Indian Policy on Biofuels: An Analytical Brief

INTRODUCTORY INSIGHT

To increase the production of biofuels and create a sustainable biofuel ecosystem, India adopted the National Policy on Biofuels (NPB) 2018 on May 16, 2018. The lack of sufficient feedstock and an 18 per cent Goods and Services Tax (GST) that went into force on July 1st, 2017 had an impact on the Biodiesel Blending Program (BBP). The high GST made biodiesel more expensive than regular fuel, which made the blending requirements difficult to meet. The majority of Indian states do not permit the unrestricted interstate movement of molasses, which artificially depresses prices and puts the Ethanol Blending Petrol (EBP) programme at risk. The NPB 2018 bans the import and export of biofuels, which reduces their economic efficiency.

The supply of food to those in need is hampered and food costs are negatively impacted by the use of agricultural grains as a feedstock for biofuel production. As the majority of ethanol production occurs through 1G, the higher funding and incentives suggested for 2G ethanol production in NPB 2018 need to be extended to 1G ethanol as well. The study discusses India’s NPB 2018's features and its critical analysis, the BBP and EBP programmes and their current difficulties, and it makes reform suggestions for the future. It also talks about the 2022 Amendment to the National Biofuel Policy which seeks to increase Ethanol blending to 20% by 2023.

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THE NATIONAL POLICY ON BIOFUELS, 2009

The non-mandatory blending target of 20 per cent for both ethanol and biodiesel by 2017 was included in the NPB 2009, which was enacted on December 24th, 2009, for ten years.[1]In contrast to Jatropha (Jatropha curcus), which was chosen as the major feedstock for biodiesel production during the early years of the bio-diesel mission programme, the biofuel policy of 2009 expanded the option of feedstock to any oilseed-bearing plant that flourished in the wasteland.[2][3]

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THE NATIONAL POLICY ON BIOFUELS, 2018

2018 saw the beginning of biofuel reforms with the adoption of NPB 2018 on May 16. NPB 2018 aims to promote the use of biofuels in the economy's transportation and energy sectors. Currently, less than 0.1 per cent of diesel fuel is made from biodiesel and 2.0 per cent of gasoline is blended with ethanol. By 2030, NPB 2018 aims to increase the percentage of ethanol in gasoline under the EBP programme to 20% and the percentage of biodiesel in diesel under the BBP programme to 5%.

The policy classifies biofuels into three categories:

1. First Generation (1G) “Basic Biofuels” – Ethanol from molasses and bio-diesel from non-edible oilseeds come under this category

2. Second Generation (2G) “Advanced Biofuels” – Ethanol, Municipal Solid Waste (MSW) come under 2G

3. Third Generation (3G) – Bio-CNG come under the 3G category

According to the policy, ethanol could be made from sugarcane juice, sugar-containing substances like sugar beet and sweet sorghum, starch-containing substances like corn and cassava, and damaged grains like wheat, broken rice, and rotting potatoes. With the consent of the National Biofuel Coordination Committee, it also permitted the use of extra food grains for the manufacturing of ethanol (NBCC). It suggested a higher purchase price for 2G biofuels compared to 1G biofuels as well as a VGF programme for the construction of 2G ethanol biorefineries worth INR 50,000 million over six years.[4]

The goal of the policy is to encourage R&D throughout all the various stages of the biodiesel value chain. The policy allows 100% Foreign Direct Investment (FDI) through the automatic approval route in the biofuel sector as long as biofuel is only used for domestic consumption. The import and export of biofuels are intended to be prohibited, however, the import of feedstock is allowed. Through tax credits, early depreciation on plant expenses, and increased support for the construction of 2G biorefineries, it aims to offer financial aid. The OMCs would be in charge of the marketing, distribution, and storage of biofuels.[5]

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NPB 2018 intends to provide indigenous feedstock for biofuel production and is a paradigm-shifting biofuel policy for India's next ten years. Biofuels are given strategic priority in the policy, which also aims to encourage inclusive rural development, boost energy security, combat climate change, and lower crude oil imports.

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2022 AMENDMENT TO THE NATIONAL POLICY ON BIOFUELS, 2018

The National Policy on Biofuels has been amended in response to developments in the field of biofuels, decisions made at National Biofuel Coordination Committee (NBCC) meetings to increase biofuel production, recommendations from the Standing Committee, and the decision to advance the introduction of ethanol-blend gasoline with up to 20% ethanol nationwide beginning on April 1, 2023.

The National Policy on Biofuels has been amended in response to developments in the field of biofuels, decisions made at National Biofuel Coordination Committee (NBCC) meetings to increase biofuel production, recommendations from the Standing Committee, and the decision to advance the introduction of ethanol-blend gasoline with up to 20% ethanol nationwide beginning on April 1, 2023.

These are the key amendments[6] made to the existing policy:

1. To allow more feedstocks for the production of biofuels,
2. To advance the ethanol blending target of 20% blending of ethanol in petrol to ESY 2025-26 from 2030,
3. To promote the production of biofuels in the country, under the Make in India program, by units located in Special Economic Zones (SEZ)/ Export Oriented Units (EoUs),
4. To add new members to the NBCC.
5. To grant permission for the export of biofuels in specific cases, and
6. To delete/amend certain phrases in the Policy in line with decisions taken during the meetings of the National Biofuel Coordination Committee.

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RECOMMENDATIONS FOR THE ETHANOL BLENDING PROGRAMME (EBP)

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It is common practice to blend ethanol made from molasses, renewable biomass, and trash with gasoline to power automobiles. In India, a trial programme mixing ethanol with gasoline began in Uttar Pradesh (UP) and Maharashtra in 2001.

Since sugarcane is the main primary feedstock for molasses, which is then processed in distilleries to make ethanol, the successful implementation of the EBP programme is intimately related to the output of sugarcane. By 2022 and 2030, the government has set goals for ethanol blends of 10 and 20 per cent, respectively. Only 2 per cent ethanol blending was possible between 2007 and 2009. Only 3.5 per cent of ethanol was mixed in 2015–16 and 2.07 per cent in 2016–17, which is a pitiful percentage.

The Rangarajan Committee Report's[7] recommendations should be put into action. These include removing restrictions on molasses sales, promoting unrestricted interstate molasses transportation, and allowing market-determined prices. The markets for ethanol and molasses should be completely deregulated. The financial incentives outlined in the NPB 2018 for the production of 2G ethanol should also apply to 1G ethanol, and the distinction between the prices of 2G and 1G ethanol should be eliminated. It is necessary to end the 12 per cent reserved molasses policy of the state of Uttar Pradesh, which requires non-captive sugar mills to compulsorily sell 12 per cent of their molasses production to alcoholic beverage producers.

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RECOMMENDATIONS FOR THE BIODIESEL BLENDING PROGRAMME (BBP)

It is a common practice to blend biodiesel with diesel to power vehicles. This feedstock includes non-edible oilseeds, UCO, animal tallow, algal feedstock, acid oil, etc. Less than 0.5 per cent of biodiesel is currently blended into diesel. By 2030, the NPB 2018 wants to boost the proportion of biodiesel in diesel to 5%.

The duty on imported palm stearin should be eliminated, and the present GST rate on biodiesel should be lowered to 5%. The UCO produced each year needs to be actively diverted to be used as raw materials for the manufacturing of biodiesel. The retail price of biodiesel should be regulated to no more than 70% of the retail price of conventional diesel by government subsidies for the fuel. The All India Coordinated Research Projects should begin focused research on Jatropha and other TBOs including Pongamia, Calophyllum, and Madhuka (AICRP). The cost of raw materials will decrease as a result of increased TBO output, enhanced plant types, and improved cultivation methods. To encourage the collection and processing of TBOs, incentives should be offered.

Priority should be given to international partnerships involving technology collaboration for high-yielding seeds. All biodiesel-producing enterprises with internal R&D units should be recognised by the Department of Scientific and Industrial Research (DSIR), according to the government. For the manufacture of biodiesel, financial incentives should be given to suppliers of UCO, flexi-vehicles, and imported biodiesel machinery. All OMCs should be required to blend biodiesel with their diesel fuel, according to the government. To encourage competition, biodiesel import and export should be permitted.

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CONCLUSION

The NPB 2009 was promulgated in the correct direction, but because of its poor execution and policy changes, the policy's goals and improvements failed to materialise. The Indian economy expanded quickly, yet the nation falls far short of producing enough ethanol and biodiesel. The interstate movement of molasses and non-potable ethanol was severely restricted, and some states also put taxes on supplies of non-potable ethanol coming into and leaving their jurisdictions, which hurt the EBP programme. Additionally, several states require that permits be obtained from their respective state excise agency to move ethanol between states, which is a barrier to the EBP programme.

The introduction of the 18 per cent GST rate and the levying of import taxes on palm stearin hurt the BBP. UCO has the potential to be a feedstock for biodiesel production and can act as an element to boost the biodiesel blend percentage in diesel, which will benefit the BBP. The success of the BBP will be influenced by the interaction of market forces, which will be brought about by allowing the import and export of biodiesel. The BBP would benefit from the fair implementation of the NPB 2018, the decrease of the GST rate on biodiesel to 5%, the elimination of the import duty on palm stearin, and the ability to import and export biodiesel, and the adequate availability of raw materials feedstock.

[1] Das, S., 2018. Achievements and misses of the Indian national policy on biofuels 2009. Econ. Pol. Energy Environ. LX (2), 5–30.

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[2] Biswas, P.K., Pohit, S., 2012. What ails India’s biodiesel programme? Energy Pol. 52, 789–796.

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[3] Sorda, G., Banse, M., Kemfert, C., 2010. An overview of biofuel policies across the world. Energy Pol. 6977–6988.

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[4] Giuntoli, J., 2018. Advanced Biofuel Policies in Select EU Member States: 2018 Update. International Council on Clean Transportation, Berlin.

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[5] Hochman, G., Rajagopal, D., Timilsina, G.R., 2014. Impacts of Biofuels on Food Prices, vol. 41. Springer, New York.

[6] https://www.pib.gov.in/PressReleasePage.aspx?PRID=1826265

[7] Rangarajan, C., 2012. Report of the Regulation of Sugar Sector in India: the Way Forward. PRS Legislative Research, New Delhi.