India Is Likely to Miss its Ethanol Blending Target This Year
From the recent spate of policy actions centred on agricultural crops, two things (among many others) come out clear: (i) domestic food security is central to the government of India, even above other priorities including energy security; and that (ii) two years of consecutive shocks from climate (high temperatures and sub-optimal rains) have turned tables of a food surplus nation into one which is scratching to achieve self-sufficiency. In this brief article, we analyse recent government decision on ethanol and how El Niño and high temperatures may have derailed country’s E20 action plans, hopefully for a short period only.
The December 7 decision regarding use of molasses for ethanol
In a letter to Indian sugar mills and distilleries, the Department of Food and Public Distribution (DFPD), which is the nodal agency for sugar policies in India, invoked provisions of the Essential Commodities Act, 1955 (ECA) to direct two changes: (i) ban use of sugarcane juice and syrup for ethanol production; and (ii) restrict ethanol produced from B-heavy molasses to already contracted quantities. These apply to ethanol supply year (ESY) 2023-24 (i.e., November 2023 to October 2024). Among other things, we deduce two things from this: (i) apart from grains, ethanol is mainly to come from the C-heavy molasses route in ESY 2023-24, and (ii) with smaller cane-based feedstock, ethanol blending performance this year is likely to fall below the levels of E12 in ESY 2022-23.
In case of B-heavy, the government has permitted the quantities already contracted by oil companies to continue to be supplied.
In 2021-22, 2.36 billion litres of B-heavy based ethanol was supplied to oil companies. In 2022-23, this fell to 2.27 billion litres. In 2023-24, in light of a smaller sugarcane crop, quantities contracted by oil companies have fallen to 1.3 billion litres. The government has pegged the annual supplies from B-heavy to this quantity now.
Centrality of sugarcane in the country’s E20 initiative
To reduce country’s imported crude oil dependence, in 2018 the government released its national policy on biofuels. Later in 2021, NITI Aayog followed it up with a roadmap for achieving targets under the policy. Through the ensuing journeys of the two documents, as it stands today, the country aims to achieve 20% blending in its fuel oil by year 2025-26. This target is referred to as E20, which implies that by 2025, a litre of fuel oil we would buy for our vehicles is likely to have 200 ml of ethanol and 800 ml of petroleum in it.
As per NITI Ayog, to achieve E20, country is likely to need about 10.16 billion litres of ethanol annually. It projected that close to 50% of this ethanol is to be produced from sugarcane derivatives and the remaining half is to come from grains like rice released by the Food Corporation of India (FCI), broken rice from the open market, and maize.
In ESY 2022-23, the country achieved E12 (12% blending) which was the target for the year.
India produced about 4.94 billion litres of ethanol of which about 75% came from sugarcane-based sources, 15% from rice released by FCI, 4% from maize and the remaining 5% came from damaged food grains, including broken rice from open market. Within cane-based sources, 63% came from B-heavy molasses and 35% from juice. Sugarcane based ethanol production was projected to remain the mainstay of the ethanol production in the country. It was also envisaged that grain-based ethanol production would rise.
Why is there a panic on sugarcane crop?
Indian sugarcane crop in 2023-24 has suffered on account of volatile monsoon rains. Parts of Maharashtra and Karnataka have suffered significant losses in cane yields and acreages. As per the government, sugarcane production in 2023-24 is estimated at 435 million metric tonnes (MMTs) which is about 56 MMTs lower than last year’s 491 MMTs. This implies that compared to last year, country’s sucrose production is likely to fall by 6 MMTs (at 11% recovery rate).
In the current year, opening stocks of sugar on October 1, 2023 were about 5.7 MMTs and with production shortfall of 6 MMTs, the supply is likely to fall short of demand (about 29 MMTs) by about 2 MMTs in the current year, 2023-24. Not surprisingly, the government banned sugar exports early in the year. By manoeuvring the ethanol production away from sugarcane-derivatives, the government has been able to reduce sucrose diversion to ethanol by about 2 MMTs (calculated as back-of-envelope calculations). This may imply that the country could see through the next year with similar levels of inter-year stocks.
What now
For ESY 2023-24, the country had aimed to achieve ethanol blending target of E15. It appears inevitable that the performance will fall short of this target. With lower availability of molasses-based feedstock, and poorer availability of crops like rice and maize, maintaining current year’s E12 also appears to be a challenge in ESY 2023-24.
However, the ethanol blending program is important in the larger scheme of things. While the country works to develop its crop’s resilience to droughts and pests, the need for improvement in crop yields, especially for maize, is absolutely urgent. The commercial production of second generation ethanol at viable rates is yet to be tested. If it is successful it can reduce stubble burning incidents.
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