E20 Impact Part-1 | Biz Analysis: It Is Time To Re-evaluate The Actual Economics Of Ethanol Blending Programme
The writer argues for a holistic approach in ethanol blending instead of focusing more on oil imports and forex.
By R Srinivasan
Published : August 31, 2026 at 6:38 PM IST
The debate around India's ethanol blending programme has so far centred solely on the cost to the consumer of ethanol blended petrol(E20). While the consumer continues to pay the retail price for pure petrol, what is actually delivered at the pump is blended with 20 percent ethanol. And since ethanol is roughly 20-30 percent less energy efficient than petrol, there is a consequent drop in efficiency – which consumers calculate as the mileage they get out of a litre of petrol.
Lower mileage means that a greater amount of fuel has to be used. This adds a second layer of costs to the consumer, with a third layer added through possible increased engine damage caused by vehicle fuel management systems which are not calibrated to tackle 20 percent ethanol blended petrol.
Of late, the cost debate has focussed on a different issue. Sugar prices have been rising, that too, on the cusp of India's festival season, when seasonal sugar demand spikes. Opposition parties have charged (albeit without citing empirical evidence) that this is because an increasing amount of sugarcane juice – used to make sugar – is being diverted to ethanol production, thereby reducing output, and hence, higher consumer prices.
The government has refuted this, attributing the increase in sugar prices to output impact caused by climate-change related events. It has also dismissed claims of reduced mileage, citing automobile makers.
The higher costs to consumer argument has been countered with the net savings to the economy due to the ethanol blending programme, which it says will ultimately benefit the economy as a whole. In a fact sheet released in July, the government cited four key numbers to make its case for ethanol blending.
The first was Rs 1.90-plus lakh crore – the amount saved in foreign exchange which would have otherwise gone to import the crude necessary to make the petrol now displaced by ethanol. This figure, by the way, is a cumulative number since the start of the programme in 2014-15. The second number was 310-plus lakh metric tonnes of crude oil substituted. The third was the reduction in carbon dioxide emissions – about 930 lakh metric tonnes less of CO2 produced, since ethanol burns cleaner than petrol. And the final number was Rs 1.60-plus lakh crore, distributed to the farmers who produced the feedstock like maize and sugarcane used to make ethanol(read more on that here).
While there is no disputing the absolute numbers, some nuances have to be considered. For instance, the crude import saving has to be netted off against higher consumption due to reduced mileage. The foreign exchange savings have to be netted off against the foreign exchange used to import fertiliser, as well as feedstock for domestically produced fertiliser, such as natural gas, since fertiliser is a key input for producing the feedstock. And the carbon footprint measure has to be netted off against the carbon footprint for fertiliser, as well as cultivation of water intensive crops like rice and sugarcane.
But one key metric is not being discussed much – the land and water footprint of the biofuel crops.
As per the All India Distillers Association(AIDA), a representative body of alcohol producers in India, sugarcane juice accounts only for a little over 15 per cent of ethanol production. The biggest feedstock, is in fact maize, followed by other grains, and finally, molasses, which is the residue after sugar is produced from sugarcane juice.
India’s current feedstock mix
| Feedstock | Share in Ethanol Allocation |
|---|---|
| Maize | 45.68% |
| FCI Surplus Rice | 22.25% |
| Direct Sugarcane Juice | 15.82% |
| B-Heavy Molasses | 10.54% |
| Damaged Food Grains | 4.54% |
| C-Heavy Molasses | 1.16% |
Source:AIDA
Other than B and C Molasses, which are a byproduct of sugar production, the rest are agricultural crops – which means they need land and water to grow. The political debate has centred around the hot-button issues of mileage and sugar prices. But the real economics of the ethanol blending programme needs to be looked at in the context of land and water. And more importantly, whether there is a better and more efficient way to produce the same desired result.
In a January 2026 article published in OurWorldinData.Org, data scientists Hannah Richie and Pablo Rosado calculated that the world currently uses about 32 million hectares of land to produce biofuels, which are currently meeting around 2.24 per cent of the world's energy demand. Richie and Rosado argued that if we put solar panels on the same amount of land, we could generate 32 terrawatt-hours of energy – about what the entire world consumes in a year. In other words, an area roughly equal to Poland devoted only to solar energy could meet the world's entire energy load.
The Institute for Energy Economics and Financial Analysis developed another metric to calculate the relative energy efficiency of ethanol versus solar. Assuming that solar energy was used to recharge batteries of electric vehicles, and assuming standard efficiency rates for fuel combustion engines versus electric vehicles, IEEFA estimated the distance a vehicle could drive based on solar energy produced from one hectare of land versus ethanol produced from different feedstocks on the same one hectare of land. It calculated that to drive the same distance using solar energy from one hectare of land, it would require ethanol produced from 197 hectares of land.
Of course, reality is more complicated. EVs powered by solar can, in theory, solve the transportation energy problem. But for India, which is lacking in key minerals required for EV batteries, as well as advanced EV battery technology, the challenge is tougher, particularly as China controls between 60-90 per cent of refining and production capacity of critical minerals required for EV batteries.
Nevertheless, solar is by far a more efficient choice. The numbers sound unbelievable but are borne out by well documented energy efficiency studies. Solar panels are between 20 and 80 times more efficient at converting sunlight to energy than plants. This becomes critical, since fuel consumption is rising. According to calculations by Arcus Policy Research, India is using around 8 million hectares of land to produce feedstock for ethanol at current levels – more than the entire cropped area of Telangana.
This has crucial implications on two fronts – food security and water security. Since almost all of India's ethanol is produced from what is called first generation biomass – direct agricultural output and not derivative – water use becomes significant. Rice requires the most water – around 4000 litres per kg of rice, sugar around 3000 litres per kg and maize about half that much. Diverting to ethanol production places pressure on water required for other agriculture and human consumption.
Food security is another issue. Increasing use of maize for ethanol has already caused poultry and animal feed prices to rise, since maize is a key component of such feeds. This has a knock on impact on prices and consumption.
Further, India's foodgrain surplus is caused more by constraints on ability to purchase food rather than a lack of demand. As ETV Bharat reported recently, almost three out of ten children in India are stunted as per government's own data. This is caused by malnourishment due to underconsumption caused by lack of purchasing power.
Clearly, there needs to be a rethink on the true economics of ethanol production and blending for transportation. It would do well to heed what was pointed out in the Economic Survey 2025-26: “From a food security perspective, the implications are non-trivial. Pulses and oilseeds are structurally important to India’s consumption basket and nutritional outcomes, yet they are shifting lower down the priority order for the nation’s cultivators. Over time, this imbalance risks entrenching India’s dependence on edible oil imports and exposing domestic food prices to greater volatility during supply shocks.”
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