Ethanol blending target to face setbacks after govt restricts ethanol production from sugarcane

The government's target of attaining 20% ethanol-blended petrol by 2024-25 and 30% by 2029-30 is likely to face setbacks due to the restriction in the ethanol production from sugarcane juice in 2023-24, according to rating agency CRISIL. The development comes days after the ministry of consumer affairs on December 7 issued a directive to sugar mills restricting the use of sugarcane juice and sugar syrup in the production of ESY (ethanol supply year) 2023-24 with immediate effect owing to lower sugarcane production due to erratic rainfall.

According to the report, domestic ethanol production is likely to decline by 20%, which could bring the ethanol blending rate to less than 10% in ethanol in the ethanol supply year 2023-24 (November 2023 to October 2024) as against 12% in the same period last year. Nonetheless, the supply of ethanol from existing offers received by oil marketing companies from B heavy molasses (contains less sugar), C heavy molasses (end by-product of sugar processing) and grains will continue. Of the total ethanol produced in the country, ethanol from cane juice accounted for 25-30% while that from B heavy molasses accounted for over about 60-65%. Ethanol from C heavy molasses and grains accounted for the rest of the sugar season (SS) 2022-23, as per the rating agency.

In EY2022-23, the domestic ethanol blending rate stood at 12% and the industry anticipated an ethanol blending rate of 13-15% in EY24.  "However, the new regulation is expected to keep the blending rate below 10% in EY 2023-24, with ethanol production projected to fall 20% and petrol consumption expected to increase 5%," says the report.

Sugarcane is a key raw material for the production of sugar and ethanol. In key sugarcane-producing states such as Maharashtra and Karnataka, the production of sugarcane and sugar is likely to decline by approximately 9% and 3%, respectively, owing to scanty rainfall. During the sugar season (SS) 2023-24 (October 2023 to September 2024), Maharashtra received 3% lower rainfall, whereas Karnataka witnessed 18% lower rainfall. “Insufficient water availability led to lower yields. As a result, sugarcane production is expected to decrease ~9% in SS 2023-24,” the rating agency says.

The government has been promoting the blending of ethanol in petrol under the Ethanol Blended Petrol (EBP) Programme with multiple objectives including reducing import dependence, savings in foreign exchange, providing a boost to the domestic agriculture sector and associated environmental benefits. Under the EBP Programme, Public Sector Oil Marketing Companies (OMCs) have saved approximately 509 crore litres of petrol on account of ethanol blending during the ethanol supply year (ESY) 2022-23  resulting in savings of more than ₹24,300 crore of foreign exchange and expeditious payment of about ₹19,300  crore to farmers bolstering the agriculture sector.

The government has approved assistance to a total of 1212 projects including 590 molasses-based; 474 grain-based; and 148 dual-feed-based projects under the interest subvention scheme to enhance ethanol production under EBP.

Meanwhile, the government has also been urging domestic automobile manufacturers to use flex-fuels such as ethanol as one of the alternatives against diesel/petrol vehicles in order to achieve net-zero carbon emission targets by 2030. In August this year, the government unveiled the world’s first prototype of the ‘BS6 Stage II Electrified Flex Fuel Vehicle’ developed by Toyota Kirloskar Motor.

Union minister Nitin Gadkari had then said that the country’s fuel import will be “zero” and farmer-prepared ethanol will power vehicles in India, which will also be environmentally-friendly.

“The day is not far when all vehicles will run on ethanol,” Gadkari said.