National Policy on Biofuels (2018)

Policy Update
Anamitra Sinha

Background

The global shift towards renewable energy has placed biofuels at the centre of many national energy strategies, and India is no exception. The National Policy on Biofuels, formulated by the Ministry of New & Renewable Energy, seeks to mainstream biofuels within the energy and transportation sectors. This initiative is vital to reducing India’s dependency on imported fossil fuels and ensuring energy security in an environmentally sustainable manner. With the world moving towards reducing greenhouse gas emissions, this policy positions India to leverage its vast agricultural resources, particularly non-edible oilseeds and molasses, to produce biofuels while promoting rural development.

The policy is rooted in India’s broader energy goals: achieving a cleaner environment, creating employment opportunities in rural areas, and fostering economic growth through sustainable practices. The ambitious target of blending 20% biofuels into conventional fuels by 2017, though not fully met, laid the groundwork for future advancements in the sector.

Functioning

The functioning of the National Policy on Biofuels is designed to encompass multiple stages of the biofuel value chain, offering a comprehensive approach to sustainable energy production and distribution. At the heart of this policy lies a multifaceted strategy that includes ambitious blending targets, innovative production methods, robust financial support, and streamlined distribution mechanisms.

One of the central components of the policy is its blending targets. From the outset, the policy proposed an ambitious goal: a 20% blending of biodiesel and bioethanol into conventional fuels by 2017. While this blending target has been a guiding principle, the realities of implementation have varied. Bioethanol blending, mandated since 2008, has seen considerable progress. This mandate means that bioethanol has gradually integrated into the country’s fuel supply chain, reducing dependency on fossil fuels.

However, biodiesel blending has faced more hurdles. The policy’s recommendation for biodiesel blending remains just that—a recommendation. Challenges, primarily related to production capacity, have prevented biodiesel from becoming a mandatory part of India’s energy mix, and this remains a significant area for future development.

The biofuel production strategy outlined in the policy is both innovative and pragmatic, especially in its use of non-edible oilseeds for biodiesel production. By focusing on cultivating these oilseeds on wasteland and degraded forest lands, the policy avoids the common criticism that biofuel production competes with food crops. In India, where food security is a critical issue, this approach ensures that vital agricultural land remains dedicated to food production, while biodiesel production taps into underutilized resources. The emphasis on non-edible oilseeds also supports rural development, as farmers can cultivate these crops on marginal lands that would otherwise have limited economic value.

For bioethanol, the policy capitalizes on India’s sugar industry by using molasses, a by-product, as the primary feedstock. This strategy effectively links biofuel production to agricultural waste management, creating a circular economy where agricultural by-products are transformed into valuable energy resources. Given that India is one of the world’s largest sugar producers, this provides a reliable and consistent source of bioethanol, aligning well with the country’s agricultural output.

Financial backing is essential to the success of such an ambitious policy, and the government has ensured that a robust framework of financial support and incentives is in place. Institutions like the National Bank for Agriculture and Rural Development (NABARD), the Indian Renewable Energy Development Agency (IREDA), and the Small Industries Development Bank of India (SIDBI) have been pivotal in providing loans and refinancing options to both farmers and biofuel enterprises. These financial institutions enable stakeholders across the value chain—from cultivation to processing—to access the capital necessary for biofuel production.

Additionally, the policy permits 100% Foreign Direct Investment (FDI) in biofuel technologies, signalling India’s openness to international expertise and investment. However, this allowance comes with an important stipulation: biofuels produced with FDI must be used domestically, ensuring that India’s energy security is prioritized.

On the distribution and marketing front, the policy wisely integrates biofuels into the existing fuel distribution infrastructure. This is a strategic move, as it allows Oil Marketing Companies (OMCs) to utilize their current storage and distribution networks with minimal additional investment. Instead of creating a parallel system for biofuels, the policy encourages the modification and upgrading of existing infrastructure to handle biofuels alongside traditional fuels. This not only reduces costs but also accelerates the adoption of biofuels, as the infrastructure required to bring these fuels to market is already in place.

Ensuring that biofuels meet international standards is crucial for their acceptance and widespread use, both domestically and potentially for export in the future. To this end, the Bureau of Indian Standards (BIS) has established rigorous quality standards for both bio-diesel (IS 15607) and bioethanol (IS: 2796: 2008). These standards, adapted from international benchmarks like the American ASTM D-6751 and the European EN-14214, ensure that Indian biofuels are of high quality and compatible with existing engines and fuel systems. This alignment with international standards not only builds consumer confidence but also positions India’s biofuels as competitive on a global stage.

In conclusion, the National Policy on Biofuels operates as a well-rounded, strategically designed initiative that addresses the production, financing, and distribution of biofuels. By leveraging underutilized lands, supporting financial mechanisms, and aligning with international standards, the policy aims to transform India’s energy landscape while fostering sustainable development. However, the challenges, particularly in scaling up bio-diesel production, must be addressed for the policy to fully achieve its potential.

Impact

The National Policy on Biofuels has had wide-reaching effects, transforming India’s energy landscape while boosting socio-economic development and environmental sustainability. At its core, the policy addresses critical challenges like rural employment, environmental degradation, and energy security, guiding India toward a greener future.

A major impact has been on rural development. By promoting the cultivation of non-edible oilseeds on wastelands, the policy has created new economic opportunities for rural communities. These previously underutilized lands now support biodiesel production, providing jobs in areas with limited agricultural options. The introduction of a Minimum Support Price (MSP) for oilseeds ensures farmers are fairly compensated, while initiatives like the National Rural Employment Guarantee Programme (NREGP) further link biofuel cultivation to rural poverty alleviation.

Environmentally, biofuels offer a cleaner alternative to fossil fuels, reducing carbon emissions and improving air quality in urban areas. By using degraded lands for biofuel crops, the policy avoids competition with food crops while helping restore soil health and improve ecosystems, creating both environmental and socio-economic benefits.

Energy security is another key benefit. India’s dependence on imported crude oil (over 80% of fuel needs) poses economic risks. Biofuels offer a domestic, renewable energy source, reducing the country’s reliance on imports and shielding the economy from volatile global oil prices. This shift strengthens India’s energy resilience.

However, the policy can be further enhanced. Expanding biofuel sources beyond non-edible oilseeds and molasses is crucial for scalability. Agricultural residues and algae-based biofuels—which offer higher energy yields—represent promising alternatives. Investment in research and development (R&D) is key to making these technologies commercially viable, which would drive down costs and make biofuels more competitive with fossil fuels.

Public awareness is also essential. While industry stakeholders understand the benefits of biofuels, wider consumer engagement is needed. Educational programs and awareness campaigns can help create a sustainable market and develop a skilled workforce to support the biofuel sector.

Finally, scaling up production is crucial to meet the ambitious blending targets. By incentivizing small and medium enterprises (SMEs) in rural areas, the government can boost production capacity, ensuring biofuels contribute a larger share to India’s energy mix. Ultimately, biofuels are a vital part of India’s strategy to achieve energy security, environmental sustainability, and rural development.

Way Forward

Looking ahead, India can draw valuable lessons from Brazil’s National Alcohol Program (Proálcool) as it continues to advance its National Policy on Biofuels. Brazil’s success was built on leveraging domestic resources like sugarcane and creating a strong public-private collaboration that boosted ethanol production and rural development. India, with its diverse agricultural base, can replicate some aspects of this model but should focus on its unique advantages—particularly next-generation biofuels such as algae-based options that promise higher yields and cost efficiency.

For India, investing in research and development (R&D) is crucial to unlocking the potential of biofuels beyond traditional sources like sugarcane. Brazil’s long-term investments in ethanol technology helped create a robust industry, and India must similarly prioritize innovations in biofuel production, including technologies for converting non-edible crops and agricultural waste into fuel. This approach could reduce dependency on a single resource while diversifying energy production.

Public awareness remains another key element. Brazil successfully engaged consumers by promoting ethanol-powered vehicles and providing incentives, which India can adopt by educating its citizens about the environmental and economic benefits of biofuels. Widespread public engagement will be essential to making biofuels a mainstream part of India’s energy landscape.

While both countries share the goal of energy security, India’s strategy—focused on diversified biofuel sources and next-generation technology—can provide a more flexible and resilient solution for the future. Continued support, collaboration, and innovation will be necessary to fully realize the potential of biofuels in tackling India’s energy and environmental challenges, just as Brazil did with ethanol.

References

About the Contributor: Anamitra Sinha, Policy Research Intern at IMPRI Institute and Master’s student in Development, Policy Planning, and Practice at Tata Institute of Social Science, School of Rural Development, Tuljapur (Off-Campus).

Acknowledgment: This article was reviewed by IMPRI experts and other collaborators.

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