstock
• Enhance farm income – to increase farm income by identifying alternative usage for crops like sugarcane and its byproducts as feedstock for biofuels
• Enhance rural livelihoods – to enhance rural employment and livelihood opportunities by promoting production and marketing of biofuel feedstocks

Against these objectives the national policy on biofuels has been adopted in December 2009. The salient features of the National Policy include:
• Setting up of a National Biofuel Coordination Committee under the chairmanship of the Primer Minister for a broader policy perspective and setting up of a National Biofuel Steering Committee to provide policy guidelines
• Strengthening India’s energy security by encouraging use of renewable energy resources to supplement transport fuels. The policy aims at 20 percent blending target of biofuel for both bio-ethanol and bio-diesel by 2017
• Meeting the energy needs of a vast rural population along with rural development and improving employment opportunities
• Using environment friendly biofuels to address global concerns on climate change
• Utilizing degraded land and wasteland not suitable for agriculture to raise biofuel feedstock and thus avoid fuel versus food dilemma
• Facilitating optimal development and utilization of indigenous biomass feedstock for the production of biofuels, which would also envisages development of next-generation, more efficient biofuel conversion technologies based on new feed stocks
• Establishing minimum support price mechanism to ensure fair price for biofuel feedstock growers
• Setting up of a National Biofuel Fund for providing financial incentives, including subsidies and grants for new and second generation feed stocks, advanced technologies and conversion processes

Ethanol Policy
In January 2003 the GoI has mandated use of 5 percent ethanol blend in petrol through its ethanol blending program (EBP). The developments in the EPB over the last ten years include:
• The Ministry of Petroleum and Natural Gas has mandated 5 percent ethanol blending in petrol across 9 states and five union territories in January 2003. However it was partially implemented due to low sugarcane production during 2003-04 and 2004-05 sufficient ethanol was not available for meeting the blending target.
• Due to resurgence in sugarcane production in 2005-06 and 2006-07, GoI has extended in September 2006 its EPB across 20 states and 8 union territories (subject to commercial viability). Though the oil companies proposed to purchase ethanol for EPB at Rs. 21.50 per liter, the short supply as well as better price offered by other users prompted the ethanol suppliers to divert it to alternative uses. This led to deferment of EPB once again by GoI.
• In September 2008 the National Biofuel Policy was approved with five percent blending mandated across all states. The National Biofuel Policy also ambitiously targets 20 percent blending by 2017. However, short supply of sugarcane in 2008-09 further derailed the implementation of 5 percent blending.

Bio-Diesel Policy
In April 2003, the GoI launched the National Bio-diesel Mission (NBM) identifying jatropha curcas as the most suitable tree-borne oilseed for bio-diesel production on wastelands. The major developments in NBM over the past ten years include:
• Ministry of Rural Development was appointed as nodal ministry to cover 400,000 hectares under jatropha cultivation as part of the demonstration phase of NBM for the period 2003-2007. This phase also proposed nursery development, establishment of seed procurement, and blending and marketing of bio-diesel. Public and private sector companies, state government, research institutions were involved in this phase and have achieved varying degrees of success.
• In October 2005 the Ministry of Petroleum and Natural Gas has announced bio-diesel purchase policy through which the oil marketing companies would purchase at Rs. 26.5 per liter bio-diesel across 20 procurement centers throughout the country to blend with high-speed diesel with effect from January 2006. Due to higher cost of bio-diesel production (compared to the offered purchase price) no significant sale of bio-diesel took place.
• The GoI targeted to produce sufficient bio-diesel for ambitious 20 percent blending by end of 11th Plan (2008-12). However, lack of large scale plantations, seed collection and extraction infrastructure, buy-back arrangements etc. have impeded the progress of this phase.

3.0 Broader Issues Associated with Bio-fuel Production

Various issues of concern with regard to agriculture are raised as both developed and developing countries have steadily adopted targets for inclusion of bio-fuels in their overall energy plans. While the overall debate on these issues is beyond the scope of this note, a brief summary is essential to put into perspective the trade issues discussed in the next section.
• Global modeling studies reveal that biofuel targets (based on first generation food crops) imply that an additional 140 to 150 million people may be at the risk of hunger by 2020. These studies argue that first generation biofuels will exacerbate the tasks of reducing world hunger and that the poorest of the world population will bear the brunt of the consequences.
• Analysts argue that the world food prices have increased by some 140 percent during the period 2002 to 2007 (and continue to increase) due to a number of factors including increased demand for biofuel feedstocks and rising fuel and fertilizer prices. Meeting the biofuel targets world over are estimated to increase the food prices further by 30 percent. Thus, biofuel development policies must give serious consideration to food price impacts.
• Meeting biofuel targets imply that additional land must be brought under cultivation to accommodate first-generation biofuel production. Bulk of this new land is likely to come from developing countries. Land conversion for biofuel production will result in greenhouse gas emissions due to carbon losses from soils and vegetation. This must be taken into account while assessing the net greenhouse gas mitigation due to the biofuels. Further, additional land conversion for biofuel production entails risks for biodiversity.
• There are also apprehensions that prolonged dependence on first generation crops for biofuels will result in increased risk of deforestation with associated consequences of substantial greenhouse gas emissions and loss of biodiversity. Thus extensive monitoring of deforestation and other land use changes is essential. For India, it has been estimated that by dedicating 33 mha of degraded lands at a woody biomass productivity of 4 tonnes per ha per year, 100 TWh of electricity could be produced annually, meeting most of the rural electricity needs as well as providing carbon mitigation benefit of 40 MtC annually. Actual availability of land for biofuel cultivation however would depend on a number of factors including climatic and soil conditions, access to infrastructure such as roads and electricity, as well as the ownership of the land. The available information about wasteland suitability for oilseed plantations is sketchy and a proper wasteland mapping exercise should precede any major biodiesel development program in India (Gunatilake, 2011).
• Ethanol production from sugarcane offers significant potential to substitute for fossil fuel. However, area under sugarcane needs to be stepped up substantially to meet the increasing ethanol demand under different scenarios of ethanol blending with petrol. Schaldach et al. (2011) estimated that the area for sugarcane production in India increases by 46% (5% blending scenario), 79% (10% blending) and 144% (20% blending) under various blending scenarios. Expansion in sugarcane area is at the expense of the extent of natural land, which correspondingly decreases by 45%, 47% and 51%. However, adoption of yield increasing technologies such as drip-fertigation has huge potential to increase the existing yield levels of sugarcane and hence area expansion could be minimized if these technologies are adequtely supported through public policy.
Msangi and Rosegrant (2011) argue that biofuel expansion will result in substantive increase in market prices and hence lead to deterioration of food security situation in developing countries. They further estimate that the developing countries (including South Asia) may have to increase their yield growth by an additional 1 percent per year up to 2030 to overcome the stress induced by the biofuel expansion. The authors project that productivity improvements and enhanced functioning of the agricultural markets could meet the challenges posed by biofuels.

References
Gunatilake, H. (2011), ‘India: Study on Cross-sectoral Implications of Biofuel Production and Use’, Final Report of TA 7250-IND Submitted to the Department of Economic Affairs, Ministry of Finance, Asian Development Bank, Manila, The Philippines.
Msangi, S. and M. Rosegrant (2011), ‘World Agriculture in a Dynamically Changing Environment: IFPRI’s Long-term Outlook for Food and Agriculture’, in P. Conforti (ed.), Looking Ahead in World Food and Agriculture: Perspectives to 2050, Agricultural Development Economics Division, Economic and Social Development Department, Food and Agricultural Organization, Rome.
Schaldach R., J.A. Priess and J. Alcamo (2011), ‘Simulating the Impact of Biofuel Development on Country-wide Land-use Change in India’, Biomass and Bioenergy, 35, 2401-2410.