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Informist, Friday, Sept. 26, 2025

 

By Pallavi Singhal

 

NEW DELHI – India on Wednesday opened the door to exporting second-generation ethanol. The move is less about securing a compelling price for the exports and more about positioning itself in the emerging carbon credit market. By encouraging waste-to-fuel production, the government hopes to make 2G ethanol a tradable asset linked to emissions savings, turning discarded crop residue and biomass into a globally marketable decarbonisation tool.

 

"This is a policy indication – telling industry to develop and export," a senior government official said. "Till now, we had technology, but no price and market. Now, we have given them freedom to produce, find a market, export, and get a price." 

 

CARBON CREDITS

A carbon credit is a tradeable permit, representing the reduction or avoidance of one tonne of carbon dioxide emission into the atmosphere. Because 2G ethanol is produced from waste such as rice husk, stubble, bamboo, or other biomass that would otherwise decay or be burnt, it delivers measurable carbon savings. Indian producers can export 2G ethanol to markets like the European Union or sell the accompanying carbon reduction benefits once a domestic trading system is institutionalised. Buyers, particularly in regions with mandated decarbonisation targets, will pay for the credits to offset their own emissions, according to a senior official of an international trading firm, who requested anonymity.

 

TECHNOLOGY WITH NO MARKET

For years, India's biofuel ambition has been defined by first-generation or 1G ethanol, made largely from food crops such as sugarcane and maize. While this helped build blending capacity in petrol, it stoked concerns about food security in years of poor harvest and offered little environmental breakthrough. "1G ethanol is very kharif crop-based and one bad crop year will force India to import to be able to continue its blends," said agricultural economist Deepak Pareek.

 

Second-generation ethanol, by contrast, is produced entirely from waste – agricultural husk, stubble, or even bamboo – promising both greener credentials and a resolution to the food-versus-fuel dilemma. Yet, despite policy talk, India has almost no production on the ground today, industry and government sources say. 

 

Currently, the country has just one operational 2G ethanol facility – the Indian Oil Corp. plant in Panipat, which has been lying dormant since its inauguration in 2022. Technical troubles have hampered operations, but officials say these have now been resolved, with the facility expected to finally go onstream by December.

 

A second recently inaugurated Oil India-operated plant at Numaligarh in Assam, designed to produce ethanol from bamboo, is also in the works. However, as the government admits, the real barrier has been economics.

 

HIGH-COST HURDLE

Unlike 1G ethanol, 2G is expensive. Depending on feedstock, production costs range from INR 150 per litre for biomass to nearly INR 200 per litre for that being produced by bamboo, according to the government official. Globally, ethanol sells for much cheaper—Brazil and the United States can turn out a litre of 1G ethanol at around INR 45, the government official says.

 

"At such costs, it becomes unviable as the customer will only look at cost efficiency," the official explained. This is where carbon credits come in. By allowing exports, the government expects Indian producers to tap into international buyers who value sustainability credentials over cost. "Once India formalises its domestic carbon credit market, producers will have both a price and steady demand, which in turn could lead to scale-driven cost reduction," the official said.

 

GLOBAL DEMAND

Countries in the European Union, which insist on climate-friendly fuel imports, are expected to form India's first international market. "We foresee a big market in the future. These steps are important for India to realise their net zero goals," the official said.

 

A senior industry official, speaking on condition of anonymity, cited the example of Raizen, a Brazil-based ethanol producer that is currently the only company globally producing ethanol from 2G sources. Raizen sells its entire supply to the EU, demonstrating that there is existing demand for 2G ethanol in certain markets, provided India can ramp up production to meet this need.

 

1G EXPORTS

The industry has viewed the government's decision to allow G2 ethanol export as a symbolic step that could eventually extend to the opening of 1G ethanol exports too. However, the government official poured cold water on the idea, terming this "illogical." "I understand the industry has higher production capacity than what we are making right now, but it does not mean exports will be a good idea. There is no market parity," the senior official said, pointing to Brazil and the US where significantly lower costs make Indian exports uncompetitive. "When our cost begins from INR 57 onwards, how will they find a market? It is illogical to suggest the opening of 1G exports".

 

TOWARDS NET ZERO

For now, the government insists that the opening up of 2G ethanol exports is less about near-term gains and more about reshaping the sector. By encouraging waste-to-fuel technologies, it hopes to not only diversify India's energy basket but also showcase leadership in low-carbon pathways worldwide.  End

 

Edited by Avishek Dutta

 

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