Introduction
India is rapidly emerging as a leading player in the global biofuels industry.
With the aid of high-level political support, coordinated policies, and a large agrarian sector which provides abundant feedstocks, biofuel production in India is soaring along with biofuel consumption. Experts from the International Energy Agency (IEA) predict that by the end of this decade, the biofuels industry in India can triple production and consumption through some targeted interventions.
Whether you’re a domestic player or a foreign one, setting up a biofuel manufacturing plant in India can be a lucrative opportunity with high returns over the long term. This two-part blog article gives you a deep dive into the market potential for biofuel production in India and the trends and opportunities shaping the growth of the industry.
Market potential for the biofuels industry in India
In 2024, industry experts from the IEA reported that over the next half-decade, biofuel demand in India was predicted to rise 38 billion litres – that is a 30% increase compared to the previous five-year period. By 2028, they see total biofuel demand increasing 23% to touch an astounding 200 billion litres! Nearly 50% of this growth, they estimate, will come from renewable diesel (also called hydrotreated vegetable oil or HVO) and bio-jet (SAF), while the remaining growth will be driven by other forms of green fuels like ethanol and biodiesel.
Already, India is the third largest producer and consumer of ethanol in the world. Driven by the tripling of the production of ethanol over the past half-decade, this growth can continue with the right policy interventions, a steady supply of sustainable feedstocks, and better control over the costs of the production of biofuel.
Growth opportunities for biofuel production in India
The Observer Research Foundation (ORF), in its “Mapping the evolution of biofuels in India”, notes that the road transport sector is a cornerstone of India’s economic framework as well as one of the largest oil consumers – in 2021, road transport accounted for 44% of India’s total oil consumption.
Petroleum-based fuels i.e. petrol and diesel meet 95% of Indian road transport’s energy requirements. So alternative energy sources only contribute a very small percentage to the total energy mix. Biofuels share this small space with natural gas, electricity, and other alternative energy sources.
While still a small part of the overall mix, biofuels production in India has great scope for growth, in no small part due to the terrible environmental impacts of traditional fuels.
The transport sector claims responsibility for about 12% of India’s total carbon emissions. Since the turn of the century, the per capita emissions from road transport have increased 2.5x. This situation is underpinned by the country’s large number of motor vehicles – in 2020, India was home to 326.3 million registered motor vehicles – most of which are powered by internal combustion engines.
Biofuels production in India is a massive opportunity primarily because it is imperative in an increasingly polluted country and world. If emissions from the transport sector and its traditional fuels aren’t curbed, carbon dioxide emissions from transport could increase by 60% by the year 2050. Clean, low-carbon, and renewable sources of energy – biofuels being one of the main options – are the need of the hour.
The biofuels industry in India is key to building and maintaining a healthy and safe environment in the country.
Growth opportunities by type of biofuel
Not all biofuels are the same. While they’re all derived from plant- and animal-based materials, they differ in their production processes and their applications. Consequently, the market and growth opportunities for each also differ.
The ethanol industry in India. India is already the third largest producer and consumer of ethanol in the world. This scale has been driven by ambitious targets for ethanol blending set by the country’s government. The pursuit of these ambitious targets is what will drive continued progress for the bioethanol industry in particular and biofuel production in India in general.
To achieve 20% ethanol blending on average across India, the country will require far more vehicles capable of operating on higher ethanol blends. The South Asian country is already encouraging the development of vehicles which are flexible when it comes to fuel type; simultaneously, it is also encouraging retrofits for older vehicles. An important development for biofuel production in India is the completion of a new cellulosic ethanol plant in 2023, with three more in the works.
Opportunities for biodiesel manufacturers in India. After ethanol, biodiesel has one of the most significant roles to play in India’s green fuel transition. Already, the Indian government has instituted a 5% biodiesel target by 2030 – IEA estimates suggest that this would require the production of 4.5 billion litres of biodiesel annually.
Growing the biodiesel industry in India will need a similar approach as the one taken towards ethanol – feedstock support, production support, and guaranteed pricing. Mobilising supply chains for “waste” products like used cooking oils and non-edible vegetable oils like jatropha grown on marginal land can be transformational for the growth and sustainability of the industry.
Opportunities in biojet or sustainable aviation fuel (SAF). Sustainable aviation fuel is an important area of growth for the biofuels industry in India.
In 2023, the Government of India’s Ministry of Oil, Petroleum, and Natural Gas announced blending targets for the fuel – 1% by 2027 and 2% by 2028 for international flights departing from the country. By 2030, biojet fuel blending has the potential to reach 5%.
Projections estimate that this will create a demand of a whopping 100 million litres of biojet fuel every year. In keeping with the need for sustainability, the feedstocks for this massive undertaking will have to come from vegetable oils grown on marginal land and from waste or used oils.
Another potential driver of growth is the emergence and feasibility of using new technologies for the production of sustainable jet fuel. This could include tech like alcohol-to-jet, which uses ethanol and gasification technologies to convert waste from agriculture, forestry, and municipalities into valuable jet fuel.
Essentially, India has the potential to become a key player in the global biojet fuel market, particularly if it persists in its concerted efforts in regulatory support, investments, and development of advanced tech.
In this part of the article, we’ve focused on the different types of biofuels driving current trends and opportunities in the Indian market. In part two, we’ll explore specific governmental interventions encouraging biofuel production in India. Stay tuned.
Biofuel production in India is a great opportunity for many businesses – Indian and foreign alike.
The United States of America’s International Trade Administration has noted that despite some obstacles, the biofuels industry in India presents great opportunities.
Biofuel production in India is held back by limited feedstock availability, significant production costs, and slow technological adaptation. Other hurdles include those that affect all agro-based industries – fluctuating prices of raw materials based on climate and yield, issues concerning water-intensive cultivation to supply the biofuels industry, etc.
Nonetheless, certain restrictions on importing ethanol for fuel blending mean that biofuel production is more profitable if carried out within the country. The US’s International Trade Administration recognises this as an opportunity for American firms specialising in feedstock optimisation, advanced enzyme tech, waste-to-energy solutions, and bio-refinery engineering.
This opportunity aligns with the Indian government’s search for foreign partners with whom to develop second-generation biofuels with converted 2G bioethanol plants, SAF production units, and biogas infrastructure.
Government initiatives supporting biofuel production in India
From bioethanol to biodiesel and sustainable aviation fuel, biofuel adoption in India is increasing thanks to multiple programmes initiated by the government.
The Ethanol Blending Programme. As we’ve already discussed in part one of this article, the market for ethanol in India owes its consistent growth to the country’s ethanol-blended petrol programme. With blending targets as high as 20%, expansions to the programme include greater financial incentives for sugar mills that produce ethanol from sugarcane and maize. The updates to the programme also cover more funding for 2G ethanol plants which rely on agricultural waste, tax benefits and excise duty waivers for businesses in ethanol distribution and logistics, and more streamlined licensing procedures and compliance burdens, particularly for small businesses stepping into the world of bioethanol manufacturing.
The National Bio-energy Mission. The GoI’s Ministry of New and Renewable Energy (MNRE) has a National Bio-energy Mission to bolster biofuel production in India. Under this initiative, the MNRE offers significant financial incentives combined with regulatory support to help biofuel manufacturing plants become operational on accelerated timelines. Not to forget the encouragement for public-private partnerships to drive innovation in advanced biofuels.
Subsidies and other incentives for biofuel production in India
Biodiesel production in India is being incentivised by diverse measures like subsidies for biodiesel refinery plants (particularly those that use non-edible oils like pongamia and jatropha), grants and funding for research into advanced biofuels like algae-based biodiesel, and infrastructural support like dedicated transport corridors and storage facilities for biodiesel. More specifically,
- The central government in India offers capital subsidies of up to 30% of the total project cost for biofuel manufacturing plants, with additional benefits for those working with advanced biofuels and waste-to-energy tech. Biofuel manufacturing plants in semi-urban and rural areas can also avail special financial assistance.
- Biofuel production in India enjoys many tax benefits like GST exemptions on biofuels feedstock and production equipment, income tax rebates for biofuel producers investing in sustainable production, and carbon credits for industries that use biofuel to reduce their carbon footprint.
- In partnership with financial institutions, the government also offers low-interest loans to those involved in the production of biofuel. Biofuel manufacturers, especially if their operations are small-scale, can also enjoy extended repayment periods and government-backed loan guarantees. Support for the rest of the biofuel value chain includes special financing schemes for farmers and cooperatives that supply raw materials that sustain biofuels production.
With its leadership of the Global Biofuels Alliance launched in 2023 and the release of its National Policy on Biofuels in 2018, India has made it clear that it is a force to be reckoned with in the global biofuels industry.
Aided by governmental policies, the production of and demand for ethanol for blending with petroleum-based fuels almost tripled from 2018 to 2023. Its early success on its path towards greater ethanol blending led the Government of India to move up its 20% volume blending target to 2025-26 as per the updated National Policy on Biofuels, 2022.
With over 80% of global biofuel production (particularly for transport) being concentrated in the USA, Brazil, Europe, and Indonesia, the IEA recommends that the Global Biofuels Alliance focus on new markets in addition to existing markets. All signs indicate that India is one of these new, emerging markets in the biofuels industry.
Already, most new biofuel demand is coming from emerging economies including Brazil, Indonesia, and India. Strong policies, growing populations and growing transport fuel demands, and immense feedstock potential can support the continued growth of biofuels production and consumption in these economies.
With wealthy, advanced regions like North America, the European Union, and Japan seeing high adoption of electric vehicles and improvements in vehicle efficiency, the market for biofuels, especially for transport applications, just does not have the potential that exists in emerging economies. High blending costs in some of these markets add further constraints.
This is why markets like India present greater opportunities and more promising trends in the biofuels industry.
If the world wants to achieve its net zero emissions goals, biofuel production would have to triple from now to 2030. Getting on track for this growth would require making our policies more robust, setting new targets, and increasing the use of more diverse fuels, including biojet fuel. Of this additional required growth, a large proportion would come from strengthened policies in India for ethanol and biodiesel.
Ultimately, the market for biofuel production in India is only going from strength to strength. With concerted investments and continued governmental support, the opportunity for biofuel production in this part of the world is unparalleled.
