The Indian government's determined push for ethanol blending in petrol is proving to be transformative even as the nation races to meet its net-zero goals
The India ethanol market attained a valuation of $6,512.27 million in 2023 and is poised for robust growth in the forecast period. The valuation on a Compound Annual Growth Rate (CAGR) basis is predicted to grow at the rate of 8.84 percent through 2029 and could reach $10456.98 million by 2029.
Ethanol, a renewable fuel derived from various plant materials collectively called 'biomass,' is driving this growth. Ethanol's lower carbon intensity than conventional fuels has reduced carbon emissions, aligning with India's climate goals. The Indian government's determined push for ethanol blending in petrol has been transformative.
The Ethanol Blended Petrol (EBP) programme, initiated in 2003, mandates blending ethanol with petrol to decrease greenhouse gas emissions and promote cleaner fuels. The government's commitment to achieve 20 percent ethanol blending in petrol by 2025 has significantly boosted ethanol production.
Furthermore, government support in incentives, subsidies, and grants has incentivised investment in ethanol production infrastructure. These incentives have attracted public and private sector interest, driving increased capacity and output.
Additionally, ethanol production provides an extra revenue source for farmers, contributing to rural economic growth. The promotion of ethanol bridges the agriculture and energy sectors, benefiting farmers, bolstering energy security, and propelling the expansion of the Ethanol Market in India in the forecast period.
Key Market Drivers
Increasing Demand for Biofuels for Sustainable Development
In recent years, there has been a growing global awareness of the necessity to transition towards sustainable energy sources due to concerns regarding climate change, depleting fossil fuel reserves, and the urgency to mitigate environmental degradation.
With its emphasis on biofuels as a vital component of sustainable development India has emerged as a frontrunner in adopting alternative energy solutions. Among the biofuels, ethanol has gained prominence as a cleaner and greener substitute for traditional fossil fuels.
The escalating demand for biofuels, specifically ethanol, aligns with India's pursuit of sustainable development, representing a fundamental shift in the country's energy landscape. Additionally, energy consumption will continue to grow, driven by its growing population, urbanisation, and industrialisation. India heavily relies on imported fossil fuels to meet this demand, leaving it exposed to global price fluctuations and geopolitical uncertainties.
Supportive Government Policies
In light of global calls for sustainable and environmentally friendly energy practices, the Indian government has implemented significant measures to promote the production and usage of ethanol as an alternative fuel. India has introduced a series of favourable policies with a strategic focus on reducing carbon emissions, minimising dependence on fossil fuels, and ensuring energy security.
Moreover, the government has actively promoted the production and utilisation of Flexible Fuel Vehicles capable of running on various ethanol and petrol blends. This not only increases ethanol demand but also offers consumers greater fuel options. Additionally, government subsidies and incentives provided to sugarcane producers have contributed to the growth of the ethanol market.
The combined impact of these government initiatives is expected to drive demand for ethanol during the forecast period.
Increasing Automotive Sector Demand
The automotive sector, a major contributor to carbon emissions, is undergoing a significant transformation in reflecting stepped up efforts worldwide to battle climate change and reduce environmental impact. This shift has propelled the demand for cleaner and more sustainable fuel alternatives, with ethanol emerging as a frontrunner in reshaping the automotive industry.
The Indian government has also introduced initiatives and policies to promote ethanol use in the automotive industry, further propelling ethanol demand. For instance, introducing fuel blended with 20 percent ethanol (E20) in phases from April 2023 onwards aims to ensure E20 availability by 2025. Ethanol is used widely as a fuel additive to improve fuel efficiency, reduce emissions, and enhance engine performance.
These factors collectively drive an increasing demand from the automotive sector, translating into the growth of the Ethanol Market in India through the forecast period.
A lack of awareness and understanding about ethanol among consumers and industries could impede its adoption as a fuel source. This lack of knowledge may slow the transition from traditional fossil fuels to more sustainable alternatives, like ethanol. Additionally, misconceptions about the environmental benefits of ethanol-blended gasoline and unfounded concerns about its impact on vehicle engines may negatively influence the sales of blended petrol.
The availability and pricing of feedstocks like broken rice and maize is influenced by fluctuations in agricultural production, weather conditions, and seasonal variations. Moreover, the significant water requirements of the sugarcane industry can contribute to feedstock availability challenges. These factors may hinder the consistent supply of feedstocks, potentially affecting the market's growth trajectory.
India has been actively expanding its ethanol production capacity in recent years. Most of the country's ethanol is currently derived from sugarcane molasses and cassava, locally cultivated crops. Investments in new ethanol plants from domestic and foreign investors have been pouring in, highlighting the market's potential.
By December 2023, the ethanol production capacity for blending and other uses is expected to reach 12,440 million litres. The launch of major new ethanol projects in line with a new interest subvention scheme, approved by the Food Ministry in January 2023, is anticipated to add around 470 million litres of ethanol. Notably, these projects include grain-based and dual feedstock-based facilities.
The focus on green fuels, including ethanol, has significantly influenced the India Ethanol Market. The emphasis on green fuels has boosted the hunger for ethanol as a renewable fuel source. Ethanol is viewed as a cleaner and more sustainable alternative to fossil fuels, with government policies and incentives driving the adoption of biofuels in transportation.
This shift towards green fuels has also led to diversifying feedstocks utilised in ethanol production. In addition to traditional sources like sugarcane and grains, the industry is exploring non-food feedstocks such as algal biomass for ethanol production. Adopting green fuels offers environmental advantages, including reduced greenhouse gas emissions and air pollution.