Analysis: India's New Biofuels Policy
India’s new policy on biofuels targets blending at least 20 percent biofuels in diesel and petrol by 2017. This implies that 13.38 million tons of biodiesel will be required (which would need 30x increase on plantation of non-edible oilseeds).
In this article we analyse the impact of the biofuels policy.
The government announced, on 23rd Dec, 2009, attractive incentives to encourage biofuels plantation in wastelands and to utilise indigenous bio-mass feed stocks for production of bio-fuels. It addresses the issues across the entire value chain from plantations, and processing to marketing of biofuels.
Biofuels namely bio-ethanol and bio-diesel are used as additives with diesel, petrol or other fossil fuels. Biofuels are produced from the ‘biomass’ resources, such as the biodegradable agricultural products, wastes and municipal wastes. The ‘bio-ethanol’ is produced from biomass such as sugar cane, corn starch, wood waste, agricultural and forestry residues. And the ‘biodiesel’, a methyl or ethyl ester of fatty acids, is produced from edible or non-edible vegetable oils, or animal fat.
Though bio-ethanol and biodiesel are widely used in Brazil, USA and Europe, the biofuels industry has not taken off in India. It is not so lucrative for the farmers and the businessmen in India. Getting uninterrupted supply of quality feedstock has been a challenge for the biodiesel processors in India. The new policy addresses the issues relating to plantations, and processing and marketing of biofuels.
Scale of production required
The new biofuels policy will require plantation of non-edible oilseeds, such as jatropha and karanjia over about 11.2 million hectares of land, which is 30 times of present cultivation. Plantation and processing of jatropha offer huge business opportunities. And it is expected to create employment for the rural population and add to income to the farmers and rural India.
Many big companies, like Indian Oil, are already exploring and exploiting this opportunity. Indian Oil Corporation (IOC), the country’s biggest oil marketing company, is looking to acquire 50,000 hectares of wasteland in Uttar Pradesh for plantation of jatropha that are used for biodiesel production. Plantation on this land will be done partly by IOC and partly through contract farming .The Company has already acquired 30,000 hectares in Chhattisgarh and another 2,000 hectares in Madhya Pradesh. “We have planted 1,000 hectares so far and aim to plant 10,000 hectares this year. Seeds from the plantations will start coming after three to four years,” he added. IOC has also entered into a MOU with Indian Railways for plantation of jatropha on railway land.
The new policy offers financial incentives such as subsidies and grants for biofuels production. The policy also envisages setting up of a National Biofuel Fund. The government will also announce a minimum support price for such oil seeds. A minimum purchase price (MPP) for purchase of bio ethanol and biodiesel would also be announced with periodic revision. A National Biofuel Coordination Committee headed by the prime minister will monitor implementation of the policy.
A closer look on the policy document reveals that the proposed changes may bring sea change in the industry. Their impact may be summarised as under:
1. Incentives for Plantations: The policy document focuses on multi sphere development by promoting the biofuels plantation and processing. Bio-diesel production will be from non-edible oil seeds in wasteland, degraded land and marginal land. Bio-diesel plantations on community land, Government land and forest waste land would be encouraged, while plantation in fertile irrigated lands would be discouraged. The policy proposes contract farming in the degraded, forest and non forest lands involving farmers and landless labourers. The employment in biofuels plantations are now covered under the National Rural Employment Guarantee Program (NREGP). Biofuels plantation and processing has been declared as priority sector for the purposes of lending by the financial institutions and banks. This will enable liberal credit flow to this sector. The policy also talks about setting up of a National Biofuel Fund. Biofuels plantation is a potential way to stimulate rural development and create employment opportunities.
2. Ban on imports: The import of free fatty acids such as oil, palm etc. for biodiesel production is not allowed. There would be appropriate checks on the imports of biodiesel. These will encourage the domestic plantation and indigenous production of bio-diesel feedstock and development and processing.
3. Pricing and Taxation: The policy proposes the minimum support price (MSP) for non-edible oil seeds to ensure fair price to the farmers. It also stipulates that a minimum purchase price (MPP) for bio-ethanol and bio-diesel would be announced with periodic revision. The purchase of bio-ethanol by the Oil Marketing Companies (OMCs) would be based on the actual cost of production and import price of bio-ethanol. In case of bio-diesel, the MPP would be linked to the prevailing retail diesel price. The bio-fuels may be brought under the ambit of “Declared Goods” by the Government to ensure unrestricted movement of bio-fuels within and outside the States. Bio-diesel is exempted from excise duty and Bio-ethanol has concessional excise duty. No other taxes and duties would be levied on bio-diesel and bio-ethanol. Clarity on the minimum support price for non-edible oil seeds and also the minimum purchase price for biodiesel shall enable the entrepreneurs to plan and assess financial feasibility of their projects, and ultimately to commercialize it as an industry.
4. R&D thrust: Major thrust would be given to Research, Development & Demonstration with focus on plantations, processing and production technologies. The Policy also envisages development and adoption of new technologies for all the three generations of biofuels. 'First-generation biofuels' are made from sugar, starch, vegetable oil, or animal fats using conventional technology. Second-generation biofuels production processes can use a variety of non food crops such as waste biomass, the stalks of wheat, corn, wood, and special biomass crops. Cellulosic ethanol production uses non food crops or inedible waste products and does not divert food away from the animal or human food chain. The third generation biofuels is a biofuels from algae. Algae are low-input, high-yield feedstock to produce 30 times more energy biofuels. These innovations will result into application of more efficient biofuels conversion technologies based on new feed stocks. These may lead to the commercialization of the industry. Financial incentives, including subsidies and grants, will motivate the industrialists and corporate houses to promote biofuels projects in the country.
5. High Level Committees: A national Biofuel Coordination Committee, headed by the Prime Minister, will be set up to provide policy guidance and coordination And a Bio-fuel Steering Committee headed by Cabinet Secretary will be set up to achieve it.
The transportation sector based on fossil fuels is a major polluting factor. As biofuels are environment friendly fuels, their utilization as additive to fossil fuels can address global concerns about containment of carbon emissions. Further, Biofuels, derived from renewable bio-mass resources, provide a strategic advantage to promote sustainable development and to supplement conventional energy sources. Biofuels can play significant role in meeting the energy needs of India’s vast rural population. It can reduce dependence on import of fossil fuels and thereby providing a higher degree of National Energy Security. The approach of Indian New Policy on biofuels is to use wastelands that are not suited to agriculture. It avoids any possible conflict of fuel vs. food security as it is based on non-food feed stocks. The action plan proposed in the New Policy Document will help the biofuels industry to flourish by attracting new entrepreneurs.