A fuel for the future, or a faulty policy?

Along with its own announcements on the subject, it also fielded a volley of questions in the ongoing session of Parliament. In one of those responses, the government clarified there was no decision yet to go beyond 20%, but media reports said a 27% blend was the next step under consideration. All these discussions have reopened old fault lines.

In a developing country like India, where a vehicle is a significant purchase and has a long lifespan, E20 fuel (signifying 20% ethanol) has caused concern. Owners of vehicles of older vintage, especially before Bharat Stage-VI became the emission standard in 2020, worry that their engines were built for pure petrol and not blends, and E20 will lead to higher wear and lower fuel efficiency. They also argue that they neither get a choice of fuel nor a lower price on blended fuel.

Those in charge of policy argue that the benefits are greater. Ethanol reduces the dependence on crude oil (which India mostly imports), gives farmers a supplementary income and leads to lower emissions. A June 2021 Niti Aayog study, while acknowledging a drop in fuel efficiency, added that significant environmental gains because of lower emissions from blended fuels made the transition worth pursuing in the long run.

Manufacturers’ concerns

According to the same Niti Aayog study, a 1-7% drop in fuel efficiency was seen in four-wheelers using E20 fuel, based on whether the vehicles were designed for 10% ethanol blending or zero blending. At the time, industry representatives had recommended making petrol with 10% ethanol as a protection-grade fuel for existing vehicles.

The Society of Indian Automobile Manufacturers (Siam), a prominent industry grouping, had said that legacy vehicles would suffer “material degradation, which could lead to fuel seepage/leakage and hence a safety issue”. It also argued against retrofitting in older engines. Siam said it was a “practically impossible task considering the larger population of existing vehicle variants, parts design and development issues, cost of retro-fitment and finally customer experience”.

By late 2021, India had achieved 8.1% ethanol blending in fuel. By July 2025, this figure stood at 19.1%.

Capacity expansion

India’s ethanol production has tripled between 2018 and 2023, making it the world’s third-largest producer and consumer of ethanol, according to the International Energy Agency (IEA), an international intergovernmental agency that provides data, policy recommendations and analysis on the energy sector. The number of distilleries has increased from 373 in 2021-22 to 499 in 2024-25. Installed capacity has increased at a faster clip than supply.

Despite the chagrin of older vehicle owners, ethanol blending is here to stay. One reason consumers are peeved is that they have not benefited from the ethanol blending policy through lower prices. An example of that happening is Brazil, where 27% ethanol is the blending norm. Latest prices in Brazil show that this blended fuel is about 33% cheaper than pure petrol. 

In India, however, the blending is enforced at the refinery level. Even if separate variants are sold, they are not priced differently.

Crop diversification

Amid the debate, the ethanol industry has not only expanded capacity, but it has also diversified the crop residue it uses for production. Even when it started picking up pace in India, ethanol was principally being produced from sugarcane byproducts. In 2019-20, when India achieved ethanol blending of about 5%, the contribution of the sugar-based source was about 91%.

However, grain-based sources, notably maize, have picked up smartly in recent years. In 2023-24, grain-based sources accounted for 60% of ethanol. This year, until 30 June, the share was about 40%. The share of maize in both these years in ethanol production was 41-42%. According to the government, an amount of ₹1.21 trillion has been transferred to farmers since 2014 for purchases of crop residue. Further, it says, there has been an import substitution of 23.8 million tonnes of crude oil because of ethanol blending during the same period. All reasons for it to continue blending.

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