NBP Lacks Strength

By Kalikesh Narayan Singh Deo, MP

Curbing soaring fuel prices, scaling down emissions while encouraging biofuel generation and usage are the primary objectives of the Indian government’s National Policy on Biofuels, 2018 (NBP). In a bid to boost the rural economy (the ailing sugar sector as of now), the policy now allows a wider variety of raw materials to address biofuel production issue. But it’s unrealistic and contradictory provisions have raised questions on whether it can effectively scale the very challenges for which it was drafted.

Considering India’s dismal performance on biofuels and failure to achieve even a consistent five percent ethanol blending rate over the years (the 2018 Policy itself admits we are at an abysmal 2% blend rate right now), the current policy needs an immediate facelift.

It’s critical for India to implement practical solutions on biofuel technologies, trade, encourage cost-effective and domestic ethanol production, while batting for first generation ethanol usage. This Policy fails to address a fundamental question: Does India have the finances and ecosystem to support an unproven biofuel technology, while ignoring the development of the existing one? Instead, the policy aims to sell 2G technology while the baseline for 1G technology is absent and much work is to be done for increasing investments by private sector/ecosystem participation.

In the last decade, countries like US, Brazil and Philippines have embraced biofuels in a big way.  Owing to their cost effectiveness and positive impact on environment, they are in demand in today’s world. In the Indian context, biofuels have the potential to create a one lakh crore economy which can achieved by increasing the bio ethanol blending to E20 by 2020, reducing greenhouse gas emissions and forex savings while contributing to the country’s energy mix. Ethanol provides a cleaner burn and eliminates harmful aromatics from petrol. It’s estimated that CO2 emissions can be reduced up to 10.41 million tonne CO2e by a blending rate of 20 percent for ethanol.According to the government,
one crore litres of E10 [petrol with 9-10% ethanol blended in it] saves ?28 crore of forex at current rates.

This has huge potential for India, in a time when hundreds of new vehicles are being added to roadsdaily and consequent fuel emissions continue to adversely impactcitizen health and productivity. India’s biofuel story has been somewhat underwhelming as it is yet to achieve its blending rate of five percent.

What the National Biofuel Policy says
In this backdrop, the new policy categorises biofuels as First Generation (1G), producing bio-ethanol from molasses and bio-diesel from non-edible oilseeds;Second Generation (2G) producing ethanol from agricultural waste and Third Generation (3G) fuels like bio-CNG. The policy also refers to usage of raw materials like sugar beet, corn etc. as feedstock for biofuels, as means to reduce the cost of producing biofuels and improve affordability for consumers in an era of high oil prices.Until now, only sugarcane was being used to draw ethanol which is mixed with petrol.

It therefore seeks tobenefit farmers, who will be able to sell various types of agricultural waste to industry at remunerative prices. The policy bats for 2G technologies for ethanol generation, by proposing a viability gap funding scheme for 2G ethanol bio refineries of ?5,000 crore in six years on the back of investment of ?10,000 Crores by OMCs to set these up, in addition to additional tax incentives, higher purchase price as compared to 1G biofuels.
India’s biofuel story, so far
Looking back, in 2003, the Ethanol Blended Petrol Programme (EBP), focused on 5 per cent blending of molasses-based ethanol with petrol. By 2008, it pushed for the blending target to be 10 percent. Thereafter, the National Biodiesel Mission, proposed a two-phase strategy for biodiesel production from jatropha seeds to achieve a 10 per cent blending mandate with diesel by 2012. These targets were not met, yet in NBP, 2009 proposed another target of 20 per cent blending for both ethanol and biodiesel by 2017. This is yet to be realized.
Flaws in the current NBP
While the mandated octane rating for fuel blending is 91, ethanol has an octane rating of 113. Owing to inconsistent supply,it is blended with cancer causing imported aromatics to boost octane rating. This is not only detrimental to the human health but also escalates harmful emissions and financial loss. Surprisingly, the new policy is silent on this aspect. Notably, ethanol is a globally accepted octane booster and augers well for the environment, in the long run.
The recent focus on developmental 2nd Generation ethanol production has waylaid the immediate attention that is required in terms of policy interventions for injecting ethanol into the Indian economy. While we are pumping-in ~? 15,000 Crores into R&D for 2nd generation ethanol, it is surprising that the requirement to immediately inject 1st generation ethanol in the economy is largely being ignored. In the same context, excessive expenditure from the exchequer is sought to be made by the NBP, 2018 for a technology (production of 2G) which is untested and is not economically viable at this stage (? 122 / litre currently as per GoI submissions).The setting up of a VGF, differential pricing etc. for an experiment is not logical when the option of 1G, which is tried and tested is available.
The Policy itself fails to comprehend the nuances of the input sector that will act feedstock for the biofuels economy of the country, i.e. agriculture and agri-processing industry. History has shown that this sector is subject to vagaries of nature / climate. A closed economy, not giving investors ability to source or supply feedstock from a global supply chain will fail to encourage any significant investments.

The other glaring error in the policy is an unsubstantiated argument: “Allowing import will adversely impact domestic biofuels and hence import of biofuels will not be allowed.”Since NBP, 2009 the government has allowed the import of ethanol ‘if required’ and ‘if beneficial’ for India, except for the ban as per NBP, 2018. Provision for interim import of ethanol does not necessarily displace the domestic ethanol industry and can instead be used to supplement the shortage of domestic ethanol. This is clearly substantiated by the policy applicable in Philippines wherein ethanol has been injected into the country’s economy by adopting a policy of exhaustion of domestic ethanol followed by import of ethanol to make up for the deficit. This hasreflected a consistent increase in its domestic supply of ethanol from 30 percent to 55 percent alongwith savings worth? 22.9 crore in foreign exchange.The benefits of achieving a consistent rate of ethanol blending in India is significant in the space of air quality, octane boost, financial savings and foreign exchange.In light of the benefits that will accrue to India due to usage of 1G ethanol and its import considering the insufficient availability of domestically produced ethanol, the prohibition on imports is not an advantageous move for India. If import of feedstock is being permitted, the rationale for banning the import of 1G ethanol lacks substance.

The way forward

In its present form, India’s NBP, 2018 needs a slew of measures to ensure that its targets are met. As a globally accepted and successful mechanism, 1G ethanol is far more reliable and its production must be encouraged while we ramp-up 2G / futuristic fuels. The reality is that private sector (ethanol producers) and the ecosystem (such as vehicle and pump equipment manufacturers) will be unwilling to make meaningful investments if there is absence of a long-term, sustainable and economically viable solution. In the absence of consistent supply of domestically produced ethanol, 2-tier procurement policy must be implemented as it will develop domestic market (as intended by the NBP, 2018) alongwith enabling consistent supply of ethanol, till the time required, without displacing the domestic industry. In this regard, OMCs can issue an initial ethanol tender on a quarterly basis at the pre-determined procurement price for domestic ethanol. When the tender is closed for domestic ethanol, a second tender can be issued by the OMC's. This tender would be open for import of lower grade of ethanol from the international marketplace at a price equal to or lower than the procurement price offered to the domestic industry via the first tender.
Another solution to consider is that India can mandate that lower grade ethanol is imported. This would require to be refined again at the domestic refineries in order to reach a grade suitable for blending into petrol. Such a step would not only make the import cheaper, but attract investments into local refining capacities, give margins to ailing sugar or integrated refineries that are in a NPA-like situation today, and stabilize our ethanol ecosystem. Global market prices suggest that this imported Ethanol would also be significantly cheaper by about ?3 per litre as compared to the current price of 1G ethanol set by Government of India. These savings can also be used to fund 2G ethanol fuel development program.

India must seek to expand the use of ethanol to its highest potential as an oxygenate for blending with petrol and thereby meet the blending mandate of E10 specified by the EBP.

Further, the government needs to evolve technology to process biofuels and consider optimization of cost by developing associated infrastructure like Biofuel Parks. These could host different biofuel plants and expand India’s biofuel repertoire and create space for more environment friendly fuel usage.

The government may be moving in the right direction with a National Biofuel Policy but it still has to address its basics and create a robust biofuel framework to ensure that India has a bright future ahead.

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