With the global fight against climate change and vision to improve energy security, India has been increasing its focus on diversifying fuel usage in the transportation sector. Apart from the obvious focus on electrification, considerable investments are being made by the Indian government on alternative fuels which includes Ethanol, Methanol and compressed natural gas (CNG). In a recent development, the Government of India launched a roadmap for ethanol blending in the country in June 2021. The National Policy on Biofuels 2018 has now revised the cut-off date for the 20 percent ethanol blending petrol program (E20) from 2030 to 2025.
Presently, gasoline and diesel vehicles in India are compatible with E10 and B5 fuel, respectively. The planned roadmap aims to achieve complete E10 gasoline fuel blending across India by 2022, which presently varies between 5.3 percent to 8.5 percent. Further, the roadmap requires automakers to only manufacture E20 compatible vehicles starting from 2023 to complement the E20 fuel blending starting 2025.
Indian policymakers are lately aggressive on their plans on fuel emissions and fuel efficiency in the transportation sector, which is a consequence of COP21/26 commitments to curb GHG emissions. A recent example is the accelerated transition from BSIV to BSVI emission standards in a mere three years. The country aims for 10 percent reduction in oil and gas imports by 2022 when compared to 2015 and has the ambition to go carbon neutral by 2070. While electrification may not be an easy transition for the nation given the demographic and energy challenges, biofuels such as ethanol and methanol are presently low hanging fruits for the nation to achieve a reduction in crude imports. The government’s swift attention is also a result of the increasing economic burden attributable to high crude-based fuel prices recently.
India has a surplus of feedstock required for ethanol production including maize, wheat, other grains and sugarcane, ensuring adequate raw material supply for fuel production. The aggressive policy roadmap eventually intends to go for flex-fuel vehicles in the long-term which will use a high-level blend of ethanol in fuel and follow the lead of countries such as Brazil and the US. Incidentally, this move from the government is straight from the playbook of the US government in the 2000s, who, concerned with energy security, encouraged a move to flex-fuel vehicles by leveraging surplus corn stocks to manufacture ethanol and introduced production targets for the OEMs and the proportion of flex-fuel vehicles to be manufactured. India in February 2020 has also signed an MoU with Brazil for supporting a sound policy dialogue related to ethanol in India.
Broadly, ethanol blending seems to be an apt solution for India from an energy security and emission reduction perspective. Petrol-powered vehicles take a high modal share in the transportation system with two-wheelers, three-wheelers and four-wheelers. According to GlobalData’s vehicle parc database, over 67 percent of light vehicles presently are petrol-powered in India, and the share is expected to reach 71 percent by 2025. Given the cost-conscious nature of the market, customers will continue to have a higher propensity towards ICE vehicles over expensive electric vehicles (EVs), which can comfortably run on ethanol-blended fuel.
However, while changing ‘fuel’ rather than changing ‘vehicle technology’ may be a more practical approach to achieve emission reduction for India, the transition will have its own set of technical and market-related challenges. These challenges become more intense given the latest cut-off of 2025, which leaves only three years to action. Firstly, manufacturing E20 vehicles means hardware changes within the vehicle and the production line that consequently will increase the cost burden on OEMs as well as customers, higher ethanol blend would also mean lower fuel efficiency and an effect on the total cost of ownership. Further, there will be compatibility issues with existing vehicle parc, an adequate supply of E20 blend petrol for new vehicles along with low-level blends for existing vehicle parc will need to be ascertained across the country. In addition to the above, there will be procurement challenges despite surplus feedstock as India has poor distillery capacities which will be required to be enhanced within a short span of time. As per some government reports, 10 million metric tons of ethanol will be required for achieving E20 2025 target.
The above challenges summarize that much is yet to be done for a smooth transition to E20 blend fuels and that achieving it by 2025 may not be easy. Presently, Indian fuel stations do not have the availability of multiple blends of petrol and that significant infrastructural investment will be needed to achieve it. When looking at the past timeline, the country failed to achieve the E10 blending target initially planned for 2017 and could only achieve an average of 2.3% by the year.
The government is following a multi-directional approach concerning its emission reduction and targets. The country aims to achieve 30% electrification of new vehicles by 2030, establish 10,000 CNG stations by 2030 and also has plans for transition to methanol economy. The approach would mean an additional burden for the already stressed Indian auto industry. OEMs are already combating market headwinds caused due to subdued economy, recent regulatory changes, COVID-19 and semiconductor shortages. E20 policy and the speculated ‘flex-fuel mandate’ may come as a distraction to OEMs automakers who are presently more focused on electrification globally and in India. This could affect their investment decisions and business plans in the country. Additionally, some experts suggest that the country would need to cautiously balance the supply of feedstock for fuel production so as not to stake the country’s food security.
This article first appeared in GlobalData’s Automotive Intelligence Center