As more than 100 countries at COP28 in Dubai pledged the tripling of global renewable energy capacity by 2030, India faces a tightrope walk with regard to its ethanol blending target. While ethanol blended petrol (EBP) increased from 1.6% in 2013-14 to 11.8% in 2022-23, the 20% target by 2025 has run into trouble with low sugar stocks in 2022-23 and the impending shortfall in sugarcane production this year. As evident from Minister of Consumer Affairs Piyush Goyal’s statement in May, the government is looking at a major transition towards grains-based ethanol for meeting the target. The recent authorisation of the National Agricultural Cooperative Marketing Federation of India (NAFED) and the National Cooperative Consumers’ Federation of India (NCCF) to procure maize (corn) for supplying ethanol distilleries indicates emphasis on this transition and will boost an organised maize-feed supply chain for ethanol. This, however, risks creating more challenges for the economy.
Crude and food prices
The two major feedstock for ethanol production are sugarcane (Brazil) and corn (the U.S.). Ethanol production in both these countries boomed from 2000 when crude oil prices started rising and remained above a certain threshold for a decade. (At low crude prices, ethanol blending is not competitive; it is a slow process driven by heavy subsidies.) A crucial difference between the use of sugarcane and corn for producing ethanol is the degree of food-fuel conflict that emerges. In the case of sugarcane, ethanol is produced by processing the molasses (C-heavy/B-heavy) and constitutes minimal trade-off with the sugar output. The B-heavy molasses path produces less sugar compared to the C-heavy one, but both produce sugar and ethanol simultaneously from sugarcane. But using corn for producing ethanol directly reduces its use as food or livestock feed. It not only diverts grain to fuel use, but also links food prices directly with crude oil prices through the demand side. The very high crude prices that prevailed for a decade in 2004-14 pulled up ethanol and corn prices to historical highs. More importantly, the high corn prices were quickly transmitted to other grain markets as soft grains, such as wheat/barley, started getting redirected into the livestock industry as corn substitutes. Though only 5-7% of the world’s corn output was used for ethanol production at the peak of the U.S.’s corn-based ethanol programme, the price effect was widespread and remained the most important contributor to the 2006-14 global food crisis. This was primarily due to the relatively easy substitutability in grain use across food, feed, and fuel.
