“Mandatory ethanol blend in fuel will immediately reduce India’s oil import bill & GHGS”
The Uniao da Industria de Cana-de-acucar (UNICA) is the leading association for the sugarcane industry in Brazil, representing 50 per cent of all sugarcane production and processing in the country. Its member companies are the top producers of sugar, ethanol, renewable electricity and other sugarcane-derived products in Brazil’s South Central region, the heart of the sugarcane industry. In 2018-19, Brazil produced 621 million tonnes of sugarcane, which yielded 29 million tonnes of sugar and 33 billion litres of ethanol. That makes Brazil the world's second largest sugar and ethanol producer, behind India and the United States, respectively. Eduardo Leão de Sous, Executive Director, UNICA shared his views on the global ethanol market and the way forward with Agrospectrum. Edited excerpts;
How is UNICA contributing to the production of biofuels such as ethanol?
UNICA represents around 60 per cent of the total sugarcane and ethanol production in Brazil, a country which has a vast experience in using ethanol for the last 50 years. During these five decades, we have not only highly benefited from the use of ethanol as a fuel on a large scale but have also learnt relevant lessons in terms of addressing appropriate technologies and public policies for ethanol. Consequently, UNICA, together with the Brazilian government, has been working closely with the stakeholders in India and other countries, to share this experience and technology know-how.
Specifically with India, we have had a close relationship for the last 10 years at various levels, from the Indian sugar private sector, represented by the Indian Sugar Mills Association (ISMA) to the automobile industry, Society of Indian Automobile Industry (SIAM), including the government and other major stakeholders.
In this effort, I have personally been in India many times. Last year, for instance, before the mobility restrictions imposed by the pandemic, in mid-march, I had been in Delhi three times. First, in January, together with our presidential mission, during the Republic Day, during which our two governments signed the Memorandum of Understanding to cooperate on clean energies. Then, we came back in mid-february
to participate in the Auto Show, in Greater
Noida, wherein we launched the campaign ‘Bring Back My Blue Sky’ to educate and demonstrate the benefits of ethanol to the environment by reducing CO2 emissions and eliminating particulate matter from the atmosphere. Finally, we have also organised, together with ISMA and the Brazilian government, a summit called ‘Ethanol Talks’ where stakeholders from both countries engaged and debated on the solutions for adoption of ethanol. The blend of ethanol in gasoline, when adopted, through clear and long-term public policies, can provide an instant decrease in Green House Gas (GHG) emissions. Additionally, it has a lot of economic benefits as well such as the reduction of oil import bills. India currently imports 80 per cent of its oil requirements. Brazil used to have a similar situation in the past but, due to the use of ethanol, we have managed to reduce our oil imports to as low as 15 per cent of our consumption.
Brazil has spent the last 50 years improving its production methods and has gone through different public policies and their consequences. This makes us a big testing field, and we are willing to share knowledge and help India and other countries to develop a robust ethanol policy that will go a long way to create a sustainable ecosystem.
UNICA is a part of a recent MOU signed between Brazil and India to develop a robust ethanol policy. How will UNICA help divert the surplus production of sugarcane to produce ethanol in India?
The Memorandum of Understanding (MOU) was signed last year between the two governments (India and Brazil) to promote the use of biofuels and assist India in boosting its ethanol programme. It envisages technical collaboration and exchange of technology in terms of second-generation ethanol and flexfuel automobile engines. In terms of diverting surplus sugarcane in producing ethanol, we can contribute with the Indian government in presenting the Brazilian case study to highlight that it has benefited from a similar diversion. In Brazil, all the sugar mills are attached to distilleries in such a way that they have the option of producing either sugar or ethanol depending on the price ratio between the two products. This is an interesting mechanism to reduce market risks, thus increasing the chance of having better revenue. Such is the benefit and the beauty of this flexibility that ethanol can bring to the sugar industry.
The Government of India has proposed a target of 20 per cent blending of ethanol in petrol and 5 per cent blending of biodiesel in diesel by 2030. What inputs are required to achieve the target of increasing the production of ethanol and biodiesel in India?
Predictability is the name of the game here. The more predictability you have, the higher the chance of having a successful ethanol programme. Clear rules in place will allow investors and entrepreneurs to make their decisions based on the rules that they have now and will have in the near future.
One of these mechanisms is to have a mandatory ethanol blend plan so that the mills will know that the demand will be there. In Brazil, for instance, all petrol has a 27 per cent mandatory ethanol, and this is a fundamental tool to provide predictability.
Another important mechanism is to have a clear pricing and tax mechanism. The government must clearly establish the rules of the pricing and could also consider some tax differentiation between fossil and renewable fuel that recognised the positive externalities of the latter. This is a very important signal to the producers and allows them to plan investments appropriately.
Another important mechanism could be to construct an attached distillery to a sugar mill. Therefore, with these policy mechanisms, the private sector will have the adequate environment to put a plan on investment in distilleries to guarantee the production of ethanol and to provide the required infrastructure for that.
Ethanol-blending is a low hanging fruit for India because all the feedstock, i.e. the sugarcane, and the infrastructure for distribution is already in place. India is currently the second largest sugarcane producer, from which you can extract the juice to produce ethanol. Moreover, the blending of ethanol to gasoline is already taking place in different levels of mixture depending on the region of the country. But the government of India should ensure a 20 per cent mandatory blend all over the country. India has all the conditions required to quickly implement a higher level of ethanol blend.
What is the status of the global ethanol market?
In the case of ethanol, the production is still very concentrated in two countries, Brazil and the US. Together, we produce more than 80 per cent of the total ethanol in the world, the reason why it would be interesting to see other countries producing and consuming ethanol. In fact, this is where India can play an important role and take the lead in Asia. As mentioned earlier,
India has all the conditions required to become an important player not only in terms of ethanol consumption but also in terms of its production.
The steps that India is currently taking are important in shaping its domestic ethanol market but we still must work on the internalisation of the ethanol market. And this should happen in countries that present competitive and comparative advances in production such as the ones in tropical and subtropical regions. If more countries produce ethanol, more countries would be encouraged to promote its consumption, as it would reduce the dependence on just two countries, such as Brazil and the US, in case they need to import the biofuels.
What is the impact of COVID-19 on the global ethanol market and what is the way forward?
The major impact of the pandemic on the global ethanol market was related to isolation measures. Due to the lockdown imposed in the majority of the countries, people stayed at home and did not use cars. The result was a sharp reduction in demand for fuels in general, thus negatively impacting ethanol demand and prices. But with the acceleration of vaccination worldwide and the opening up of economies, the demand for ethanol is already picking up. Another important impact was a better understanding of the negative impacts of the use of fossil fuels on greenhouse gas emissions and air quality. With the lockdown in large cities, there was an impressive reduction of these two pollutants, which reflected in much better conditions for the environment and public health.
What are the opportunities in the biofuel industry in India?
India has all the conditions required to quickly increase the supply of ethanol. It can easily divert the juice that has been used to produce surplus sugar to produce ethanol. This would be a market solution for India’s sugar industry, which currently relies on subsidies to export those sugar surpluses. There are several benefits to adopting and increasing the usage of ethanol.
Firstly, using ethanol as vehicle fuel can eliminate particulate matter in the air, which will reduce air pollution in large Indian cities and thereby the occurrence of lung and heart diseases among citizens. Secondly, it could benefit from the reduction of GHG (Green House Gas) emissions, as it is currently the third-largest emitter of CO2 in the world. Finally, it would also reduce dependence on imported oil, which is currently more than 80 per cent in India, while enhancing the rural economy. All in all, we see a lot of opportunities for India to have a sound ethanol policy. It is a win-win game.