What’s happening with ethanol blending scheme

Low stocks of sugar and uncertainties over production this year has forced the government to go slow on its successful ethanol blending programme.

• In a significant policy shift, the Indian government has taken a series of measures aimed at bolstering domestic sugar availability.
• After banning sugar exports earlier, the Ministry of Consumer Affairs, Food and Public Distribution, on December 7 2023, directed mills and distilleries to cease using sugarcane juice/syrup for ethanol production "with immediate effect."
• This move marks a crucial step in the government's strategy to address concerns over diminishing sugar stocks and prioritize consumer needs over fuel production.

Ethanol Blending Program Success:

• Ethanol Blended Petrol (EBP): Under the leadership of Prime Minister NarendraModi, the Ethanol Blended Petrol (EBP) program has achieved remarkable success.
• Blending Surge: The average blending of ethanol with petrol has surged from 1.6% in 2013-14 to an impressive 8% in 2022-23.
• Key to this success:Key to this success has been the diversification of feedstocks, with ethanol production extending beyond traditional C-heavy molasses.

Feedstock Diversification and Pricing Policy:

• Alternative feedstocks: Ethanol production has shifted towards alternative feedstocks, including B-heavy molasses, sugarcane juice/syrup, surplus rice from the Food Corporation of India's stocks, broken/damaged foodgrains, and maize.
• Differential pricing policy: The government's differential pricing policy has played a pivotal role in incentivizing mills to produce ethanol from feedstocks other than C-heavy molasses.
• Higher ex-distillery prices: The policy has resulted in higher ex-distillery prices for ethanol produced from various sources, providing a significant boost to the EBP program.

Setback for Industry:

• Restrict use of sugarcane juice/syrup: However, the recent directive to restrict the use of sugarcane juice/syrup for ethanol production is a setback for companies that have invested in capacities to produce ethanol directly from cane juice/syrup.
• This move, affecting companies like BalrampurChini Mills, Shree Renuka Sugars, Ugar Sugar Works, and Nirani Sugars, could impact the bulk of ethanol supplies and lead to stranded capacities.

Impact on Ethanol Supply and Sugar Production:

• Concerns over sugar supply: The order comes as the government faces concerns over sugar supply, with stocks at a six-year low and uncertainties over production for the current year.
• Decline in sugar output: Estimates suggest a decline in sugar output for the 2023-24 year, with Maharashtra and Karnataka expected to record sharp declines due to subpar rains and low reservoir water levels.
  • The directive could result in approximately 15 lakh tonnes of additional sugar entering the market, addressing supply concerns and potentially stabilizing prices.

Way Forward:

• Prioritization of domestic supply: The government's recent decisions, including the ban on sugar exports and the directive to restrict sugarcane juice/syrup for ethanol production, underscore a clear prioritization of domestic supply over exports and consumer needs over fuel production.
• Sugar supply challenges: As the nation grapples with sugar supply challenges, these policy measures signal a commitment to ensuring food security and addressing market dynamics.
• Success of the EBP program: The success of the EBP program, coupled with ongoing policy adjustments, will continue to shape India's approach to balancing the demands of consumers, producers, and the evolving energy landscape.