India’s National Biofuel Policy: Goals, Strategies, and Progress

India imports over 80% of its crude oil needs, spending billions of dollars in foreign exchange every year. This dependence on imported fossil fuels is a persistent strain on the economy, the environment, and national energy security. To address this, India’s government rolled out the National Policy on Biofuels (NPB) 2018 – a comprehensive framework to scale up domestic biofuel production, reduce carbon emissions, and build a more self-reliant energy future. Since then, the policy has been amended and accelerated, with India now approaching a landmark it once thought was years away.

Overview of India’s biofuel policy 🔗

The National Policy on Biofuels was first introduced in 2009 and significantly revised in May 2018 under the Ministry of Petroleum and Natural Gas. The 2018 version set a clear directional shift: move beyond simply promoting biofuels and build an entire ecosystem for their production, distribution, and use.

At its core, the policy aims to utilize, develop, and promote domestic feedstock for biofuel production, to increasingly substitute fossil fuels while contributing to national energy security, climate change mitigation, and new employment opportunities. The original blending targets set under NPB 2018 were 20% ethanol in petrol and 5% biodiesel in diesel by 2030.

One of the policy’s most important structural moves was how it classified biofuels. The policy categorizes biofuels as “Basic Biofuels” – covering first-generation (1G) bioethanol and biodiesel – and “Advanced Biofuels,” which include second-generation (2G) ethanol, Municipal Solid Waste (MSW) to drop-in fuels, third-generation (3G) biofuels, and bio-CNG, enabling targeted financial and fiscal incentives for each category. This tiered approach was a significant shift from earlier policies that treated all biofuels similarly.

The policy also expanded the raw material base for ethanol production. It allowed the use of sugarcane juice, sugar-containing materials like sugar beet and sweet sorghum, starch-containing materials like corn and cassava, and damaged food grains such as wheat, broken rice, and rotten potatoes unfit for human consumption. This diversification was designed to reduce dependence on any single crop and improve feedstock availability throughout the year.

Then, in June 2022, the government amended the policy to advance the deadline to reach the 20% bioethanol blending target from 2030 to 2025-26, and to make additional feedstocks eligible for biofuel production.

Policy incentives: making biofuels economically viable 🔗

A policy without financial backing rarely moves far. The NPB 2018 came with a structured set of incentives designed to attract investment from both the public and private sectors.

Viability gap funding for advanced biofuels 🔗

Second-generation biofuels, which are produced from agricultural residues and non-food biomass, are more technically complex and costlier to produce than first-generation biofuels. To bridge this gap, the policy indicated a viability gap funding scheme of ₹5,000 crore over six years for 2G ethanol bio-refineries, along with additional tax incentives and a higher purchase price compared to 1G biofuels.

Tax reduction and financial support 🔗

One of the more practical moves was reducing the GST burden on ethanol. The Goods and Services Tax on ethanol was reduced from 18% to 5%, which helped lower production costs and encouraged higher ethanol production and blending. Earlier, the high 18% GST had made biodiesel more expensive than conventional diesel, directly hindering blending targets.

Financial institutions were also brought in to support the ecosystem. Institutions like NABARD, IREDA, and SIDBI were designated to provide loans and refinancing options to both farmers and biofuel enterprises.

Foreign direct investment and domestic priority 🔗

The policy allows 100% Foreign Direct Investment (FDI) through the automatic approval route in the biofuel sector, as long as biofuels produced are used only for domestic consumption. This provision signals India’s openness to international capital and expertise, while keeping energy security as the priority.

Long-term offtake agreements and pricing assurance 🔗

Public Sector Oil Marketing Companies (OMCs) signed Long-Term Offtake Agreements (LTOAs) that ensured steady demand, timely payments, and market stability for dedicated ethanol plants. The assured pricing mechanism under the Ethanol Blended Petrol (EBP) programme gave distilleries the confidence to invest in capacity expansion – and they did, significantly.

Impact on energy and environment 🔗

The biofuel programme has produced measurable environmental and economic results. According to government data from India’s Press Information Bureau, over the past decade, the Ethanol Blended Petrol (EBP) programme delivered foreign exchange savings of ₹1,06,072 crore, reduced CO₂ emissions by 544 lakh metric tons, and substituted 181 lakh metric tons of crude oil between 2014 and August 2024.

The connection between biofuels and emissions is straightforward. Every crore litres of E-10 petrol saves around 20,000 tonnes of CO₂ emissions. For the ethanol supply year 2017-18 alone, CO₂ emissions were reduced by 30 lakh tonnes. As blending percentages rise, these savings scale proportionally.

Beyond direct emissions, the policy also addresses waste. India generates approximately 62 MMT of Municipal Solid Waste annually. Technologies exist to convert such waste, including plastics and MSW, into drop-in fuels, with one tonne of waste yielding around 20% drop-in fuels. Converting waste to fuel directly reduces landfill burden and the methane emissions associated with decomposing organic matter.

The policy also has a public health dimension. Prolonged reuse of cooking oil is a known health hazard. Used Cooking Oil is a potential feedstock for biodiesel, and its diversion into fuel production prevents it from being recycled back into the food supply chain.

India’s biofuel push aligns with its international climate commitments. At COP26 in Glasgow, India committed to enhancing its renewable energy capacity to 500 GW, installing 50% of its power from renewable sources by 2030, and reducing emission intensity of the economy by 45% by 2030 – with a target of carbon neutrality by 2070. Biofuels are a key part of reaching these goals, particularly in the transport sector where electrification is still limited.

India’s progress and future outlook 🔗

The trajectory of India’s ethanol blending programme is one of the more striking clean energy success stories in recent years. Progress was initially slow – only 2% ethanol blending was possible between 2007 and 2009, and blending stood at just 3.5% in 2015-16. But since then, the momentum has been dramatic.

Public Sector Oil Marketing Companies achieved the 10% ethanol blending target in June 2022, five months ahead of schedule. Blending then rose to 12.06% in ESY 2022-23, 14.60% in ESY 2023-24, and 17.98% in ESY 2024-25 as of late February 2025.

The most recent milestone is historic. India’s Minister of Petroleum and Natural Gas announced that the country has met its 20% ethanol blending goal five years ahead of schedule – a target that was originally set for 2030. This achievement places India among a small group of nations to have successfully scaled ethanol blending to this level in its transport fuel mix.

The production capacity to support this has also grown rapidly. India’s ethanol production capacity more than doubled in four years, reaching 1,623 crore litres as of September 2024. The government’s Roadmap for Ethanol Blending 2020-25, published by the International Energy Agency, provided the operational blueprint for this expansion, covering feedstocks, capacity, and infrastructure.

The road beyond E20 🔗

Having reached E20 ahead of schedule, India is already planning the next phase. A dedicated committee is exploring pathways to push blending rates beyond 20%, and the government has signalled its intent to deepen ethanol’s role in the energy transition. Discussions are also underway on biodiesel blending mandates, compressed biogas, and even renewable methanol.

However, challenges remain. Biodiesel has lagged significantly behind ethanol – current biodiesel blending stands at nearly 0.5%, well short of the 5% target by 2030, and formal blending mandates are expected within one to two years as production scales up. Feedstock security for ethanol also presents a concern, particularly as increased demand for maize in ethanol production has driven up prices and created domestic supply shortfalls, making India a net importer of maize in recent years.

The Centre for Social and Economic Progress has also highlighted that vehicle fleet compatibility, regional supply chain gaps, and the water-intensity of sugarcane-based ethanol production need to be addressed as blending deepens. Still, the overall direction is clear – India is systematically building a biofuel economy, and the pace of implementation has exceeded expectations.

The NPB 2018 and its subsequent amendments represent more than just an energy policy – they reflect a deliberate strategy to reduce import dependency, manage agricultural surpluses, cut emissions, and create rural livelihoods, all through a single, integrated framework. The results so far suggest the approach is working.

What do you think? As India looks beyond E20 and considers even higher blending targets, how should it balance the competing demands of fuel security and food security – especially given the growing pressure on crops like maize and sugarcane? And with biodiesel still far behind ethanol in adoption, what structural changes would be needed to bring it up to speed before the 2030 target?

References

1. https://www.pib.gov.in/Pressreleaseshare.aspx?PRID=1532265
2. https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=153363&ModuleId=3&reg=3&lang=1
3. https://www.iea.org/policies/17006-national-policy-on-biofuels-2022-amendment
4. https://csep.org/blog/ethanol-blended-petrol-progress-challenges-and-untapped-potential/