Heightened political worries about climate change, energy security and soaring oil prices have triggered a race to produce ethanol and biodiesel. Governments offer subsidies, tax breaks and set targets for minimum amounts that must be blended with fossil fuels. Some analysts say the key driver is not so much the environment as an attempt to keep powerful farm lobbies content, particularly locally Maharashtra, Andhra and Northern states, and globally the European Union and the US, and avoid tougher political decisions such as cutting energy demand.The EU, the world’s biggest biodiesel producer, has set usage targets for 2010 but there is no real clarity from member states over how to achieve them, with some intending to scrap existing tax breaks and move to compulsory blending.The US has targets running until 2012 but uncertainty over long-term policies remains."If you are a large company how do you make an investment decision when the rules of the game are not clear in the longer run?" The need for consistent, long-range policies is even more important as most biofuels cannot survive without government support. They are still uneconomic in developed countries and hefty tariffs and transport costs weigh on imports.

"Biofuels will not grow unless they are being forced upon producers or there is a tax incentive. Ethanol, for which production more than doubled from 2000 to 2005, comprised only 2% of the world’s petrol supply last year, IEA data showed. Biodiesel expanded nearly fourfold but its share of diesel supplies reached a meagre 0.2%.Another major risk to investors who have been eager to jump on the biofuels bandwagon is a lower oil price. Record levels of about $78 a barrel earlier this year raised a fuss about green fuel, with shares in some US clean energy companies’ gaining over 150% in the year to this summer, despite the firms reporting losses. But with oil prices falling below $65 in the past month, investors’ confidence has waned. A slump in the price of fossil fuels would have a detrimental effect on global biodiesel demand.Projects for new plants are mushrooming around the world, raising the risk of greater competition for land and feedstock, which can lift prices of biofuels and food. Analysts said insufficient feedstock and the threat of biodiversity and environmental damage, particularly in regions with tropical forests, are major constraints to large-scale production of first-generation biofuels.

A rise in global biodiesel share to 2% of the total amount of diesel used in transportation would completely deplete current vegetable oil stocks. "Biofuels can give a substantial contribution only when a second generation enters the game. The only exception is Brazil, where biofuels are already playing a role.The new technology is likely to take another 10-15 years to enter the market and analysts agree it would take hold only if it is part of a major world strategy to reduce transport fuel consumption and apply strict environmental rules.The emergence of a global market also is a necessary condition, which can benefit exports from developing countries with low production costs. But subsidies mean that developed countries are likely to keep blocking cheaper imports. Despite the uncertain future, some analysts are convinced that biofuels have reached a point of no return."The question is not whether to invest but where to invest. I would do it in a poor country growing sugar cane with free access to Europe.

Minister, secretary and almost all oil company CEOs have expressed their willingness and commitment in implementation of bio diesel marketing in the country. But we all know intentions are not enough and it needs to be followed up with the actions. Traditionally we lack this ability to convert the intentions in solid action. It is immaterial whether it is a game like Cricket, hockey or bio diesel.

The Government of India is considering to extend tax incentives like excise and import duty exemption to promote use of biodiesel and ethanol in auto fuels in order to slash down India’s import dependence to meet its fuel needs.The Ministry of New and Renewable Energy in its draft note for the Cabinet proposes excise duty exemption to biofuels in pure as well as blended form up to a certain percentage, with a view to lowering price of the biofuel for the end user. It also proposed custom and excise duty exemption to plant and machinery used for processing oil seeds for biofuel production, official sources said.

The ministry of non-conventional energy sources, now re-christened as ministry of new and renewable energy, in the draft National Policy on Biofuels has suggested a slew of fiscal incentives and a National Biofuel Development Board headed by Prime Minister Manmohan Singh to promote doping of petrol with ethanol and diesel with non-edible oil.Official sources said the ministry’s draft note for the Cabinet proposes excise duty exemption for biofuels in pure as well as blended form up to a certain percentage, with a view to lowering price of biofuels for the end user. It also proposed Customs and excise duty exemption for plant and machinery used for process oil seeds for biofuel production. The National Biofuel Development Board, being headed by Prime Minister, Manmohan Singh, would also prepare a national road map on bio-fuel in petrol and diesel engines in a time-bound manner.

There should either be a single price applicable across the country or maybe more than one rate, taking into account regional variations in molasses and rectified spirit realizations. In case a single rate is arrived at, the oil marketing companies are boun to put pressure on the mills to supply at the lowest quote of Rs 21.50 per litre. This is against the Rs 17.50 per litre price that was negotiated in the previous ethanol tender for nine States and four Union Territories.

Meanwhile, there is an added complication. A number of new distilleries that are to supply ethanol have not got environmental clearance from the Centre. These include Bajaj Hindusthan’s Rudauli, Gangnauli and Khambarkheda units, Triveni Engineering’s Khatauli, Balrampur Chini’s Mankapur, Dhampur Sugar’s Asmoli, Simbhaoli Sugar’s Brijnathpur and Seksaria Biswan Sugar’s distilleries. Distilleries are listed under number 23 of Schedule 1 of the Union Ministry of Environment & Forests’ notification, dated January 27, 1994, covering projects requiring mandatory environmental clearance from the Central Government."In this case, the mills have obtained a PD-33 certification for their distilleries issued by the State Government, which is not enough. The oil marketing companies, too, have accepted their technical bids on the basis of the PD-33 certifications. These may, however, end up creating legal complications later on," the sources pointed out.

 The much-publicised nationwide programme of ethanol blending of petrol scheduled to take off from November this year has again been postponed. It is feared that this would lead to the shortage of ethanol for industrial use. Companies like Reliance, Jubilant Organosys, India Glycols and Laxmi Organic Industries are big consumers of industrial alcohol. The Planning Commission has called a meeting of key ministries and other stake holders early this week to discuss the implications, particularly the resultant shortage of alcohol  a raw material for India’s globally acclaimed pharmaceutical, textile and agrochemical industries, sources said.The ethanol blending programme is subject to its commercial feasibility as per the petroleum ministry’s notification, which says the government can modify the percentage of ethanol and the areas where blended gas has to be supplied. An alcohol production of 176 crore litres from an anticipated bumper sugar crop of 220 lakh tonne in the next 12 months, will not be able to meet even the existing 180-crore litre requirement by the Rs 4,400-crore domestic chemical industryMolasses, from which alcohol is produced, is a by-product of sugar. Blending ethanol with petrol will add to the pressure, said drug major Jubilant Organosys’ executive director and Indian Chemicals Council’s ex-president SN Singh. Alcohol import has significantly gone up in the last three years, he said.

The another issue being debated is giving incentive to the potable alcohol sector to shift from molasses (the cheapest raw material) to grains and lowering the import barrier of 150% duty on potable and 10% duty on industrial alcohol. For the chemical, pharmaceutical and textile sectors, the shortage will be more damaging than the potable alcohol industry."Potable alcohol has only up to 40% alcohol content and the rest is water as against the chemical industry’s higher requirement due to many layers of value additions. Increase in the price of ethanol will not affect retail liquor price significantly, while the chemical and pharma sectors competing in world markets will have to absorb any increase in the price of the raw material," said a chemicals ministry official.

The city farm of London-based Bio-fuel Research and Development Centre (BRDC) has taken research initiatives to produce bio-diesel from algae. Green Algae contains about 70 per cent hydrocarbon with a record 110 tonnes of crude oil per hectare, which is 40 times higher than the amount of oil in Jatropha, Tamil Nadu Agricultural University Vice Chancellor C Ramasamy said. It would be a boon to the bio-fuel industry in India if this technology was perfected to grow algae in bio-reactors as well as in open ponds, Ramasamy said."In that case, carbon dioxide from industrial flu gas can be profitably recycled to ensure faster multiplication of algae, so that more oil can be produced from unit area," he said. This would also help earn carbon credit in World carbon trading, Ramasamy said. As one tonne of algae biomass would consume two tonnes of carbon dioxide and release 1.6 tonnes of oxygen, the technology would help to mitigate global warming, he said.

Apart from these, hydrogen fuel, bio-ethanol, bio-plastic, omega-3 compounds, pigments and protein rich animal feed were other byproducts from algae, Ramasamy added. Research and Development efforts were also underway in BRDC to formulate an aviation fuel using non-edible oil sources, he said. BRDC, the Reserach and Development wing of Enhanced Bio-fuels and Technologies (EBT), London, set up by Mark L M Quinn at a cost of Rs three crore, is situated in about 15 acres in the city, where jatropha curcus, the bio-diesel crop, is planted.

The largest consumer of petroleum is US and naturally if anything that can replace or supplement the petroleum in US has a tremendous growth potential internationally. This is in addition to the requirement of petroleum products in India. In US, the cost of importing fuel from other countries was $320 billion last year, exceeding the total agricultural product of the United States. This is one of the reasons biofuels have a future. Renewable energy is a new market that may be larger than American agriculture today. During the next 10 years, if the United States can replace imported petroleum with one billion barrels of biofuels, the value would exceed current American farm income.The alternative fuel business will build up rural economies and communities that are dying and moving towards cities. Renewable energy is the greatest new economic opportunity in our lives. We can fulfill the dream.

Indian corporates seem to be taking a fancy for jatropha farming. Both public and private sector companies such as Indian Oil Corporation (IOC), IFFCO, ONGC and Emami have approached the Chhattisgarh Government seeking permission for contract farming of this plant, which is a good source of bio-diesel.The Chief Minister of Chhattisgarh, Dr Raman Singh, said, "The private sector has shown great interest in jatropha cultivation. Besides the bio-fuel, another bi-product is glycerol used for extracting glycerine. Many cosmetic companies have started demanding this. Also the residual cake could be used for bio-mass power generation."The State Government is likely to make available about 20 lakh hectares of land for cultivation. Under the Government scheme, an individual can lease up to 200 hectares of land at a price of Rs 100 per hectare, per year for the first five years. For subsequent years, these r ziates could be increased.

The Indian Oil Corporation (IOC) has expressed its interest to join hands with the Chhattisgarh government for the commercial production of bio-diesel. The state government and the oil major has agreed to set up a high-level committee that would work out an action plan within a month before proceeding with the project. IOC chairman Sarthak Behuria called on Chhattisgarh chief minister Raman Singh during the chief minister’s recent visit to New Delhi and discussed about the possibilities of joint venture in bio-diesel production.To start with the work, the state government and the IOC had agreed to constitute a working group comprising senior officers of the Chhattisgarh government and the IOC to prepare an action plan for the project. The group will have one member each from the state’s forest Department, Chhattisgarh Renewable Energy Development Agency (CREDA) and senior officers of Indian Oil Corporation.

The group will explore the pros and cons of commercial production of bio-diesel and present a model to the state government within a month. "Under the proposed project, the state government will provide one lakh hectare of land to the IOC, which will extract bio-diesel from jatropha and sell it through its outlets in the state," managing director of Chhattisgarh Bio-fuel Development Authority (CBDA) S K Shukla told.Gujarat Oleo Chemicals Ltd (GOCL), a major producer of bio-diesel in India, has chalked out plans to set up a bio-diesel production unit at Chhattisgarh. Santosh Phathak, chairman of GOCL, said, "We have planned to set up a bio-diesel plant in Chhattisgarh with a production capacity of 50 tonne per day." The company was in advanced stage of talks with the Chhatisgarh government to acquire land for setting up the bio-diesel plant. With the production facility at Chhatisgarh, the company will be able to cater Jharkhand, Madhya Pradesh and Bihar markets along with Chhatisgarh. The company expects that the consumption of bio-diesel will increase in these states due to rising oil prices.

GOCL has also asked the state government to encourage farmers in the state to undertake jatropha cultivatin in order to get abundant supply of raw material for the production of bio-diesel. "We want to bring approximately 10 lakh hectares of land under jatropha cultivaion," he said.The company wants to enter into contract farming for jatropha in Chhattisgarh by bringing the Panchayat and farmers together. When asked about the investment in the bio-diesel project, Phathak, said the financial proposition was yet to be finalised.The company intends to gradually increase the production capacity up to 300 tonnes per day once the project is conceived. The finalisation of the project, according to Phatak, was delayed due to the sudden change in guard in Chhattisgarh. However, the project will take shape once the talks with the new state government in Chhattisgarh is brought to a conducive conclusion, he added.