National Policy on Biofuels 2018: A laudable effort to promote Greener Fuels

India is one of the fastest growing economies in the country with an ever-increasing requirement of energy consumption. Since, India is largely dependent on import of non-renewable sources of energy to fulfil its energy requirements, which not translates into huge burden on the balance of payment situation but also negatively impacts our fight against climate change, identifying and using alternative sources of energy assumes great significance.. The Government of India (“GoI”) has been encouraging the use of alternate fuels and form of energy creation rather than just the conventional means such as coal and wood for a while now. The production and use biofuels is gradually gaining momentum in India.

As per the Alternative Fuels Data Centre, which works under the aegis of the U.S. Department of Energy, there are some very tangible benefits of using biofuels as compared to using the conventional fuels. Some of the apparent advantages of biofuels is as follows:

• Biofuels release lessor emissions in the air, thereby resulting in lesser air pollution.
• Biofuels improve the efficiency of the engine.
• The severity of damage caused to environment by spilling of biodiesel is far less when compared to normal petroleum products.

Seized of the matter and keeping its long term energy needs in mind, the GoI, on June 04, 2018, brought out a policy titled “National Policy on Biofuels-2018” (“Policy”). The Policy demonstrates definitive intent on the part of the government to promote the production and usage of biofuels in the country.  This primer summarizes the key points of the Policy.

The Policy defines ‘biofuel’ to mean fuels produced from renewable resources and used in place of or in blend with, diesel, petrol or other fossil fuels for transport, stationary, portable and other applications. Under the Policy, the biofuels are categorized as follows:

• “Basic Biofuels” viz. First Generation (1G) bioethanol & biodiesel;
• “Advanced Biofuels” – Second Generation (2G) ethanol, Municipal Solid Waste (MSW); an to; and
• “Drop-in fuels” or Third Generation (3G) biofuels, bio-CNG etc. to enable extension of appropriate financial and fiscal incentives under each category.

Steady supply of raw materials is one of the key issues for promoting production and usage of biofuels. Keeping that in mind the GoI, has proposed to ensure availability of biofuels from indigenous feedstock. As a step in this direction, a ‘National Biomass Repository’ is proposes to be created by conducting appraisal of biomass across the country. In this regard, the Policy emphasizes on the following:

• Identification of locations with surplus available biomass and generation of feedstock such as energy grasses and short gestation crops by utilizing wastelands will be pivotal for promoting Industrial set up. Focus shall be laid on identifying surplus biomass pockets in the country.

• Village Panchayat and communities will play crucial role in augmenting indigenous feedstock supplies for biofuel production. In cases relating to usage of wastelands for feedstock generation, local communities from Gram Panchayats/ talukas will be encouraged for plantations non-edible oil seeds bearing trees/ crops. Such trees and crops will also be planted in wastelands for generating additional feedstock for bioethanol production across country.

• Farmers will be encouraged to grow variety of different biomass as well as oil seeds on their marginal lands, as inter crop and as second crop wherever only one crop is raised by them under rain fed conditions.

• Suitable supply chain mechanisms, feedstock collection centres and fair price mechanisms for the engaged community will be developed in coordination with Local Bodies, States and concerned stakeholders.

Under the Policy, the GoI has laid out the following key implementation proposals:

• Government will consider declaring oil expelling/extraction and processing units for production of biodiesel and storage and distribution infrastructure for biofuels as a priority sector for the purpose of lending by financial institutions.
• Joint ventures and investments in the biofuel sector would be encouraged. 100% Foreign Direct Investment (FDI) in biofuel technologies would be encouraged through automatic approval route provided biofuel so produced is for domestic use only.
• Government will consider extending financial incentives including viability gap funding, subsidies and grant for biofuels.
• Incentivizing the nascent “Advanced Biofuel” industry with fiscal incentives in the form of tax credits, advance depreciation on plant expenditure, differential pricing vis-à-vis 1G Ethanol, Viability Gap Funding (VGF) etc. for encouraging stakeholders to set up 2G Ethanol Bio refineries.

With regard to distribution and marketing of biofuels, the Policy provides that initially only the oil marketing companies would store, distribute and market biofuels. They will be primarily responsible for maintaining and improving the storage, distribution and marketing infrastructure to meet the requirements of biofuels. Other players may be involved in distribution and marketing of biofuels at a later stage.

To ensure that the local market of production of indigenous biofuel is not adversely impacted, the Policy proposes an embargo on the import of biofuels. Also as the domestic biofuels availability is much lower than the country’s requirement, the Policy prohibits export of biofuels.

Interestingly, the Policy also envisages creation of Biofuel Policy Institutional Mechanism at the center as well at the state level. A National Biofuel Coordination Committee (NBCC) headed by the Minister, Petroleum and Natural Gas is also contemplated wherein the representatives of other concerned ministries would also be the members.