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IDSA COMMENT

Ethanol and India's Energy Security

June 07, 2007

With 14.1 per cent growth (2007) in the manufacturing sector, 14 per cent (2006) in the service sector, and an agriculture sector that is beginning to finally look up, the Indian economy needs all the energy it can get to sustain the growth momentum. However, enshrouded in the figures of the galloping Indian economy is the precarious energy situation that the country faces.

Coal comprised half of India's 15.734 EJ1 (exajoule)/325 mtoe (million tons of oil equivalent) primary energy consumption in 2004, used for running most of its power plants. Crude Oil and its products, which fuel the transport sector, contributed 36 per cent. Natural Gas, used mainly in the fertiliser sector, had a share of 8 per cent, while renewable energy (including Nuclear Energy) comprised a miniscule 4 per cent in the total energy mix. It is thus evident that India is primarily a coal-based economy. More importantly, even the most optimistic of energy scenarios do not predict any changes to this status up to 2031-32. Heavy reliance on coal also means that the Indian economy is incurring the costs of collateral damage to the environment.

The second more worrisome aspect of our energy economy is the reliance on crude oil and its products. India imports 73 per cent of its crude oil requirement, and this is expected to reach 90 to 93 per cent by 2031-32.2 It is also worth noting that most of our oil imports come from the politically unstable countries of West Asia and Nigeria, rendering our supply security precarious. Further, as crude oil crosses the US $60 a barrel mark, the Rs. 1600 billion bill for crude oil imports will face some drastic upward revision.

Evidently, any alternate to such an expensive and environmentally degrading energy mix with insecure supply options would be welcome. The nationwide launch of a 5 per cent EBP (ethanol blended petrol) programme in Hyderabad, in April 2007, attains marked importance in the current energy scenario of India.

Ethanol can be made directly through fermentation of sugar or from the starches of corn, potatoes, etc. that are first broken down to simple sugars. Apart from being extensively used in the pharmaceutical, industrial and liquor sectors, ethanol can either be an additive to petrol or used directly to fire locomotives. Petrol doped with ethanol (up to 24 per cent) can be used without making any modification to the vehicle engine. Apart form being a renewable fuel supply, ethanol is also environment friendly. By aiding a more complete combustion of the fuel, EBP results in lesser emissions.

Among all sources of bio-energy, ethanol has the maximum global presence. The global production of alcohol in 2005 was 41 million kilolitres of which 70 per cent was used as fuel.3 Reeling under the pressure of the spike in international crude oil prices and the increasingly unstable political situation in West Asia, there has been an increased international momentum towards EBP.

India is the fourth largest producer of ethanol in the world. Unlike Brazil, where ethanol is produced directly from sugar cane juice, and the United States, which uses corn for production, India produces ethanol from bagasse. Bagasse, or molasses, is the waste product after the extraction and refining of sugar from sugar cane. Ethanol production in India therefore has a marked advantage as its production could potentially leave sugar prices unaffected. Further, by blending petrol with 10 per cent bio-fuel, 80 million litres of petrol could be saved annually in the country.4 Apart from increasing our energy security, Ethanol production can also generate rural employment.

In India, Ethanol made its foray into the transport sector as a fuel additive in 2001. The Government of India launched three EBP pilot projects, the first in Uttar Pradesh followed by two others in Maharashtra. Subsequently, though a policy for 5 per cent EBP was announced and launched in nine sugar producing states from January 1, 2003, the programme had to be suspended till 2005 because of insufficient ethanol supply caused by drought conditions. The bumper monsoon in the following year boosted sugarcane production and the programme was revived again.

This seemingly harmless policy decision, however, calls for more caution than is forthcoming. A recent report by the UN on Sustainable Bio-energy is very timely for India, as is at the threshold of developing its nascent Bio-energy Industry. Concerns regarding the EBP project in India can be clubbed into two categories. The UN report expatiates the first of these concerns, which relates to the efficacy of the EBP programme for a country like India. This includes the impact of ethanol production on food security, water security and land availability.

The second relates to the feasibility of the EBP programme given the current method of production for consistent supply. Unlike Brazil, India does not possess sufficient land or water resources to divert from food to cash crops. Food and water security ought to be the primary focus of our policymaking. There is no reason to believe that once fiscal and financial incentives are provided to the sugarcane industry for ethanol production, land use patterns will not shift in favour of sugarcane. Further, sugarcane is a relatively water intensive crop,5 placing additional pressure on the country's irrigation system. It will also render the EBP programme to supply insecurities considering that Indian agriculture is heavily dependent on the monsoon. As mentioned earlier, the EBP programme was significantly hit during the years 2003-04 and 2004-05 because the sugarcane crop was affected by conditions of drought and famine.

As Ethanol in India is produced from molasses, questions have been raised whether there will be sufficient quantities of it to cover the requirements for the 5 per cent EBP programme, which is to be later on raised to 10 per cent. The Integrated Energy policy report of India points out that the liquor industry retains control over domestic molasses based ethanol production due to which ethanol is simply inadequate to cover the domestic energy needs. Interestingly, the report highlights the fact that India has been a net importer of Ethanol since 2002, with the largest imports coming from Brazil in 2005, an aspect not adequately highlighted in the latest government reports and releases.

There are different figures available for India's ethanol production. While the official figures indicate sufficient availability, other sources indicate the contrary. Dr. N.A. Ramaiah, former director of the National Sugar Institute and of the Deccan Sugar Institute, points out that of the 130 crore litres of Ethanol available, 90 to 95 crore litres are being utilised for production of value-added chemicals such as acetic acid and potable liquor.6 These figures also find mention in the June 2006 GAIN (Global Alliance for Improved Nutrition) report of USAID on Bio-fuels production in India, which specifically questions the adequate availability of Ethanol when the programme enters the 10 per cent EBP phase. The Director General of ICRISAT, Dr. William D. Dhar, in a message dated September 2006 on the company website also alludes to the same conclusion. He avers that the production of ethanol from molasses is not sufficient to meet the needs of the EBP programme. The question then is: In case of supply shortfall, would fuel ethanol be produced directly from sugarcane juice as is being done in Brazil?

These questions have to be seriously considered by policymakers before framing long-term policy on ethanol production and consumption. It is noteworthy that ethanol can also be produced from sweet sorghum, a little known dry-land crop. China has an active ethanol programme based on sweet sorghum yields. For long term supply security, it is advisable that sources of ethanol production be diversified. While molasses can supply one part of it, crops like sweet sorghum and waste products like rice straws7 should also be promoted to provide consistency of supply. Policies that aim to promote production of ethanol from sugarcane juice directly must be undertaken with caution, for it can adversely affect sugar prices and land use patterns in favour of sugar cane.

The nascent nature of the Indian bio-fuels industry provides it the marked advantage of utilising the experience of other countries such as Brazil and the United states before forming its legal-policy foundations. A well structured and decentralised bio-fuels policy that takes into account local climatic, demographic and agricultural factors can kill the proverbial two birds, namely rural unemployment and energy dependence, with one arrow. The Special Secretary Ministry of New & Renewable Energy Dr. S.K. Chopra, at a Conference on Bio fuels & Optimum Utilisation of Agriculture in April 2007, informed that a comprehensive long-term bio fuels policy is expected to be in place in the next six months. The policy will have to strike the delicate balance of achieving the socio-economic goals of food security, water security, unemployment and those of energy security. But whether it is able to do so remains to be seen.

  • 1. http://www.iaea.org/inisnkm/nkm/aws/eedrb/data/IN-enc.html (accessed on June 7, 2007).
  • 2. Government of India, Integrated Energy Policy Report (New Delhi, August 2006), Table 3.8, p. 45.
  • 3. Sameer Mittal, Financial Express, May 15, 2007.
  • 4. "Distillery Unit all set to produce Ethanol from sweet Sorghum," The Hindu, March 28, 2006.
  • 5. In comparison to paddy, sugarcane cultivation requires less water.
  • 6. The Hindu Business Line, June 15, 2006.
  • 7. The suggestion of possible ethanol production from rice straws finds reference in the Integrated Energy Policy Report of India, August 2006.