Towards a sustainable and viable bio-fuel programme

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: The promotion of bio-diesel in India requires a proactive and integrated approach under law or policy, which addresses key stakeholder issues on one hand and creates a sustainable market on the other. Any strategy or policy promoting the development of the bio- diesel industry would have to be consistent with existing national and sectoral policies and would need coordination and coherence between different bodies connected with various legs of the bio-diesel life cycle. The preferred approach would envisage incentivising both the demand and supply chain so as to ensure that “demand” and “supply” are created simultaneously and there is no gap impacting the viability of the sector. The policy has to be essentially pro-poor, environmentally sustainable, has to help strengthen energy security, accelerate agricultural productivity, help maintain and improve food security, use advanced energy crop farming techniques and ultimately lower the transaction costs by having trade and market reforms.

A review of the past initiatives of promoting bio-fuels has raised several issues. Some of the key issues which need to be addressed in the light of the ongoing debates in relation to promotion of bio-diesel in India include interalia:

Issues of food security: The growing demand for conventional fuel and the concerns related to energy security have led states to look at alternatives sources for meeting its growing demand in the transportation sector. The US, EU, Australia, Canada and Brazil and other OECD countries have started using corn, soya, rape, course grains and sugar cane for production of bio-fuels and thus causing diversion of food resources into fuel. This has created serious pressures on global food markets.

Developing countries have raised concerns on diversion of land used for production of crops for meeting food demand for production of feedstock for biodiesel but since in India, policy makers have identified “feedstock” which is non-edible, does not need fertile lands and can be grown in harsh conditions on waste lands, the concerns over issues of food security are uncalled for.

Feedstock issues: Concerns have been raised with regard to availability of feedstock. There is thus a need for coordinated action amongst different ministries to ensure plantation of Jatropha/ Karanja and production/availability of bio-diesel by incentivising its plantation.

For the successful implementation of the existing policy prescribing blending of bio-diesel in diesel, sustained feedstock availability is very critical. Another important issue is a price of bio-diesel, acceptable to petroleum marketing companies. For the policy to achieve targets of blending 5% bio-diesel by 2012 and 10% bio-diesel by 2017, state support is critical for ensuring production of feedstock and making it available to oil marketing companies on a viable price but also on a sustainable basis.

Recourse to NREGA: The issue of production of feedstock can partly be addressed by falling back upon existing state initiatives and programmes for generating employment in rural areas where most waste lands are located. This would assist in not only targeting the feedstock demand but also address the pricing issue to some extent. The centre has made budgetary provisions to generate employment in rural areas under schemes issued under NREGA; the rural workforces who are beneficiary under such schemes can play a role in meeting part of the demand for feedstock for bio-diesel. If the “feedstock” production is targeted under such schemes, the results, benefits and contributions to the economy are more measurable. While in some states, active recourse to schemes under NREGA and other initiatives has been taken for production of feedstock for bio-diesel, the efforts are not enough for meeting the required demand. There is a need for intervention by the Centre and State to give impetus to production of feedstock in states where it is feasible.

Pricing: Concerns with regard to pricing of blended products have been raised. Oil marketing companies do not want to bear any additional expense in meeting the cost and sale of blended products. The manufactures want the price to be at par with the production cost. In light of the concerns, steps need to be taken to ensure that the investors and developer do not bear an additional cost and are assured returns on their investments. Policy decisions need to be taken to provide state support (in the form or subsidy) to (a) farmers/producers of feedstock crops used for making bio-fuel to hedge any negative impact on the pricing of the final product (b) builders of bio-diesel manufacturing plants, to ensure fixed costs and the investor risks of new plants are lowered and return on investment is improved (c) oil marketing companies, to ensure they are not burdened with additional costs which makes the marketing of such fuels unattractive If in case subsidy support cannot be extended to all phases of the bio-fuel production cycle, steps are taken to pass additional cost to the beneficiaries or consumers of the end product. The approaches to pricing would vary depending on the model.

Allocation of costs: Ecologically, sustainable development involves the internalisation of environmental costs into decision making for policies and activities likely to affect environment. This requires accounting for both the short-term and long-term external environmental impacts of development and can be undertaken in variety of ways including interalia: polluter pays, that is those who generate pollution and waste should bear the cost of containment, avoidance, or abatement; the users of goods and services should pay prices based on the full life cycle costs of providing goods and services, including the use of natural resources and assets and the ultimate disposal of any wastes; and

The implementation of “user pays” and “polluter-pays” principles serve as a tool for enhancing pricing arrangements and apart from incorporating social and environmental costs, lessen the need for government intervention. The Supreme Court in India has held that the polluter pays principle is part of the environmental law of the country.