Ethanol Blended Petrol (EBP) Programme – Explained

On early September this year, the Cabinet Committee of Economic Affairs, headed by the Prime Minister, has approved the hike of the procurement prices of ethanol. This move comes amidst the crisis of sugar surplus and increasing tensions between Iran and the US.

This move is of significance as the high prices are being offered for the procurement of ethanol that is manufactured from all the sugarcane-based routes including the partial sugarcane juice routes. This move has also, for the first time, has allowed the use of sugar and sugar syrup for the ethanol production.

The world is currently facing high fuel prices due to the brewing tensions in the Middle East. India must take all steps necessary to reduce the oil consumption to reduce the dependence on oil imports. The promotion of ethanol manufacturing to increase its production is a need of the hour.

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What is ethanol?

  • Ethanol is also referred to as grain alcohol or ethyl alcohol or ETOH.
  • It is a clear liquid made by the fermentation and distillation of simple sugars.
  • Currently, it is a fuel produced from crops that are having high starch contents like that of sugarcane, corn, grain sorghum, wheat, etc.
  • Since ethanol is produced from crops that harness the energy from the sun, it is considered to be a renewable
  • It is mainly produced from molasses – a by-product of sugar manufacture.
  • The sugar mills crush the sugarcane to produce a total fermentable sugar (TFS) content of about 14%.
  • TFS is a mixture of sucrose and reduced sugars (glucose and fructose).
  • It gets crystallized into the sugars.
  • The un-crystalized and the non-recoverable part go into C molasses.
  • It consists of about 4.5% of cane which has 40% of TFS.
  • Every 100kg of TFS can yield 60 litres of ethanol.
  • Thus, from one tonne of cane, mills can produce 115kg of sugar and 45kg of molasses (18kg of TFS) which in turn gives 10.8 litres of ethanol.
  • The sugar mills can also ferment the entire 14% TFS in the cane.
  • In this case, these mills would end up with 84 litres of ethanol and zero kg of sugar.
  • There are intermediate options between the above mentioned extreme cases.
  • The cane juice does not become crystallized until it has reached the final stage of C molasses.
  • The molasses can be diverted after the earlier A and B stages.
  • This would allow for the mills to produce some sugar instead of converting the whole of it into ethanol.

What is ethanol blending?

  • It is the process of blending gasoline with ethanol.
  • The oxygen molecule in ethanol allows the engines to completely combust the fuel.
  • This helps in the reduction of carbon emission into the environment.

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What is Ethanol Blended Petrol (EBP) Programme?

  • Ethanol Blended Petrol (EBP) Programme was launched in January 2003.
  • Its aim is to promote the use of an alternative and environmentally friendly source of energy so as to reduce the negative impact of fossil fuels and the over-dependency on imports for energy requirements.
  • Currently, the Ministry of Petroleum and Natural Gas had directed the Oil Marketing Companies (OMCs) to sell 5% EBP to all states except to the UTs – Andaman and Nicobar Islands and Lakshadweep Islands.
  • The OMCs are to mandatorily procure the ethanol from the domestic source.

What is the current move by the CCEA under the Ethanol Blended Petrol (EBP) Programme?

  • The government is administering the price of the ethanol since 2014.
  • The government had also reduced the GST rate of ethanol from 18% to 5%.
  • As per the amendment in Industries (Development and Regulation) Act, 1951, the control of production, movement and storage of ethanol is given to the Central Government. Hence, the Central government is regularly interacting with the State governments for the smooth implementation of the EBP programme.
  • Under this programme, the OMCs are mandated to obtain ethanol from:
  1. Sugarcane Juice/Sugar/Sugar syrup
  2. B heavy molasses
  3. C heavy molasses
  4. Damaged food grains
  • Indian economy currently has a surplus sugar production.
  • Therefore the government had intervened to increase the demand for sugar.
  • It had allowed the mills to produce ethanol from B heavy molasses.
  • Furthermore, it has mandated the 10% blending of ethanol with the gasoline.
  • The CCEA had even approved the use of sugar and sugar syrup for the production of ethanol.
  • Thus the mills can simply add the sugar/sugar syrup to the molasses mother liquor for further fermentation.
  • This move is incentivizing the mills to reduce the sugar surplus by manufacturing the ethanol directly from the B heavy and sugarcane juices by increasing the prices of ethanol that are manufactured from these sources.
  • For the supply year 2019-2020, the ex-distillery price payable for the ethanol manufactured from C molasses to be Rs.43.75/litre. Previously, during the supply year 2018-19, it was Rs.43.46/litre.
  • Prices of ethanol from B molasses and sugarcane juices have also risen to Rs.54.27/litre and Rs.59.48/litre respectively. They were previously Rs.52.43/litre and Rs.59.13/litre respectively in the 2018-19 supply year.
  • The ethanol produced from sugar and sugar syrup also enjoys the same benefit of the raised price of Rs.59.49 /litre.
  • To supplement this, the Department of Food & Public Distribution has also introduced a scheme to provide financial assistance to the sugar mills to improve its ethanol production capacity.

Why is the government incentivizing ethanol manufacturing?

  • In early March this year, India was dragged to WTO by Brazil and Australia. This was due to India’s supportive policies to the sugarcane farmers and this extensive support is beyond the norms set by the WTO.
  • This, they argued, has led to the increased sugar surplus and exports from India.
  • This, as a consequence, has dampened international prices.
  • In 2018-19, the sugar industry in India is said to have faced surplus as high as 48% of the country’s annual consumption.
  • This surplus was mainly due to many government policies that called for high cane prices.
  • This, as a result, created a huge mismatch between the price of sugar and other crops.
  • Currently, the sugarcane fetches 60% higher returns than the other crops.
  • Due to these reasons, the farmers are more inclined towards the sugarcane production than that of the other crops despite the delay in the payments from the sugar mills.
  • This resulted in the sugar surplus.
  • Sugar surplus has many negative implications apart from India being dragged to WTO.
  • It includes the depression of prices and a decrease in the cash flow of the sugar mills.
  • The government is forced to help the sugar mills by clearing their dues through relief packages.
  • Even exporting does not help the mills as they pay higher prices for canes compared to the other countries.
  • This has led to the increased cost of production of sugars – higher than that of the international sugar prices.
  • Promoting the use of sugars/sugar syrup to manufacture ethanol is a step in the right direction.

What are the advantages of this move?

  • The government’s hiking of the ethanol price has cut the oil import by USD 1 billion.
  • India imports more than 80% of its oil requirements. It is the third-largest importer in the world.
  • Over the last two years, Iraq is the largest oil supplier to India followed by Saudi Arabia.
  • Saudi Arabia’s state-owned oil company Aramco was attacked by Yemen’s Iran-backed Houthi rebel group.
  • The oil price, due to the drone attack, is said to rise of the oil price by 10-15% ($75 per barrel)
  • Every $1 rise increases India’s import bill by Rs.10, 700 crores.
  • The escalating tensions between Iran and Saudi Arabia are impacting the global oil prices and India is not immune to it.
  • Clearly blending of ethanol with petrol is a right step to reduce the impact of oil prices in the Indian economy.
  • It not only saves the sugar mills financially but also helps the overall Indian economy by reducing the oil import bills.
  • This move also helps the farmers get their returns from the sugar industries promptly.
  • It is an environmentally friendly alternative without any need for radical change.
  • This move comes at a time when the surplus is reducing the sugar price.
  • The ethanol price hike provides for price stabilization of sugar.

Way Forward

  • This step is clearly based on the National Policy on Biofuel-2018.
  • Increasing the price of ethanol produced from sugar to increase the demand for it during the time of excess surplus is a step in the right direction.
  • The government must take steps to further integrate all parties involved to increase the production of ethanol.
  • It will reduce India’s dependence on the import and also safeguard India’s economy from external factors with regards to oil price rise.
  • Despite the advantages, this move has several negative implications.
  • Sugarcane is a water-intensive crop. Currently, we are facing water scarcity. Promoting an alternate crop production is a need of the hour.
  • Ethanol can be produced from any organic source. Sugarcane is a crop that makes use of huge amount of resources to grow like the fertilizers.
  • Hence, this move should only be temporary. The government must take needed steps to promote the cultivation of other crops.
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