Government pricing inaction keeps India burning food for fuel

• India produces ethanol using valuable food crops
• Ethanol from crop waste offers greener alternative
• Lack of government pricing stalls expansion of new fuel

NEW DELHI - India's push for ethanol, mixing crop-based biofuel with petrol to run vehicles, is stalled by slow progress in making an environmentally cleaner version of the fuel, producers and experts say.

Standing in the way is the government's failure to pay more for cleaner ethanol, which is made from waste but costs more to produce, they say.

Second-generation, or 2G, ethanol, which uses crop waste instead of valuable food crops, offers a way to cut planet-heating emissions, reduce oil imports and avoid making fuel from food needed for human consumption.

But producers say the government must pay a separate, appropriate price for the more costly 2G ethanol.

"Without a separate pricing policy for 2G ethanol, the economics do not work," said Monish Ahuja, managing director of Punjab Renewable Energy Systems Pvt. Ltd. (PRESPL), which supplies farm waste to 2G plants.

Investors will not join in unless they see returns that reflect the higher cost of making the biofuel, Ahuja said.

"That's the bottleneck," he said.

The Indian government wants all petrol sold in the country to contain 20% ethanol by October 2025 and has ramped up ethanol production by diverting food crops like sugarcane, maize and surplus rice to make fuel known as first-generation (1G) ethanol.

The 1G production reduces the availability of grains for people and cattle and shifts land away from food production.

India allocated a record 5.2 million metric tonnes of rice for 1G ethanol, nearly 9% of global rice shipments, in a year's time spanning 2024 and 2025.

The 2G ethanol can be made by breaking down tough plant waste like straw or husk into fermentable sugars using newer technology. It also could help curb stubble burning, a key cause of air pollution in India, in which crop remnants are set ablaze post-harvest.

So far, 2G ethanol makes up very little - some say less than 1% - of India's annual biofuel production that the government said topped 700 crore litres [7 billion litres] in October 2024.

The lack of 2G ethanol production is mostly due to a lack of differentiated procurement pricing by the government and higher production costs, experts say.

The Indian government does not make specific figures available on its 2G ethanol production.

The government has considered a separate rate for 2G ethanol, according to minutes of a high-level committee meeting from July 2023.

The price was expected in April 2025, according to reports in Indian media, but no announcement has been made.

To promote the newer fuel, the Indian government launched a national programme in 2019, with a budget of 1.97 billion rupees($227.76 million) to provide financial assistance for setting up commercial and demonstration-scale 2G ethanol plants.

However, of the 12 plants it set out to establish across India, only one demonstration plant is operational.

The Indian ministry responsible for biofuel production did not respond to requests for comment.

Costs add up

Among the challenges to scaling up 2G ethanol production, the process requires costly enzymes, the pre-treatment of waste and logistics, said Y.B. Ramakrishna, senior vice-president of the Indian Federation of Green Energy (IFGE).

India generates hundreds of millions of tonnes of agricultural waste annually which could fuel hundreds of 2G biofuel plants, experts say.

But the waste needs to be collected, dried, stored and transported from small farms scattered across wide areas, said Ramya Natarajan, a research scientist at the Centre for Study of Science, Technology and Policy (CSTEP).

The costs can add up, making financial support and pricing clarity for 2G ethanol critical, experts said.

"At least for the initial three to four years, a higher price is essential," Ramakrishna said.

Without a separate price for 2G and a target for its procurement, even financially ready firms are unable to raise funds from banks or commit to long-term plans, Ahuja said.

Unlike 1G ethanol, which has a guaranteed market through oil marketing companies' procurement, the lack of a separate 2G ethanol blending target leaves the greener alternative to compete for customers with the cheaper 1G ethanol.

Contained in India's ethanol blending policy of 20% ethanol in petrol by the end of 2025, there is no sub-target for 2G ethanol blending to help guarantee production.

($1 = 86.4930 Indian rupees)

(Reporting by Bhasker Tripathi; Editing by Ellen Wulfhorst.)