The PLI scheme to boost ethanol production could lead to unintended consequences for India’s food security and environment
By Payal Seth, Prabhu Pingali & Bhaskar Mittra
On June 2, 2021, the government of India (GoI) announced a Production Linked Incentive (PLI) scheme wherein fuel companies will be required to sell gasoline containing up to 20% of ethanol by 2023. To meet this target, India will need 1,000 crore litres of ethanol (against the current capacity of 684). Nearly 60% of this additional requirement will be met by diverting sugarcane to ethanol production. This decision comes in the light of surplus sugar production in the country which leads to lower sugar prices and adversely impacts the timely realisation of farm incomes. Hence, farmers are incentivised to produce more and divert excess sugarcane and sugar for fuel-grade ethanol production.
One of the incentives introduced under the PLI scheme is releasing soft loans to sugar mills and a single-window mechanism for expedited regulatory clearance for building grain-based distilleries across the country. This will encourage easier diversion of sugarcane for ethanol production. Since sugarcane and ethanol production is currently concentrated in Uttar Pradesh, Maharashtra and Karnataka, incentives to expand distilleries across India will result in geographically widespread production of ethanol, and save huge transport costs from moving ethanol to other states. Finally, the scheme has announced tax incentives for blended fuel and petrol vehicles.
However, besides these positives, PLI for enhancing ethanol production might also lead to certain unintended adverse consequences.
India’s biofuel dreams
India initiated biofuel production with the Ethanol Blended Petrol Programme in 2003, which mandated a 5% ethanol blended petrol, and 20% by 2012. Jatropha curcas was identified as an ideal crop to achieve this target. But Jatropha was found to be commercially unviable due to its low oil percentage and high processing cost. GoI eventually suspended mandatory blending and later launched the National Policy on Biofuels in 2009 to achieve 20% target by 2017. The goal was to be met by the cultivation of non-edible oilseed in waste and degraded forest land, higher participation of corporates and setting up a minimum support price for oilseeds. But the target of 20% ethanol blending has remained elusive.
So, while the country’s energy security has been a source of concern for the past two decades, it is only recently that GoI is backing the objective of achieving 20% ethanol blending through a series of rigorous incentives.
PLI’s unintended consequences
These novel incentives are likely to have some unintended consequences as they may encourage more farmers to increase sugarcane production. This will likely further strain both groundwater resources and land availability. One litre of ethanol from sugarcane requires about 3,000 litres of water. Diversion of production to sugarcane will reduce the water availability for other crops and cause overexploitation of groundwater resources.
Besides being a water-guzzling crop, sugarcane requires 9-24 months to harvest, and another 3-4 harvests of ratooning (i.e. the process of cutting the above-ground portion of the crop and leaving the roots intact to allow the plant to produce a fresh harvest). Any land diverted to sugarcane will be rendered useless for growing other crops for at least five to six years.
Furthermore, it will be easy to shift the currently irrigated land from one water-guzzling crop to another, i.e. from paddy to sugarcane. The profits from sugarcane cultivation are higher and will fetch an assured return from the industry. This can challenge the food and nutrition security of the country by reducing staple grain production and by discouraging farmers to diversify into fruits, vegetables and other high-value crops. Any stress on food supplies and food system diversity can lead to an increase in food prices.
Estimates tell us that for India to achieve its 20% blending target by 2030, it will need to produce 1,320 million tonnes of sugarcane, which would require additional 19 million hectares of land (or one-tenth of the country’s net sown area). These figures are emblematic of the impending food security crisis.
Alternate sustainable crops
GoI could consider moving the area from sugarcane cultivation to less water-intensive crops. Cereals, especially maize and sorghum, are more environmentally-sustainable, can be grown in non-irrigated regions or drylands, and serve as alternate crops for starch-based ethanol production. Incentive-linked production of maize and sorghum will also fetch better prices for farmers as a market of assured buyers will emerge. Better and timely price realisation, if inculcated as a part of the incentive, will boost the production of these crops, shifting land use away from sugarcane. Although at current productivity levels it would be a challenge to enhance the supply of these crops and thereby avoid negative food security consequences. It may also be important to re-examine the viability of Jatropha for bioethanol production and to identify options for alleviating the technical and policy constraints for enhancing Jatropha production.
We note that India is the world’s third-largest oil importer, and hence the drive to enhance the production of ethanol is rightly motivated with the intention to save forex reserves and inoculate the country against oil price shocks. However, it is equally important to balance the country’s current energy security with future food and nutrition security.
Seth is consultant, Pingali is founding director, and Mittra is associate director, Tata-Cornell Institute, Cornell University, US