Biofuels in India – a unique opportunity
A recent report from the IEA stressed the crucial role of emerging economies in reducing CO2 emissions, as their growing demand for energy creates a unique opportunity for them to be early movers in deploying low-carbon technologies. The Indian government is very keen to seize this opportunity with the establishment of the country’s biofuels industry. Biofuels are not just good for the climate, they also create jobs, a fact recognized by Nitin Gadkari, Indian Minister of Road, Transport, Highways and Shipping, who recently described biofuels as “socio-economic change agents”.
The emergence of biofuels in India has been an uphill struggle that’s slowly getting easier. India’s vast agricultural sector is a source of abundant biomass but the complex process of collecting biomass from dispersed farmland that is almost entirely owned by smallholders is further complicated by a lack of roads between villages. There is also a lack of biomass collection or storage incentives. In recent months, however, the government has started to identify and address infrastructure and inter-state trade hurdles, while supporting farmers and laying plans for better use of feedstock and agricultural waste. These are vital steps as the country seeks to prioritize biofuels, allowing it to reduce its dependence on petrol and diesel imports, create jobs and minimize its carbon footprint.
Legislating for the right conditions
The IEA report highlighted the role of governments in stimulating action to target climate change, stating that the establishment of policy and market frameworks that support innovation and build investor confidence over the long term are a ‘first-order task to deliver’. In the case of Indian bioenergy, the emergence of a dynamic industry depends largely on country-wide mandates and coherent and innovative policies. The Indian government seems to recognize this; the country has had an E5 ethanol mandate since 2008 and is scheduled to move to E10 as soon as production allows, with a goal of 20% biofuels blended in transport fuels by 2017. And the government recently announced plans to strengthen its flexible-fuel policy for the automotive industry. As a first step, it plans to make an ethanol blend of up to 85% mandatory for petrol and diesel-powered commercial vehicles nationwide, with the aim of eventually introducing the mandate to other segments.
While these are very positive steps in the right direction, investors need the reassurance of clear, long-term mandated targets. India currently lacks a penalty mechanism to ensure the strict enforcement of mandates, creating an obstacle to behavioral change and a perceived investment risk. The mandate for ethanol blending needs to increased immediately, a roadmap to achieve the 20% level in the next three to five years has to be formulated, and these mandates need to be given ‘teeth’ through penalties on non-compliance.
Creating a common platform for change
There is no doubt that biofuels do have the potential to really change the face of energy in India. According to a recent report from BBVA, the country currently imports 80% of its crude oil requirements, with oil imports accounting for nearly 32% of its total import bill. Yet an analysis from Bloomberg found that the country could save $19.4 billion a year by replacing gasoline imports with ethanol by 2020. But the interest in developing a cellulosic biorefining industry goes beyond the energy sector to include the chemical industry among others. The government has a key role to play in kickstarting the industry by bringing together all stakeholders with a potential interest in unlocking the full potential of cellulosic biorefining. These stakeholders need a common platform to address varying concerns about availability and cost and reach a consensus on pricing and usage of cellulosic biofuels and bioproducts.
Stimulating the rural economy
It is essential that we overcome the challenges faced by the Indian biofuel industry if it is to reach its full potential and become an agent of social change, especially in rural areas. The Bloomberg analysis estimates that up to one million aggregated jobs in predominantly rural areas could be created by the Indian cellulosic ethanol industry by 2020. Bioenergy is already creating jobs in and around Nagpur in central India today, where more than 15,000 young people are employed in converting agricultural waste into pellets that can be used as cooking fuel in over 1,000 restaurants with special stoves. And these pellets offer other benefits; they represent a significant saving for consumers as they cost 60% less than conventional cooking fuels, and – as the waste was previously burned by farmers – they help to reduce the public health problems associated with this practice.
Bold plans for the future
The Indian government has already shown the kind of innovation – both in terms of policy and in technologies – that the IEA report claimed could ‘deliver greatest, fastest advances towards climate change goals’, and it has similarly bold plans for the future, with proposals and plans including:
- ‘greening’ Haldia port in Eastern India, with biodiesel made at a plant which has just come online fueling its railway engines, trucks and other vehicles
- introducing biofuels – along with electricity – into New Delhi’s public transport fleet
- running Nagpur city buses on biogas produced with the help of methane generated while treating sewage water
The importance of emerging economies in reducing CO2 emissions cannot be overstated. According to the IEA, their uptake of innovative processes accounts for almost three-quarters of the worldwide direct industrial CO2 emissions reduction required in 2050 to give an 80% chance of limiting average global temperature increase to 2°C. I believe India’s biofuels industry is a great example for other emerging economies, proving that – with real commitment from governments – tackling climate change can have a positive impact at a global, national and local level.