Ethanol glut spurs flex-fuel demand

India's ethanol industry has built production capacity of nearly 2,000 crore litres per year, with an additional 400 crore litres of capacity under construct...

What Happened

India's ethanol industry has built production capacity of nearly 2,000 crore litres per year, with an additional 400 crore litres of capacity under construction — against projected E20 demand of approximately 1,100 crore litres, leaving nearly half of installed capacity idle.
Ethanol producers offered 17,760 million litres for Ethanol Supply Year (ESY) 2025–26, far exceeding the oil marketing companies' (OMCs) annual requirement of around 10,500 million litres.
The Indian Sugar and Bio-energy Manufacturers Association (ISMA) has proposed a two-track policy response: a near-term transition to E22 blending (which would absorb an additional 150 crore litres) and a decisive push for flex-fuel vehicle (FFV) adoption through GST rationalisation, vehicle pricing parity with EVs, and CAFE credit incentives.
Mass-market FFV adoption remains stalled by two structural barriers: government price controls on domestic ethanol that limit producer returns, and high vehicle taxation on FFVs compared to the incentive-rich EV segment.
Major original equipment manufacturers (OEMs) including Maruti Suzuki, Toyota, and Bajaj Auto have developed FFV prototypes but have not deployed them at scale due to the absence of supportive policy.

Static Topic Bridges

India's Ethanol Blended Petrol (EBP) Programme and E20 Target

The Ethanol Blended Petrol (EBP) programme is India's flagship initiative to substitute petroleum imports with domestically produced ethanol, reducing the country's oil import bill and lowering vehicular emissions. Administered by the Ministry of Petroleum and Natural Gas, the programme mandates oil marketing companies to procure and blend ethanol with petrol at set proportions.

The National Policy on Biofuels (NPB) 2018, amended in 2022, advanced the E20 target (20% ethanol blending in petrol) to ESY 2025–26, originally envisaged for 2030.
Blending progression: 12.06% (ESY 2022–23) → 14.60% (ESY 2023–24) → 17.98% (ESY 2024–25) → ~19.98% (January 2026) — the E20 milestone has effectively been achieved.
The overall programme has achieved cumulative foreign exchange savings of approximately ₹90,000 crore since inception and reduced CO₂ emissions significantly.

Connection to this news: Having achieved E20, the industry now faces a demand ceiling — E20 demand cannot absorb the installed capacity base, creating structural oversupply. Moving to E22 or promoting FFVs that can use higher blends (up to E100) is being proposed to resolve this mismatch.

National Policy on Biofuels (NPB) 2018 and 2022 Amendment

The NPB 2018 provides the overarching framework for biofuel production, use, and trade in India. It categorises biofuels into Generation 1 (food-crop based), Generation 2 (agricultural waste/lignocellulosic), and Generation 3 (algae-based), with different incentive structures for each.

The 2022 amendment expanded the list of permissible feedstocks for ethanol to include maize, sugarcane juice, sugar syrup, and damaged food grains, and permitted their use even outside declared surplus periods.
The amendment introduced a provision allowing the National Biofuel Coordination Committee (NBCC) to permit use of food grains during surplus phases.
In ESY 2024–25, maize surpassed sugarcane to become the single largest ethanol feedstock, contributing nearly 50% of total supply — a significant structural shift in the programme's supply chain.
Administered by the Ministry of Petroleum and Natural Gas in coordination with MoA&FW and MoFPI.

Connection to this news: The policy shift to multi-feedstock ethanol means the glut is not limited to the sugar sector; it now encompasses the entire agri-ethanol ecosystem, making demand creation through FFVs and higher blending ratios an economy-wide policy priority.

Flex-Fuel Vehicles (FFV) — Technology and Policy Context

A flex-fuel vehicle (FFV) is an automobile with an internal combustion engine designed to run on more than one fuel, or a mixture of fuels — typically petrol and ethanol in any proportion from E20 to E100. The engine management system uses sensors to detect the fuel blend and automatically adjusts fuel injection timing and ignition accordingly.

FFVs differ from E20-compatible vehicles in that they can use significantly higher ethanol concentrations, providing a scalable demand sink for surplus ethanol.
The Corporate Average Fuel Economy (CAFE) norms (notified under the Energy Conservation Act framework) are being discussed as a potential incentive mechanism — FFVs could earn CAFE credits similar to EVs if policy is amended.
Currently, FFVs attract standard GST rates (28% + cess) without the reduced rates available to EVs (5%), creating a pricing disadvantage.
Brazil's ProÁlcool programme (launched 1975) and the United States' Renewable Fuel Standard (RFS) are international benchmarks where FFV mandates and fuel standards worked in tandem.

Connection to this news: ISMA's advocacy centres on replicating FFV adoption incentives — specifically CAFE credits and GST parity — to create structural demand for ethanol beyond E20.

ISMA and Sugarcane Surplus Management

The Indian Sugar and Bio-energy Manufacturers Association (ISMA) is the apex body representing sugar mills and ethanol producers in India. The sugar-ethanol nexus is central to India's biofuel policy: sugarcane crushing generates juice and molasses, both of which can be diverted to ethanol production, providing mills an alternative revenue stream when sugar prices are suppressed by surplus.

India currently holds approximately 8 million tonnes of sugar in buffer stock, reflecting structural surplus in the sugarcane sector.
The government has periodically restricted sugar exports (including an effective export ban in 2023–24) to manage domestic prices, even while promoting ethanol diversion.
The Sugarcane (Control) Order, 1966 governs Fair and Remunerative Price (FRP) paid to farmers, while State Advised Prices (SAPs) set by state governments typically exceed FRP, creating an additional burden on mills and incentivising ethanol diversion.

Connection to this news: The ethanol overcapacity problem is partly a consequence of policy-induced surplus in the sugarcane-sugar-ethanol value chain. Excess sugarcane → excess sugar → excess ethanol capacity. Addressing the demand side through FFVs and higher blending targets is necessary to avoid farmer distress and mill insolvency.

Key Facts & Data

India's installed ethanol capacity: ~2,400 crore litres/year (including upcoming additions)
E20 demand ceiling: ~1,100 crore litres/year
Capacity utilisation at E20: ~46%
ESY 2025–26 ethanol offered by producers: 17,760 million litres vs OMC requirement of ~10,500 million litres
Blending as of January 2026: 19.98% (effectively E20 achieved)
Maize share in ethanol feedstock (ESY 2024–25): ~50% (largest single feedstock)
Moving from E20 to E22 would absorb an additional ~150 crore litres of ethanol
Sugar buffer stock: ~8 million tonnes (surplus)
NPB 2018 amended in 2022; E20 target brought forward from 2030 to ESY 2025–26