India’s Push For Green Fuel Unravels Gold In Ethanol

The year 2070 may appear a long way, when India has pledged to go net-zero on emissions, but the country is going at full throttle along the course. Ethanol has come up as a sustainable solution to lower the economy’s dependence on fossil fuels and cut down the cost of petrol imports. 

Under the National Policy of Biofuels 2018, India had set a target of 20% ethanol blending in petrol and 5% biodiesel blending in diesel by 2030. The ethanol blending target was later advanced to 2025. Two months into 2025, India has achieved up to 19% ethanol blending target, Prime Minister Narendra Modi said at the third edition of India Energy Week in Delhi. “India will achieve its 20% target by October.” 

India’s biofuels industry, too, is set for rapid acceleration, with 500 Mn tonnes of sustainable feedstock. “The growth in ethanol blending has led to forex savings and generation of substantial farmer revenue,” Modi said. 

The government’s push for a cleaner, greener India has set the electric vehicle industry too in the fast lane to surpass $132 Bn by 2030, according to a recent Inc42 study — India’s Electric Vehicle Startup Landscape Report, 2025.

As India accelerates its double-engine transport of ethanol and electric vehicles, the way to 2070 doesn’t appear that long.

https://inc42.com/reports/indias-electric-vehicle-startup-landscape-report-2025/

Ethanol And India’s Evolving Automobile Landscape  

Ethanol is a biofuel produced from the fermentation of sugar by yeast or from petrochemical processes like ethylene hydration. It is used as an alternative fuel source in automobiles, as a solvent in paints and varnishes, as antiseptic and disinfectant in drugs, and as an ingredient in alcoholic beverages.

According to the India Climate & Energy Dashboard, until FY23, 46.5% of ethanol was produced in the country from B-heavy molasses, 1.1% from C-heavy molasses, 25% from sugarcane juice or sugar, and the rest from sources like maize, rice, and damaged food grains.

By FY24, India reduced its reliance on B-heavy molasses to 23.4% for ethanol production and raised it to 9.2% on C-heavy molasses and 39.6% on maize.

In simple terms, molasses is the syrup or juice obtained while extracting sugar from sugarcane or other sources of sugar. B-heavy molasses and C-heavy molasses are derived in two different stages during the extraction process, and hence, they differ in terms of sugar concentration and flavour.

The ethanol production capacity in India has increased more than 2.5 times and the number of distilleries increased 66% in the last two years.

In the automotive industry, the adoption of ethanol has been slow. Government data suggests that as of March 2024, around 98% of the fuel used in the road transportation sector came from fossil fuels, while only 2% came from biofuels like ethanol.

Some recent developments indicate the evolving dynamics in India’s automobile fuel space. Honda Cars India recently announced that it achieved E20 (20% ethanol blended) compliance across its product range, including Elevate, City e:HEV (hybrid electric vehicle), City, and Amaze models. The move aligns with the government’s mandate that requires all gasoline-fuelled mono-fuel and bi-fuel vehicles with positive ignition engines, including hybrids, to meet the E20 fuel compliance standards.

https://inc42.com/reports/indias-electric-vehicle-startup-landscape-report-2025/

During Auto Expo 2025, Toyota showcased its Prius FFV-PHEV (the flex-fuel vehicle-plug-in hybrid electric vehicle). This car is equipped with a 2-litre petrol engine capable of running on both petrol and ethanol, as well as an electric motor and a 13.6 kWh battery.

Preeti Dharmagoudar, cofounder and director of product strategy at precision fermentation startup Fermbox Bio, told Inc42 that E20 adoption in automobiles will be the biggest driver of ethanol demand in India, but ethanol has significant potential beyond fuel, particularly in industrial solvents, chemicals, and sustainable aviation fuel.

International Air Transport Association (IATA), an airline trade body, said India has the potential to be a key producer of sustainable aviation fuel (SAF) with the help of its ethanol supplies and lipid feedstocks like non-edible industrial oils. Indian carriers too have operated some flights with a blend of SAF and traditional Aviation Turbine Fuel (ATF).

Ethanol Or EV? A Combination Of Both

As both the engines rev up for India’s net-zero mission, one wonders which is the more powerful driver – ethanol-blended fuel or electricity as fuel.   

A recent Inc42 analysis suggests that ethanol has a few benefits over EVs, including lower transition costs and quicker deployment. 

Unlike EVs, vehicles compatible with ethanol blends, like flex-fuel engines, do not require a complete overhaul of the existing infrastructure. Ethanol-blended fuel can be used in conventional internal combustion engine vehicles with a few modifications, which makes it an economical option for adoption.

On the other hand, it takes a long time and heavy investment to build a robust EV infrastructure, especially the charging and battery swapping stations. 

Ethanol is often considered more environmentally friendly. It not only burns cleaner than traditional fossil fuels, but also doesn’t involve mining of rare-earth metals used in the production of EV batteries. According to the US Department of Energy, bioethanol is 20-30% more economical than crude-based oil fuels with zero carbon emissions. Setting up the production and distribution network for ethanol too can be done faster and at a lower cost. 

Sandiip Bhammer, founder and managing partner at Green Frontier Capital, said that although ethanol reduces carbon emissions, it raises concerns about land use, water consumption and production emissions. 

“EV sustainability depends on grid decarbonisation and battery recycling. As India’s grid becomes greener, EVs will be the cleaner long-term solution, while ethanol will play only a supporting role in reducing fossil fuel reliance,” Bhammer told Inc42.

The debate, therefore, is not about which one is more powerful. It is perhaps a combination of all sustainable energy solutions that can effectively reduce India’s and, largely the world’s, dependence on fossil fuels causing climate change.

Road Ahead For Ethanol In India 

Despite picking up momentum, India lags behind Brazil and the US in terms of bioethanol use, largely because of constraints in the supply of raw materials and lack of infrastructure. Brazil has vehicle engines running on 100% bioethanol (E100), while the US and Sweden have E85 and are ethanol flex-fuel vehicle markets.

As per Bhammer, India lacks enough raw materials diversity, flex-fuel vehicles and ethanol refuelling infrastructure. Policy incentives are strong but challenges include price volatility and competition with food crops.

“While Brazil has widespread flex-fuel adoption, India still relies heavily on sugarcane-based ethanol, raising sustainability concerns. Expanding to second-generation biofuels is crucial for long-term viability,” he said.

India’s ethanol initiatives encouraged oil and gas companies to invest INR 14,000 Cr to set up 2G refinery plants for making bioethanol from cellulosic and lignocellulosic biomass, including petrochemical routes. While these initiatives are expected to increase bioethanol production in the country, there are scopes for more infrastructure building and policy revamps.

Bhammer believes that the biggest opportunities for ethanol production exist in alternative feedstocks like agricultural waste and second-generation biofuels. Besides, clearer flex-fuel policies and more private sector involvement would also accelerate ethanol adoption.

Fermbox Bio’s Dharmagoudar believes that the government has laid out policies to support the ethanol industry, but key hurdles such as ensuring stable pricing support remain until the sector reaches its full viability. “India also needs policy changes to let the domestic startups compete in tenders, especially in the 2G enzyme sector, where they lack preference, restricting competition and innovation,” she said. 

“Expanding its applications beyond transportation, along with policy support to boost domestic production without affecting the food supply, can drive broader adoption, economic value, and a more sustainable circular economy. This diversification can also reduce reliance on the automotive sector and create additional demand across industries.” 

As per the Ministry of Petroleum & Natural Gas, for the country to achieve the target of 20% ethanol blending by this year, India requires about 1,016 Cr litres of ethanol, while the total demand for ethanol, including other uses, is estimated to be around 1,350 Cr litres. 

To meet this requirement, an ethanol production capacity of about 1,700 Cr litres must be set up, assuming the plants operate at 80% efficiency, the ministry said last October.

It now remains to be seen if India, with its own hurdles and as a country with huge access to raw sugar sources, can scale ethanol production and deploy it as effectively as it paved the way for EVs to zoom.

[Edited By Kumar Chatterjee]

https://inc42.com/reports/indias-electric-vehicle-startup-landscape-report-2025/