India steps up push for ethanol as fuel, automakers seek differential pricing

New Delhi: The Union government is assessing the automobile industry's readiness to build vehicles powered by biofuels such as 100% ethanol (E100), even as the industry wants their prices to come down to make a smooth transition, two people with direct knowledge of the matter said.

Ministries of road and petroleum separately met with industry executives this month to nudge them to make the shift, the people cited above said on the condition of anonymity. Union road minister Nitin Gadkari and petroleum minister Hardeep Singh Puri chaired the two meetings respectively.

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Automakers are stepping up as well. Seven two-wheeler makers are preparing to launch at least one flex fuel vehicle each by the end of 2024, and five passenger vehicle makers plan to do so by late 2025 or early 2026, one of the two people cited above said.

Automakers pressed for lower prices or tax incentives for a smoother transition to ethanol, which is seen as vital to reducing the reliance on fossil fuels and curbing carbon emissions, the person said. The automakers also highlighted the need for differential pricing based on ethanol's energy content. For instance, they want E85 fuel, which contains 85% ethanol, to be about 35% cheaper than E10 that is currently mandatory, to ensure parity in running costs.

The petroleum ministry is reviewing requests for cheaper ethanol; while no official decision has been made, industry executives are pinning hopes on price support or subsidies to align ethanol costs with petrol, which would make blended fuels more competitive.

Queries emailed to spokespersons for the road and petroleum ministries remained unanswered.

Government's ethanol-flex fuel strategy

The Indian government is actively promoting ethanol as a cleaner alternative to fossil fuels, targeting a 20% blend in petrol by 2025, up from the existing 10%. Indian Oil Corp. Ltd, the leading fuel supplier in the country, has opened 400 E100 fuel stations by February 2024 across Uttar Pradesh, Tamil Nadu, Maharashtra, and Karnataka, building an infrastructure essential to enhance the accessibility of ethanol and support the wider adoption of flex-fuel vehicles.

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Flex-fuel vehicles (FFVs) are fitted with combustion engines that can run on more than one type of fuel. Typically, they can operate on a blend of petrol (gasoline) and ethanol, ranging from pure gasoline (E0) to ethanol-blended fuels such as E85 (85% ethanol and 15% gasoline) or even pure ethanol (E100).

E100 can substantially bring down emissions, but challenges remain, particularly regarding fuel efficiency. Automakers argue that lower ethanol prices are necessary to make flex-fuel vehicles cost-effective for consumers, given the higher fuel consumption associated with ethanol's lower energy content.

What automakers are seeking

One key request is a reduction in the Goods and Services Tax (GST) on flex-fuel vehicles, especially for two-wheelers which are ubiquitous in India. Lower taxes would help balance ethanol's reduced efficiency and make flex-fuel options more affordable for consumers.

Meanwhile, the road ministry too has pushed for tax breaks on so-called strong hybrid vehicles that combine combustion engines with electric power, which can reduce fossil fuel dependence and emissions, serving as a transitional solution while the ethanol infrastructure develops.

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“Automakers are also being encouraged to produce flex-fuel vehicles capable of running on E100, anticipating a more extensive fuel network. However, until this infrastructure reaches a critical mass, the transition to ethanol will likely remain limited to select regions", the person cited above said.

Adopting cleaner fuels like E100 will also help automakers meet the government's stringent CO2 reduction norms.

India's push towards ethanol-blended fuels is a crucial element in its efforts to reduce emissions and fossil fuel dependence. With Indian Oil taking the lead by establishing E100 stations, the groundwork is being laid for a broader transition.