BIOFUELS AND ENERGY SECURITY OF INDIA

1. BIOFUELS AND ENERGY SECURITY OF INDIA Ramprasad Sengupta* & Robin Singhal Centre for Economic Studies and Planning School of Social Sciences Jawaharlal Nehru University New Delhi - 110067 *Corresponding Author email: rps0302@gmail.com October 2010

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3. Energy Policy: Energy Security and Climate Change • The Energy policy of India has given prime thrust on energy • security while the notion of security builds in itself major • concerns for • Energy adequacy to support the growth process • (2) Provision of safe and clean energy (Life line • requirement) for all irrespective of their ability to • pay, for removing energy poverty • (3)Energy supply at competitive prices. 3

4. Control of Climate Change not the immediate policy objective. However, the concern for cost competitiveness and clean energy supply in the interest of security have got important fall out in terms of control of CO2 emissions as well for India. The recent commitment of Indian Government to its Parliament on the eve of Copenhagen Conference has been however made explicitly in terms of bringing down the CO2 intensity of GDP at some target level, but not in terms of absolute emission cuts.

5. Integrated Energy Policy Document Definition of security: • “We are energy secure when we can supply life line energy to all our citizens irrespective of their ability to pay for it as well as meet the effective demand for safe and convenient energy at competitive prices, at all times and with a prescribed confidence level considering shocks anddisturbances that can be reasonably expected.” • . • Major issues: Conservation, Fuel Substitution, Cleanliness, Cost Effectiveness, Energy Distribution.

8. TREND AND PATTERN OF ENERGY CONSUMPTION IN INDIA

12. Transport Industry

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19. ENERGY SECURITY - THE ISSUE OF OIL SECURITY FOR INDIA

20. Domestic front In 2007-08, the total quantity of crude oil supplied was 1,55,790 thousand tonnes. The domestic production accounted for only 22 percent of total domestic consumption in 2007-08 (i.e. 34118 thousand tonnes). In 2007, the total crude oil reserves were 7,25,000 thousand tonnes. The Reserve to Production ratio for the year 2007 was 21 years only. If we consider the total quantity of crude oil supplied to meet consumption instead of domestic production, the ratio reduces to 5 years only. The share of imports has been steadily rising and in 2031-32, the share of imports is projected to be 90 per cent.

21. Source: Authors’ calculation based on data from GOI, 2010 and GOI, 2006

22. India’s Import Dependence of Energy

23. International crude oil market The oil crises of 1970s and 1980s have shown the vulnerability of the process of economic growth in oil importing countries. In nominal terms, the price of crude oil has increased from a level of US$ 12 per barrel in 1999 to US$ 100 per barrel in November 2007. In July 2008, it touched a record high of US$ 147 per barrel. In December 2008, the crude oil was traded at US$ 38 per barrel. During 2009, the prices rebounded and it was traded at US$ 70 per barrel in August 2009. The Indian basket of crude oil which was priced at US$ 36 per barrel in May 2004 sharply rose to a level of US$ 132 per barrel in July 2008, an increase of 267 per cent in just 4 years.

27. Global oil supply In 1956, Marion King Hubbert - an American geoscientist made a peak oil analysis to predict that the oil production in US Lower 48 states would peak in early 1970s. According to proponents of peak oil analysis, the world’s annual crude oil production will reach its global maxima (or its peak) when countries accounting for world’s 50 per cent of the total annual crude oil production start witnessing a decline in their annual production levels, (Tsoskounoglou, Ayerides and Tritopoulou, 2008). In 2005, out of the 50 largest oil producing countries 24 nations which account for 40 per cent of global production of crude oil registered a decline in their production levels by 4.34 per cent from the previous year.

29. HUBBERT’S MODEL FOR PEAK OIL ANALYSIS • Q = K/(1+noe-at), • no = (K - Qo)/Qo • Q is Cumulative oil production in period t • K is ultimate recoverable reserves of crude oil • t denotes the time period • Qodenotes the level of cumulative oil production in the arbitrarily chosen time period To • Note that the first derivative of the logistic function is a bell shaped curve which attains its maximum at the time of peak when half of ultimate recoverable reserves (K) has already been exploited (i.e. Q = K/2) and thus represents the complete cycle of annual crude oil production as hypothesized by Hubbert. • As a result, to model the cycle of crude oil production and determining the peak, he developed the following model: dQ/dt = P = aQ – (aQ2)/K or P/Q = a [1- (Q/K)]

30. India's annual crude oil production from 1970 - 2007, in thousand tonnes and in million barrels

33. Summary of results This peak in India’s crude oil production manifests itself in the continued India’s dependence on foreign supply of crude oil in the 21st century.

34. Implications A peaking global crude oil production implies that countries will either have to compete for the scarce resource in the international market by paying a higher price or will have to diversify their fuel mix in order to reduce their dependence on foreign supply of crude oil. Though there is lack of consensus about the actual time of peak and the level of global crude oil reserves, but it becomes necessary for the oil importing countries to take note of the growing uncertainty about the international crude oil market. In Indian context, as one of the important initiative in this regard would be to diversify the fuel mix for meeting energy demand of the transport sector.

35. BIOFUELS – AN ALTERNATIVE ENERGY SOURCE

36. There are several socio-economic and environmental benefits from biofuels which are the motivating factors behind policies promoting these fuels in both developed and developing countries. Economic: saving foreign exchange by reducing import dependence for petroleum products, contributing to nations’ energy security Environmental : addressing the problem of local air pollution and reducing CO2 emissions causing climate change as they are considered to be carbon neutral. Social : employment opportunities, rural development. However, the production of feedstocks for these biofuels put additional pressure on resources such as land, water and others. It is important to ensure that policies, plans and strategies thus formulated encourage sustainable biofuels which ensure that the objective of energy security does not conflict with nations’ food security.

37. Indian Biofuel Initiative In July 2002, a Committee on Development of Biofuels was set up under the Chairmanship of Dr. D.N. Tewari. The terms of reference of the committee were to suggest measures for encouraging the production and use of biofuels namely bioethanol and biodiesel (GOI, 2003). A National Policy on Biofuels was announced in December 2009. The policy is aimed at mainstreaming the use of biofuels – bioethanol and biodiesel, for Indian transport sector. A target of 20 per cent blending of biofuels has been set for the country by 2017 (GOI, 2009). Further, the policy has approved the setting up of National Biofuel Coordination Committee under the Chairmanship of Prime Minister and Biofuel Steering Committee, in line with the recommendation of the Committee on Development of Biofuels (ibid).

38. Continue….. The Indian policy toward biofuels aims to resolve the food versus fuel conflict by promoting non-food feedstocks and cultivation of oilseeds using wasteland and The use of wasteland for cultivating non edible plant borne oilseeds such as jatropha curcas is encouraged for biodiesel production. In case of bioethanol production, sugarcane molasses - a byproduct from the process of producing sugar from sugarcane juice is being used. However, the Commission for Agricultural Costs and Prices recommends the use of excess sugarcane for direct bioethanol production from cane juice, in a situation where there is excess supply of sugarcane.

39. National Biofuel Policy for India- key features • 20 per cent blending for both bioethanol and biodiesel has been proposed, to be achieved by 2017. • A 10 percent ethanol blending for motor gasoline is supposed to be mandatory from October 2008. The pricing of bioethanol (produced from molasses) is still a contentious issue, acting as a deterrent in uptake of bioethanol for blending. Till date, biodiesel blending is not mandatory in India. • The policy grants permission to sugar industry for producing ethanol directly from sugarcane juice, in case it does not affect the sugar production and availability of ethanol for industrial use. • Minimum Purchase Price (MPP) will be announced for both - bioethanol and biodiesel. MPP for bioethanol will be based on its production cost and import parity price. MMP for biodiesel will be linked to retail diesel price. • It appears from the policy document that even if edible oilseeds are to be used for biodiesel production, they are to be cultivated developing wastelands. Since this may invollve higher cost, the policy aims to support such plantations through a separate minimum support price mechanism other than the one currently in place for oilseeds used for edible oil production.

40. A concessional excise duty of 16 per cent is already being waived in case of bioethanol. Biodiesel is exempted from excise duty. • Further, the policy promises concessions in Custom and Excise duty for imported plant and machinery for biofuel production, biofuel-compatible vehicle engines, and other applications which are not manufactured indigenously. • In case need arises, import of biofuels will be allowed subject to the approval of National Biofuel Coordination Committee. No permission will be granted for importing Free Fatty Acid (FFA) oils. • Foreign Direct Investment in plantations for biofuels is not allowed. FDI in biorefinery industry would be allowed upto 100 per cent, in case biofuel produced is for domestic use only. • The policy aims to declare biofuel industry as a priority sector for lending purpose by financial institutions and banks in the country. National Bank of Agriculture and Rural Development (NABARD) will be the lending institution for farmers for plantations.

46. Wasteland is described as “degraded land which can be brought under vegetation cover with reasonable effort, and which is currently under-utilized and/or land which is deteriorating for lack of appropriate water and soil management or on account of natural causes. Wastelands can result from inherent/imposed disabilities such as by location, environment, chemical and physical properties of the soil or financial or management constraints” (GOI, 2005). The total wasteland is broadly classified into 13 sub categories. However, it is essential to carry out a comprehensive assessment of the viable categories of wasteland for feedstock cultivation.

50. In a market economy, the profitability and the ground rent from land use for alternative crops decide the pattern of land use in agriculture. In a regime of high oil price, the high Gross value of Output to Cost ratio and high ground rent for jatropha plantation crop may induce diversion of land use from food crops to such energy plantation. Hence, the concern for food security in a scenario of sustained oil price rise in real terms, decline in per capita domestic food grains availability and existence of substantive amount of poverty.