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Resource centre on India's rural distress
 
 

Nothing in the tank
-The Business Standard

Govt pushes biofuels again, despite bitter experience

The nearly decade-old programme to promote ethanol-blended petrol has failed to make much headway despite continued attempts by the government to get it going. The latest such attempt was last week, when the Cabinet Committee on Economic Affairs (CCEA) made the very poor decision to force oil marketing companies to mix five per cent ethanol with petrol throughout the country from next month. Past experience should have warned the CCEA off. A similar target, of compulsory five per cent ethanol blending in nine selected states, was set by the petroleum ministry in September 2002. It had to be abandoned, since other ethanol-based industries cornered most of the stock by offering higher prices to alcohol producers. The fate of another attempt made in 2007 for similar mandatory blending also fell flat, due to the non-availability of adequate alcohol. A small beginning was made only in late 2010, when the government fixed an ethanol price for procurement by the oil companies. Yet, the blending level never exceeded two per cent, and that too only in a handful of states.

One redeeming factor in the CCEA’s decision last week is that the oil companies have been allowed to procure alcohol at market-driven prices to get over supply glitches. Assuming that these companies actually begin doing so, benefits will accrue largely to the ethanol producers – mostly sugar factories that make such alcohol from their by-product, molasses – owing to a spurt in ethanol prices. The chemical industry, at present one of the major consumers of ethanol, has already begun to complain. The liquor business, too, will be affected by higher ethanol prices, but is better placed than the chemical industry to pass on increased costs to its consumers.

Pricing is not the only issue that puts a question mark over the ethanol blending programme. The availability of ethanol is going to be a formidable concern, since its production fluctuates widely due to the cyclical nature of sugar output. To ensure sustained supplies, ethanol will have to be either imported in large quantities – which will strain global supplies and push up international prices – or produced in abundance at home by expanding sugarcane cultivation — a bad idea indeed, because it will put pressure on land and water usage. Many studies worldwide have suggested that, far from being a truly green form of fuel, ethanol takes so many resources to produce that it usually hurts the environment more than it helps. Moreover, the lack of uniformity in the policies concerning marketing and movement of molasses – as also in excise duties on alcohol – in different states will pose additional problems for the oil marketing companies. The government, therefore, must step aside and allow the level of ethanol mixing, like its pricing, to be determined annually by market dynamics rather than a pre-fixed percentage. Such a flexible policy may help achieve the broad objective of promoting the use of biofuels without hurting the interests of any stakeholder in this sector.