Ethanol: A practical idea?

When the late H N Bahuguna was minister for petroleum in the late 1970s, he had set up a committee to go into the entire gamut of issues associated with the production of ethanol as a fuel from sugarcane. Like most such reports, with changes in the government, this report also got buried in the mounds of paper archived in the system. In essence, the use of ethanol as a fuel for transportation is a promising prospect, but the subject has to be seen in a much larger context and as part of a longer term strategy. There are important macroeconomic implications arising out of ethanol production and use, which affect not only the farmers of sugarcane but also those who produce other crops. One of the implications of the larger sugarcane production, which I had investigated several years ago, was the inevitable reduction of area under production of other foodgrain crops. The example of Brazil is often put forward as a success story in large-scale production and use of ethanol as a fuel, but the truth is that Brazil has a large area of land and climatic conditions that are conducive to large-scale production of sugarcane. It must also be remembered that in periods of low oil prices in the global market, the government of Brazil has had to provide huge subsidies to keep the programme alive. There have also been periods when farmers and sugar producers have found it more lucrative to export sugar than to divert sugarcane for ethanol production. In fact, this has happened to the detriment of other producers of sugar, because large-scale exports by Brazil have led to a fall in global sugar prices. Ethanol as a fuel has several merits. Firstly, it is a good replacement for lead in gasoline and those countries where unleaded gasoline is still is use, blending of ethanol with gasoline would eliminate the need for providing lead additives. Besides, as an indigenous fuel, it can provide some measure of energy security. Several countries in the world have had ethanol programmes with different measures of success. During the Second World War, ethanol was used as a fuel in both the United States as well as in Europe. Henry Ford's earliest automobile designs were suitable for use with ethanol, including the famous Model-T. Ethanol can be used in unmodified engines of current design at volume concentrations of up to around 25 per cent, but for use as a pure fuel in cars, minor engine modifications would be required as has been done in Brazil. Estimates of the cost of production of ethanol in Brazil are about 21 cents per litre. The Brazilian programme was instituted in 1975 in the wake of the first oil price shock of 1973/74. In the US also, the Clean Air Act of 1990 has mandated the use of some ethanol in fuels, and the programme received Federal tax exemptions as well as several state-level incentives. However, in the US, fuel ethanol is produced from corn which is much more expensive than production from sugarcane. As a result, production costs in the US have ranged from about 20-50 cents per litre. Europe has much lower quantities of ethanol production for fuel purposes. South Africa has had success in producing ethanol from coal in the famous Sasol process. In the case of India, there is need to carry out a comprehensive study of sugar production and the conversion of ethanol for use as a fuel on a nationwide basis. Undoubtedly, states like UP would have a major stake in such a programme, but it is likely that if the prices are attractive, other parts of the country could switch to sugarcane production as well. The recent decision of the government, whatever be the political compulsions behind it, would perhaps be a useful pilot for a larger thrust in the future. Typically, about 70 litres of ethanol can be produced per tonne of cane, although higher yields have been reported from Brazil. The benefits from an ethanol programme to India could be the stabilisation of sugarcane prices, and benefits in terms of energy security if the programme is expanded significantly. But it would be shortsighted to take this step on a large scale without a detailed study of its macroeconomic and longer-term implications.