Inauguration of a new ethanol plant in Purnea; Why the state is bullish on ethanol


Energy demand in our country continues to increase due to an expanding economy, growing population, increasing urbanization, changing lifestyles and increasing purchasing power. Despite temporary setbacks due to the COVID-19 pandemic, the Indian economy is expected to grow steadily, which would lead to a further increase in the number of vehicles which, in turn, will increase the demand for transport fuels.

Rising energy demand and heavy reliance on imports pose significant energy security challenges. It also leads to massive outflows of foreign currency. To put things in perspective, India’s net oil imports were 185 MT at a cost of $551 billion in 2020-21. In addition, the excessive use of fossil fuels leads to increased carbon emissions and associated health problems.

India’s energy security would remain vulnerable until alternative fuels to replace/complement petrofuels are developed. Locally produced ethanol is a potential opportunity to reduce dependence on oil imports by blending it with conventional fossil fuels for consumption. Furthermore, it can also help create jobs, promote manufacturing in India, double farmers’ incomes and promote the generation of waste into wealth.

Why is ethanol gaining popularity as an alternative fuel?

Ethanol is considered one of the most suitable alternative transportation fuels due to its better fuel quality and environmental benefits.

Ethanol is a less polluting fuel, and offers equivalent efficiency at a lower cost than gasoline. As the ethanol molecule contains oxygen, it allows the engine to burn fuel more completely, resulting in fewer emissions and thus reducing environmental pollution.

The availability of large arable land, the increased production of food grains and sugar cane resulting in surpluses, the availability of technology to produce ethanol from plant sources, and the possibility of making vehicles compliant with the fuel blended with ethanol make this a lucrative proposition.

how it started

In order to encourage sustainable and alternative fuels and also to reduce India’s dependence on fossil fuel imports, the Indian government has taken several interventions including an administered price mechanism, the opening of a alternative route for the production of ethanol, an amendment to the Industries (Development and Regulation) Act, 1951 which legislates exclusive control of denatured ethanol by the Government of India, reduction of applicable GST from 18% to 5 %.

Further, the central government notified the National Biofuel Policy – 2018 on June 04, 2018 to promote the use of biofuels including bioethanol in the country. The policy aims to achieve multiple outcomes such as; addressing environmental concerns, reducing import dependency and boosting the agricultural sector.

The 2018 National Biofuels Policy allowed the production of ethanol from heavy B molasses, sugarcane juice and damaged food grains like wheat, broken rice, etc. which are unfit for human consumption.

With regard to food grains, the National Biofuel Coordinating Committee (NBCC) has been empowered to authorize specific feedstocks based on expected supply for the coming year. The NBCC later licensed the production of ethanol from surplus rice with Food Corporation of India (FCI) and Maize.

The government has put forward a target of 20% ethanol blended in gasoline (known as E20 fuel) from 2030 to 2025 as part of the EBP (Ethanol Blending Policy). This was announced by Prime Minister Narendra Modi on June 5, 2021, i.e. on the occasion of the World Environment Day, during the publication of the report of the expert committee on the “Leaf route for ethanol blending in India 2020-25”.

What is special about Bihar’s ethanol policy?

Bihar is the first state in the country to implement an ethanol promotion policy under the National Biofuels Policy, 2018. The policy was approved by the state cabinet in March 2021 and subsequently was filed in the state legislature.

The state had been seeking permission to make ethanol directly from corn and sugarcane juice since 2007. The central government allowed direct production of ethanol last December, in line with the National Biofuels Policy of 2018.

The most important part of the policy is that each unit selected for financial assistance must have a tripartite agreement with its bankers and CMOs, which would serve as collateral for loans secured for the establishment of such units.

Under this policy, financial assistance is provided to all those self-contained ethanol manufacturing units in Greenfield that produce fuel-grade ethanol and supply 100% of their ethanol to OMC under the fuel-blend program. ethanol (EBP) from the Indian government.

An investor is eligible to obtain an additional government grant of 15% of the cost of plant and machinery up to a maximum of Rs 5 crore, in addition to existing incentives under the Bihar Industrial Investment Promotion Policy, 2016 .

In case of special class investors, namely; Scheduled Castes (SC), Scheduled Tribes (ST), Extremely Backward Castes (EBC), Women, Persons with Disabilities, War Widows, Acid Attack Victims and Third Gender Entrepreneurs, the amount of capital grant has been set at 15.75% of plant and machinery cost or Rs 5.25 crore, whichever is lower.

Why the state is bullish on ethanol

Traditionally, Bihar has been a leader in the production of sugar cane in India and is also home to a large number of molasses-based distillery units. The manufacture of ethanol in the state using juice from sugarcane, corn, and broken rice as feedstock has significant growth potential.

With 18 of the 38 districts of Bihar forming part of what is known as the Maize Belt, Bihar is the third largest maize producing state, contributing about 14% to the national production. Purnea, Katihar, Araria and Kishanganj districts, known as Seemanchal region, account for 80% of the total maize produced in Bihar and together produce 30 to 35 lakh MT from April to August.

The National Biofuels Policy, 2018 and subsequent pronouncements by the Government of India provide a highly conducive regulatory and institutional ecosystem for the sustainable growth of ethanol manufacturing in states such as Bihar which is blessed with a large number of raw materials such as sugar cane, corn, rice, etc.

Bihar produces about 12 million liters of ethanol and ranks fifth in ethanol production in the country. With the implementation of the policy, the state aims to be the nation’s ethanol hub and generate 50 million liters of ethanol every year.

With this in mind, 17 ethanol production plants are being installed, which should produce 35 million liters of fuel each year. Ethanol plants are being set up in Muzaffarpur, Bhojpur, Nalanda, Buxar, Madhubani, Begusarai, Gopalganj, East Champaran, Bhagalpur in addition to Purnia. Two of these units are ready to be inaugurated soon in Gopalganj and one in Bhojpur district respectively.

Read also : Water Guzzlers: Why Sugar-Based Ethanol Blending May Not Be a Good Idea

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