El Niño Effect: Ethanol Blending Target in Petrol Likely to be Reduced

The Government of India's ambitious petroleum sector program E-20 has suffered a major setback. Due to the lowest rainfall in a decade and the impact of El Niño, maize and sugarcane crops have been severely affected. In this situation, the government is now forced to reduce the target for blending ethanol with petrol. According to a report by Aaj Tak, rainfall during the monsoon this year was about 13 percent below normal, causing a major surge in food prices. Prices of maize and sugar have increased by approximately 40 percent, while rice prices have recorded a 20 percent increase. In September, retail food inflation rose from 5.97 percent to 7.74 percent. To control this rising inflation and ensure the country's food security, New Delhi has decided to curb the use of sugar and maize for ethanol production. Consequently, the ethanol blending ratio with petrol, which is currently 20 percent, may come down to 15 percent.

Prime Minister Narendra Modi's energy security plan has had the Ethanol Blending Program as a key component. Government data shows that since 2014, this program has saved approximately 2 trillion rupees, or 21.1 billion dollars, in oil import costs. The annual savings at a 20 percent blending rate were estimated at 430 billion rupees. India had achieved this target five years ahead of schedule, but now this achievement is being adversely affected due to a shortage of feedstock. Industry experts believe that the ethanol blending rate in the current supply year could remain between 15 and 17 percent. This decline will depend mainly on the price of maize. According to G.K. Sood, chairman of K.N. Agri Resources and a food policy expert, since India is the world's most populous country, prioritizing food over fuel in drought years is inevitable.

To increase ethanol production, many companies took on heavy debt to increase their capacity to 20 billion liters annually. Now, the reduction in the blending target has created an overcapacity problem for these companies. Four producers, on the condition of anonymity, stated that they are expecting 15 to 17 percent blending. Last month, the government directed oil companies not to purchase ethanol made from sugar-based feedstock in the new supply season. Additionally, the purchase price of maize-based ethanol has been reduced from 71.86 rupees per liter to 68.86 rupees, putting pressure on the profit margins of distilleries. Producers have now turned to using damaged grains, which has raised concerns regarding the availability of animal feed. Maize production could fall by 15 percent from a record 55 million metric tons this year. Drought-affected farmers are not in a position to increase maize sowing in winter due to water scarcity.

Food inflation is a politically highly sensitive issue. Assembly elections are to be held in several states, including Uttar Pradesh, in early 2027. Uttar Pradesh is considered a barometer of national politics, and the BJP suffered a setback there in the 2024 general elections. The E-20 program has already been a subject of controversy. Motorists and some automakers have been concerned about fuel efficiency and engine wear. After public reaction, the government clarified that there are no plans to increase blending above 20 percent. Rice stocks are available as an alternative feedstock, but the government has to sell them to ethanol producers at about half the price, which increases costs. This situation clarifies how much climate change and weather uncertainty can affect energy policies. India achieved the target by increasing ethanol blending fourfold in years with good monsoons, but one bad monsoon has pushed this entire program back. Increased reliance on imported crude oil will also increase the risk of energy prices in times of geopolitical uncertainty. Experts believe that in the long run, there will be a need to focus on developing alternative feedstocks, improving water management, and crop diversification. Currently, the government's stance is clear that food will be placed above fuel. This decision will provide relief to the common people but will hurt the ethanol industry and the oil import savings target. It is necessary to keep an eye on the availability of maize and sugar as well as government policies in the coming months. This development underlines the need for climate adaptation in the path of self-reliant energy policy.

Ethanol is a type of alcohol used as a biofuel. It is mainly derived from sugarcane, maize, and other agricultural products. The Government of India is blending ethanol with petrol to reduce dependence on imported crude oil, which is also considered less polluting for the environment.