Siddhima Sirohi
Associate
Intueri Consulting
siddhima.sirohi@intueriglobal.com
Driving India’s Clean Energy Transition with Biofuels
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India is heavily dependent on crude oil to meet its energy demands. It is one of the largest consumers of petroleum in the world. As per available data for the year 2022-23, the country consumed 85.90 million tonnes of diesel, and the consumption of petrol stood at 34.98 million tonnes, up 13.4 percent YoY (Source). Compounding this issue is the fact that India imports a substantial portion of its crude oil, with a staggering 85% dependency on external sources.
Thus, to address these issues and ensure that India fulfills its commitment to becoming a net-zero economy by 2070 and attaining 50% of its energy capacity from renewables by 2030, significant steps must be taken to expand the scope of its decarbonization efforts. An essential aspect of this strategy is a shift towards biofuels, a highly promising solution to address current challenges and meet the future energy needs of a growing country. But since climate change is a global challenge effort will have to be made in this direction by all countries, and it is here that alliances like the recently formed Global Biofuels Alliance will play a significant role.
Biofuels: A Renewable Answer to India’s Clean Energy Ambitions
Biofuels are renewable energy sources that are derived from living materials, such as plants, algae, or animal waste. Biofuels are considered a pure and easy-to-obtain fuel. They are produced by converting biomass into liquid, solid, or gaseous fuel. The most common biofuels are corn ethanol, biodiesel, and biogas. According to the International Energy Agency (IEA), with the right policies and sufficient investments in place, biofuels have the potential to meet more than 27% of the world’s transportation fuel demand by 2050 (Source).
Currently, governments worldwide support biofuels through various means, including blending mandates, subsidies, tax exemptions, reduced import tariffs, funding for research and development (R&D), and other incentives aimed at promoting local biofuel production and utilization. Under blending mandates, governments fix a set percentage of biofuels to be mixed with traditional fossil fuels. In case of India, the blending of ethanol with petrol has increased to 10 per cent in 2021-22 (Source). To boost domestic production and consumption, import tariffs on biofuel-related products are often reduced or eliminated by countries. Additionally, governments allocate funds for research and development initiatives in the biofuel sector, targeting advancements in production efficiency, new feedstock development, and overall technological enhancements within the bioenergy industry. These measures collectively create a conducive environment for the growth and competitiveness of the biofuel sector on a global scale. Biofuels play a significant role in India’s renewable energy portfolio, contributing 12.83% of the total renewable energy generation (Source). India has set a target to attain carbon neutrality by 2070 as a crucial component of its ambitious energy transition strategy, and it has also formulated an ambitious roadmap for the development of biofuels.
To harness this huge potential of biofuels, India adopted the National Policy on Biofuels (NPB) 2018. This policy aimed to reduce crude oil imports, boost farmers’ income, create employment opportunities, utilize drylands efficiently, and contribute to sustainability. The policy also aimed to provide specific financial and fiscal incentives for different categories of biofuels, including first-generation (1G), second-generation (2G), and third generation (3G) fuels. India has also implemented initiatives like the Sustainable Alternative Towards Affordable Transportation (SATAT), which aims to establish compressed biogas production units and make compressed biogas (CBG) available as a green fuel in the market.
Global Biofuels Alliance (GBA): A Pivotal Moment in Pursuit of Sustainability
Prime Minister Narendra Modi, together with leaders from Singapore, Bangladesh, Italy, the USA, Brazil, Argentina, Mauritius, and the UAE, launched the Global Biofuel Alliance during the G20 Summit in New Delhi. The Global Biofuel Alliance (GBA) is an initiative led by India as the G20 Chair. Its primary objective is to accelerate the worldwide adoption of biofuels by promoting technological advancements, increasing the use of sustainable biofuels, and establishing robust standards and certifications with the involvement of a diverse group of stakeholders. The alliance will also serve as a central repository of knowledge and an expert hub. GBA aims to act as a catalyst for global collaboration, driving the advancement and widespread acceptance of biofuels.
The three founding members of this alliance, the United States, India, and Brazil, collectively contribute approximately 85% of global biofuel production and account for 81% of ethanol consumption. There is a growing need to push up global biofuel production and alliances like GBA will be spearheading this process. According to projections from the International Energy Agency (IEA), there is a pressing need to triple global biofuel production by 2030 to align the world’s energy systems with the goal of achieving net-zero emissions by 2050. The global ethanol market, valued at $99.06 billion in 2022, is expected to exhibit a Compound Annual Growth Rate (CAGR) of 5.1% by 2032, reaching an estimated value of over $162.12 billion by that year.
Impact of increased biofuels usage on various sectors in India
Lets look at the impact of the increasing adoption of biofuels in India on pivotal sectors and industries in India.
Impact on Agriculture
One commonly produced biofuel in India, ethanol has contributed towards uplifting the economic prospects of Indian Farmers. Primarily sourced from sugarcane and its by-products, ethanol production under the Ethanol Blended Petrol Program (Program to promote the use of renewable fuels) provided an alternative revenue stream for farmers but has also alleviated the sugar glut by encouraging the diversion of sugarcane for ethanol production. This shift has been economically significant, with nearly ₹35,000 crore flowing back to farmers in the past years. Additionally, the decision in 2020 to utilize surplus rice and maize for ethanol production opened alternative markets for farmers, further bolstering their income sources. In parallel, biodiesel initiatives, targeting 5% blending in diesel by 2030, have led to increased procurement by Oil Marketing Companies (OMCs), rising from 11.9 million liters in 2015-16 to 105.5 million liters in 2019 (Source).
In addition to this the increased demand for specific crops used in biofuel production, such as sugarcane, corn, and jatropha, is anticipated to bring about significant changes across various dimensions. This surge in demand is likely to prompt shifts in cropping patterns, as more farmers may choose to cultivate these biofuel crops. Consequently, there could be notable alterations in land use, potentially involving the conversion of land from food crops to energy crops, raising concerns about food security in the long run.
The heightened demand for biofuel crops may further lead to price fluctuations in these commodities, impacting both farmers and consumers. While farmers cultivating biofuel crops may benefit economically, consumers could face increased prices. This shift also raises important considerations regarding environmental sustainability, including water usage, pesticide and fertilizer application, and biodiversity. However, the emphasis on biofuel may drive technological innovations in agriculture, aiming to enhance crop yields and make biofuel production more efficient. The potential economic opportunities for rural farmers, contingent on supportive systems and market access, highlight the importance of the government’s role in framing policies and regulations.
Impact of Automotive Industry
The increased production and utilization of biofuels, particularly ethanol, in the automotive industry has significant implications. In India’s case, the emphasis on ethanol-blended fuel, with a target of 20 per cent ethanol blend by 2025, reflects a strategic move to reduce crude oil imports, lower carbon emissions, and provide a cleaner fuel alternative (Source). This shift aligns with global efforts to address climate change and meet renewable energy targets. The adoption of biofuels, especially through second-generation ethanol production from agricultural residues, not only contributes to waste-to-wealth initiatives but also aligns with commitments to reduce air pollution and meet climate change goals. While the automotive industry is gradually transitioning toward electric vehicles, the coexistence of internal combustion engines (ICE) for the next decade necessitates cleaner fuel options like biofuels.
The introduction of flex-fuel vehicles, as demonstrated by initiatives such as Toyota’s flex-fuel Corolla hybrid, showcases the industry’s adaptability to incorporate biofuels, providing a diversified and sustainable approach to future mobility (Source). However, challenges related to engine modifications, distribution, and potential impacts on food security warrant careful consideration as the automotive landscape undergoes this multi-faceted transformation. The challenges related to the engine designs will have to be explored in order to increase the usage of biofuels in the automotive industry.
Impact on Energy Sector
The utilization of biofuels plays a crucial role in India’s energy sector, offering several impactful benefits and contributing to the country’s overall energy security. First and foremost, biofuels, being renewable alternatives to conventional fossil fuels, provide a sustainable energy source. The ease with which biofuels can be replenished makes them a reliable choice for reducing dependence on finite fossil fuel reserves.
India’s commitment to advancing its ethanol blending targets, notably bringing forward the E20 program to 2025-26, demonstrates the nation’s proactive approach in adopting biofuels. The increased use of biofuels, particularly ethanol, not only aligns with environmental sustainability goals but also leads to significant economic advantages. According to NITI Aayog, the successful implementation of an E20 program could result in annual savings of USD 4 billion, reducing the country’s expenditure on oil and gas imports by about 35% (Source).
Furthermore, biofuels contribute to the diversification of India’s energy resources. The abundance of biomass feedstock, including rice husk, sugarcane, wheat straw, and agricultural waste, enables the local production of biofuels. This local production not only reduces the need for importing petroleum products but also strengthens energy security by establishing diverse and indigenous energy sources.
In addition to economic benefits, the adoption of biofuels aids in lowering carbon emissions, thereby addressing environmental challenges such as air pollution. As India faces growing energy demands amid global uncertainties, biofuels offer a cleaner alternative, aligning with the country’s commitment to achieving net-zero emissions by 2070 (Source). The reduction in carbon emissions contributes to a more sustainable and circular economy, fostering resilience against geopolitical tensions and supply chain disruptions.
Moreover, the development and adoption of biofuels drive technological innovations in crop science, biomass conversion, and renewable energy. For instance, the emergence of sustainable aviation fuel (SAF) showcases how biofuels can revolutionize traditional industries while significantly lowering greenhouse gas emissions. Investing in research and development activities in the biofuels sector not only enhances energy self-sufficiency but also stimulates economic growth through job creation and revenue generation.
Impact on supply chain and logistics sector
The adoption of biofuels in the energy landscape necessitates substantial adjustments in the logistics sector, ushering in both challenges and opportunities. Changes in fuel supply chains, often distinct from existing petroleum counterparts, require adaptation in transportation routes from production sites to processing facilities and distribution centers. Infrastructure, including fuel tanks, pipelines, and transport vehicles, may demand modification to accommodate biofuels with different chemical properties. The transportation of biofuel feedstock and the biofuel itself may spur demand for specialized vehicles equipped to meet specific handling requirements. This transition could influence fleet management strategies, leading logistics companies to consider biofuel-compatible vehicles and alter purchasing and maintenance practices accordingly. While initial fluctuations in operational costs may occur due to higher biofuel prices, there is potential for emerging business opportunities in biofuel logistics, offering growth prospects for specialized companies. Moreover, compliance with environmental regulations, driven by global emissions reduction initiatives, may incentivize the logistics sector to embrace biofuels, aligning with sustainability targets and reducing carbon footprints. Diversifying into biofuels enhances supply chain resilience by mitigating dependence on geopolitically volatile oil markets. However, this shift necessitates training and skill development for personnel handling biofuels, ensuring safe and compliant practices. Furthermore, changes in international trade dynamics, influenced by the import and export of biofuels and feedstock, will impact the logistics sector handling these global movements. Overall, the integration of biofuels into the logistics framework signifies a transformative phase, presenting challenges alongside avenues for growth and sustainability.
The Way Forward
The transition to biofuels in India necessitates concrete actions and strategic initiatives to realize its potential. Key among these is accelerating research and development to not only enhance biofuel production efficiency but also to pioneer next-generation biofuels that sidestep the food versus fuel debate. This approach should be coupled with substantial investment in biofuel infrastructure, including expanded distribution networks and advanced storage facilities, to ensure seamless integration into the existing energy framework. Furthermore, leveraging international collaborations, such as the Global Biofuels Alliance, will be crucial for sharing technological know-how, policy insights, and best practices on a global platform. This international cooperation can serve as a catalyst for global advancements in the biofuel sector, aiding India and other nations alike in achieving their sustainability and energy independence goals.
To effectively drive India’s biofuel agenda, the focus must also be on engaging investors and technology companies. There are multiple investment opportunities in this sector spanning various stages of the value chain. One promising avenue is feedstock production, involving the cultivation and processing of biomass feedstocks like sugarcane, jatropha, and agricultural residues. This allows investors to directly engage in the foundational elements of the biofuel sector. Another lucrative option lies in biofuel production, where investment in refineries and manufacturing facilities can capitalize on the value generated through the conversion of biomass into biofuels, including biodiesel and ethanol. This environment should be supported by incentives such as tax breaks, subsidies, or public-private partnerships, specifically designed to lower the entry barriers for investment in biofuel projects.
Technology companies, on the other hand, are also pivotal in this transition. The government should actively encourage tech companies to innovate in biofuel technology through grants and subsidies. These incentives would spur advancements in biofuel production techniques, making them more efficient, cost-effective, and environmentally friendly. There’s also a critical need for development in areas such as biofuel storage, distribution technology, and the creation of efficient bio-refineries. Collaboration between the government, research institutions, and tech companies can lead to breakthroughs in advanced biofuels that do not compete with food crops, addressing the food vs fuel debate. Such collaborations can also explore the use of non-traditional feedstocks, like algae or waste materials, opening new avenues for sustainable biofuel production. Moreover, fostering a startup ecosystem around biofuels can lead to innovative solutions and attract young entrepreneurs and talent to this sector. This can be achieved by providing incubation support, mentorship, and access to research facilities and networks.
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