National Policy on Biofuels (Govt. of India – MNRE)

National Policy on Biofuels

1.0 PREAMBLE

1.1 India is one of the fastest growing economies in the world. The

Development Objectives focus on economic growth, equity and human well

being. Energy is a critical input for socio-economic development. The energy

strategy of a country aims at efficiency and security and to provide access which

being environment friendly and achievement of an optimum mix of primary

resources for energy generation. Fossil fuels will continue to play a dominant

role in the energy scenario in our country in the next few decades. However,

conventional or fossil fuel resources are limited, non-renewable, polluting and,

therefore, need to be used prudently. On the other hand, renewable energy

resources are indigenous, non-polluting and virtually inexhaustible. India is

endowed with abundant renewable energy resources. Therefore, their use should

be encouraged in every possible way.

1.2 The crude oil price has been fluctuating in the world market and has

increased significantly in the recent past, reaching a level of more than $ 140 per

barrel. Such unforeseen escalation of crude oil prices is severely straining

various economies the world over, particularly those of the developing

countries. Petro-based oil meets about 95% of the requirement for transportation

fuels, and the demand has been steadily rising. Provisional estimates have

indicated crude oil consumption in 2007-08 at about 156 million tonnes. The

domestic crude oil is able to meet only about 23% of the demand, while the rest is

met from imported crude.

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1.3 India’s energy security would remain vulnerable until alternative fuels to

substitute/supplement petro-based fuels are developed based on indigenously

produced renewable feedstocks. In biofuels, the country has a ray of hope in

providing energy security. Biofuels are environment friendly fuels and their

utilization would address global concerns about containment of carbon

emissions. The transportation sector has been identified as a major polluting

sector. Use of biofuels have, therefore, become compelling in view of the

tightening automotive vehicle emission standards to curb air pollution.

1.4 Biofuels are derived from renewable bio-mass resources and, therefore,

provide a strategic advantage to promote sustainable development and to

supplement conventional energy sources in meeting the rapidly increasing

requirements for transportation fuels associated with high economic growth, as

well as in meeting the energy needs of India’s vast rural population. Biofuels can

increasingly satisfy these energy needs in an environmentally benign and cost-

effective manner while reducing dependence on import of fossil fuels and

thereby providing a higher degree of National Energy Security.

1.5 The growth of biofuels around the globe is spurred largely by energy

security and environmental concerns and a wide range of market mechanisms,

incentives and subsidies have been put in place to facilitate their growth.

Developing countries, apart from these considerations, also view biofuels as a

potential means to stimulate rural development and create employment

opportunities. The Indian approach to biofuels, in particular, is somewhat

different to the current international approaches which could lead to conflict with

food security. It is based solely on non-food feedstocks to be raised on degraded

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or wastelands that are not suited to agriculture, thus avoiding a possible conflict

of fuel vs. food security.

1.6 In the context of the International perspectives and National imperatives,

it is the endeavour of this Policy to facilitate and bring about optimal

development and utilization of indigenous biomass feedstocks for production of

biofuels. The Policy also envisages development of the next generation of more

efficient biofuel conversion technologies based on new feedstocks. The Policy

sets out the Vision, medium term Goals, strategy and approach to biofuel

development, and proposes a framework of technological, financial and

institutional interventions and enabling mechanisms.

2.0 THE VISION AND GOALS

2.1 The Policy aims at mainstreaming of biofuels and, therefore, envisions a

central role for it in the energy and transportation sectors of the country in

coming decades. The Policy will bring about accelerated development and

promotion of the cultivation, production and use of biofuels to increasingly

substitute petrol and diesel for transport and be used in stationary and other

applications, while contributing to energy security, climate change mitigation,

apart from creating new employment opportunities and leading to

environmentally sustainable development.

2.2 The Goal of the Policy is to ensure that a minimum level of biofuels

become readily available in the market to meet the demand at any given time. An

indicative target of 20% blending of biofuels, both for bio-diesel and bio-ethanol,

by 2017 is proposed. Blending levels prescribed in regard to bio-diesel are

intended to be recommendatory in the near term. The blending level of bio-

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ethanol has already been made mandatory, effective from October, 2008, and will

continue to be mandatory leading upto the indicative target.

3. 0 DEFINITIONS AND SCOPE

3.1 The following definitions of biofuels shall apply for the purpose of this

Policy:

i. ‘biofuels’ are liquid or gaseous fuels produced from biomass resources

and used in place of, or in addition to, diesel, petrol or other fossil fuels

for transport, stationary, portable and other applications;

ii. ‘biomass’ resources are the biodegradable fraction of products, wastes

and residues from agriculture, forestry and related industries as well as

the biodegradable fraction of industrial and municipal wastes.

3.2 The scope of the Policy encompasses bio-ethanol, bio-diesel and other

biofuels, as listed below:-

i. ‘bio-ethanol’: ethanol produced from biomass such as sugar containing

materials, like sugar cane, sugar beet, sweet sorghum, etc.; starch

containing materials such as corn, cassava, algae etc.; and, cellulosic

materials such as bagasse, wood waste, agricultural and forestry residues

etc. ;

ii. ‘biodiesel’: a methyl or ethyl ester of fatty acids produced from vegetable

oils, both edible and non-edible, or animal fat of diesel quality; and ,

iii. other biofuels: biomethanol, biosynthetic fuels etc.

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4.0 STRATEGY AND APPROACH

4.1 The focus for development of biofuels in India will be to utilize waste and

degraded forest and non-forest lands only for cultivation of shrubs and trees

bearing non-edible oil seeds for production of bio-diesel. In India, bio-ethanol is

produced mainly from molasses, a by-product of the sugar industry. In future

too, it would be ensured that the next generation of technologies is based on non-

food feedstocks. Therefore, the issue of fuel vs. food security is not relevant in

the Indian context.

4.2 Cultivators, farmers, landless labourers etc. will be encouraged to

undertake plantations that provide the feedstock for bio-diesel and bio-ethanol.

Corporates will also be enabled to undertake plantations through contract

farming by involving farmers, cooperatives and Self Help Groups etc. in

consultation with Panchayats, where necessary. Such cultivation / plantation

will be supported through a Minimum Support Price for the non-edible oil seeds

used to produce bio-diesel.

4.3 In view of the current direct and indirect subsidies to fossil fuels and

distortions in energy pricing, a level playing field is necessary for accelerated

development and utilization of biofuels to subserve the Policy objectives.

Appropriate financial and fiscal measures will be considered from time to time

to support the development and promotion of biofuels and their utilization in

different sectors.

4.4 Research, development and demonstration will be supported to cover all

aspects from feedstock production and biofuels processing for various end-use

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applications. Thrust will also be given to development of second generation

biofuels and other new feedstocks for production of bio-diesel and bio-ethanol.

5.0 INTERVENTIONS AND ENABLING MECHANISMS

Plantations

5.1 Plantations of trees bearing non-edible oilseeds will be taken up on

Government/community wasteland, degraded or fallow land in forest and non-

forest areas. Contract farming on private wasteland could also be taken up

through the Minimum Support Price mechanism proposed in the Policy.

Plantations on agricultural lands will be discouraged.

5.2 There are over 400 species of trees bearing non-edible oilseeds in the

country. The potential of all these species will be exploited, depending on their

techno-economic viability for production of biofuels. Quality seedlings would be

raised in the nurseries of certified institutions / organizations identified by the

States for distribution to the growers and cultivators.

5.3 In all cases pertaining to land use for the plantations, consultations

would be undertaken with the local communities through Gram Panchayats/

Gram Sabhas, and with Intermediate Panchayats and District Panchayat where

plantations of non-edible oil seed bearing trees and shrubs are spread over

more than one village or more than one block/ taluk. Further, the provisions of

PESA would be respected in the Fifth Schedule Areas.

5.4 A major instrument of this Policy is that a Minimum Support Price

(MSP) for oilseeds should be announced and implemented with a provision for its

periodic revision so as to ensure a fair price to the farmers. The details about

implementation of the MSP mechanism will be worked out carefully after due

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consultations with concerned Government agencies, States and other

stakeholders. It will then be considered by the Biofuel Steering Committee and

decided by the National Biofuels Co-ordination Committee proposed to be set up

under this Policy. The Statutory Minimum Price (SMP) mechanism prevalent for

sugarcane procurement will also be examined for extending such a mechanism

for oilseeds to be utilized for production of bio-diesel by the processing units.

Payment of SMP would be the responsibility of the bio-diesel processors.

Different levels of Minimum Support Price for oilseeds has already been declared

by certain States.

5.5 Employment provided in plantations of trees and shrub bearing non-

edible oilseeds will be made eligible for coverage under the National Rural

Employment Guarantee Programme (NREGP).

P

rocessing

5.6 Ethanol is mainly being produced in the country at present from molasses,

which is a by-product of the sugar industry. 5% blending of ethanol with

gasoline has already been taken up by the Oil Marketing Companies (OMCs) in

20 States and 4 Union Territories. 10% mandatory blending of ethanol with

gasoline is to become effective from October, 2008 in these States. In order to

augment availability of ethanol and reduce over supply of sugar, the sugar

industry has been permitted to produce ethanol directly from sugarcane juice.

The sugar and distillery industry will be further encouraged to augment

production of ethanol to meet the blending requirements prescribed from time to

time, while ensuring that this does not in any way create supply constraints in

production of sugar or availability of ethanol for industrial use.

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5.7 Setting up of processing units by industry for bio-oil expelling/extraction and

transesterification for production of bio-diesel will be encouraged. While it is difficult to

exactly specify the percentage of bio-diesel to be blended with diesel in view of the

uncertainty in the availability of bio-diesel at least in the initial stages, blending will be

permitted upto certain prescribed levels, to be recommendatory initially and made

mandatory in due course. Gram/Intermediate Panchayats would also be encouraged to

create facilities at the village level for extraction of bio-oil, which could then be sold to

bio-diesel processing units.

5.8 The prescribed blending levels will be reviewed and moderated

periodically as per the availability of bio-diesel and bio-ethanol. A National

Registry of feedstock availability, processing facilities and offtake will be

developed and maintained to provide necessary data for such reviews with a view

to avoid mismatch between supply and demand.

5.9 In order to take care of fluctuations in the availability of biofuels, OMCs

will be permitted to bank the surplus quantities left after blending of bio-diesel

and bio-ethanol in a particular year, and to carry it forward to the subsequent

year when there may be a shortfall in their availability to meet the prescribed

levels.

5.10 The blending would have to follow a protocol and certification

process, and conform to BIS specification and standards, for which the

processing industry and OMCs would need to jointly set up an appropriate

mechanism and the required facilities. Section 52 of the Motor Vehicles Act

already allows conversion of an existing engine of a vehicle to use biofuels.

Engine manufacturers would need to suitably modify the engines to ensure

compatibility with biofuels, wherever necessary.

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Distribution & Marketing of Biofuels

5.11 The responsibility of storage, distribution and marketing of biofuels

would rest with OMCs. This shall be carried out through their existing storage

and distribution infrastructure and marketing networks, which may be suitably

modified or upgraded to meet the requirements for biofuels.

5.12 In the determination of bio-diesel purchase price, the entire value chain

comprising production of oil seeds, extraction of bio-oil, its processing,

blending, distribution and marketing will have to be taken into account. The

Minimum Purchase Price (MPP) for bio-diesel by the OMCs will be linked to

the prevailing retail diesel price. The MPP for bio-ethanol, will be based

on the actual cost of production and import price of bio-ethanol. The MPP, both

for bio-diesel and bio-ethanol will be determined by the Biofuel Steering

Committee and decided by the National Biofuel Coordination Committee. In

the event of diesel or petrol price falling below the MPP for bio-diesel and bio-

ethanol, OMCs will be duly compensated by the Government.

Financing

5.13 Plantation of non-edible oil bearing plants, the setting up of oil

expelling/extraction and processing units for production of bio-diesel and

creation of any new infrastructure for storage and distribution would be

declared as a priority sector for the purposes of lending by financial institutions

and banks. National Bank of Agriculture and Rural Development (NABARD)

would provide re-financing towards loans to farmers for plantations. Indian

Renewable Energy Development Agency (IREDA), Small Industries

Development Bank of India (SIDBI) and other financing agencies as well as

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commercial banks would be actively involved in providing finance for various

activities under the entire biofuel value chain, at different levels.

5.14 Multi-lateral and bi-lateral funding would be sourced, where possible

for biofuel development. Carbon financing opportunities would also be explored

on account of avoidance of CO2 emissions through plantations and use of

biofuels for various applications.

5.15 Investments and joint ventures in the biofuel sector are proposed to be

encouraged. Biofuel technologies and projects would be allowed 100% foreign

equity through automatic approval route to attract Foreign Direct Investment

(FDI), provided biofuel is for domestic use only, and not for export. Plantations

would not be open for FDI participation.

Financial and Fiscal Incentives

5.16 5.16 Financial incentives, including subsidies and grants, may be considered

upon merit for new and second generation feedstocks; advanced technologies

and conversion processes; and, production units based on new and second

generation feedstocks. If it becomes necessary, a National Biofuel Fund could be

considered for providing such financial incentives.

5.17 As biofuels are derived from renewable biomass resources they will be

eligible for various fiscal incentives and concessions available to the New and

Renewable Energy Sector from the Central and State Governments.

5.18 Bio-ethanol already enjoys concessional excise duty of 16% and bio-

diesel is exempted from excise duty. No other Central taxes and duties are

proposed to be levied on bio-diesel and bio-ethanol. Custom and excise duty

concessions would be provided on plant and machinery for production of

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bio-diesel or bio-ethanol, as well as for engines run on biofuels for transport,

stationary and other applications, if these are not manufactured indigenously.

Research & Development and Demonstration

5.19 A major thrust would be given through this Policy to Innovation,

Research & Development and Demonstration in the field of biofuels. Research

and Development will focus on plantations, biofuel processing and production

technologies, as well as on maximizing efficiencies of different end-use

applications and utilization of by-products. High priority will be accorded to

indigenous R&D and technology development based on local feedstocks and

needs, which would be benchmarked with international efforts and patents would

be registered, wherever possible. Multi-institutional, time-bound research

programmes with clearly defined goals and milestones would be developed and

supported.

5.20 Intensive R&D work would be undertaken in the following areas:

(a): Biofuel feed-stock production based on sustainable biomass with active

involvement of local communities through non-edible oilseed bearing

plantations on wastelands to include inter-alia production and development of

quality planting materials and high sugar containing varieties of sugarcane,

sweet sorghum, sugar beet, cassava, etc.

(b): Advanced conversion technologies for first generation biofuels and

emerging technologies for second generation biofuels including conversion of

ligno-cellulosic materials to ethanol such as crop residues, forest wastes and

algae, biomass-to-liquid (BTL) fuels, bio-refineries, etc.

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(c): Technologies for end-use applications, including modification and

development of engines for the transportation sector based on a large scale

centralized approach, and for stationary applications for motive power and

electricity production based on a decentralized approach.

(d): Utilisation of by-products of bio-diesel and bio-ethanol production

processes such as oil cake, glycerin, bagasse, etc.

5.21 Demonstration Projects will be set up for biofuels, both for bio-diesel

and bio-ethanol production, conversion and applications based on state-of-the-

art technologies through Public Private Partnership (PPP).

5.22 For R&D and demonstration projects, grants would be provided to

academic institutions, research organizations, specialized centers and industry.

Strengthening of existing R&D centers and setting up of specialized centers in

high technology areas will also be considered. Linkages would be established

between the organizations / agencies undertaking technology development and

the user organizations. Transfer of know-how would be facilitated to industry.

Participation by industry in R&D and technology development will be

encouraged with increased investment by industry with a view to achieve global

competitiveness.

5.23 In regard to Research and Development in the area of biofuels, a Sub-

committee under the Biofuel Steering Committee proposed in this Policy

comprising Department of Bio-Technology, Ministry of Agriculture, Ministry of

New and Renewable Energy and Ministry of Rural Development would be

constituted, led by Department of Bio-Technology and coordinated by the

Ministry of New and Renewable Energy.

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6.0 QUALITY STANDARDS

6.1 Development of test methods, procedures and protocols would be taken

up on priority alongwith introduction of standards and certification for different

biofuels and end use applications. The Bureau of Indian Standards (BIS) has

already evolved a standard (IS-15607) for Bio-diesel (B 100), which is the

Indian adaptation of the American Standard ASTM D-6751 and European

Standard EN-14214. BIS has also published IS: 2796: 2008 which covers

specification for motor gasoline blended with 5% ethanol and motor gasoline

blended with 10% ethanol.

6.2 The Bureau of Indian Standards (BIS) would review and update the

existing standards, as well as develop new standards in a time-bound manner for

devices and systems for various end-use applications for which standards have

not yet been prepared, at par with international standards. Guidelines for product

performance and reliability would also be developed and institutionalized in

consultation with all relevant stakeholders. Standards would be strictly enforced

and proper checks would be carried out by a designated agency on the quality

of the biofuel being supplied.

7.0 INTERNATIONAL COOPERATION

7.1 International scientific and technical cooperation in the area of biofuel

production, conversion and utilization will be established in accordance with

national priorities and socio-economic development strategies and goals.

Modalities of such cooperation may include joint research and technology

development, field studies, pilot scale plants and demonstration projects with

active involvement of research institutions and industry on either side.

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Technology induction/ transfer would be facilitated, where necessary, with time-

bound goals for indigenisation and local manufacturing. Appropriate bilateral

and multi-lateral cooperation programmes for sharing of technologies and

funding would be developed, and participation in international partnerships,

where necessary, will also be explored.

8.0 IMPORT AND EXPORT OF BIOFUELS

8.1 Import of biofuels would only be permitted to the extent necessary, and

will be decided by the National Biofuel Coordination Committee proposed

under this Policy. Duties and taxes would be levied on the imports so as to

ensure that indigenously produced biofuels are not costlier than the imported

biofuels. Import of Free Fatty Acid (FFA) oils will not be permitted for

production of biofuels.

8.2 Export of biofuels would only be permitted after meeting the domestic

requirements and would be decided by the National Biofuel Coordination

Committee.

9.0 ROLE OF STATES

9.1 The role and active participation of the States is crucial in the planning

and implementation of biofuel programmes. The State Governments would be

asked to designate an existing agency, or create a new agency suitably

empowered and funded to act as nodal agency for development and promotion

of biofuels in their States. Certain States have already set up such agencies.

Other concerned agencies, panchayati raj institutions, forestry departments,

universities, research institutions etc. would also need to be associated in these

efforts. While a few States have announced policies for biofuel development,

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other States would also need to announce suitable policies in a time-bound

manner in line with the broad contours and provisions of this National Policy.

9.2 State Governments would also be required to decide on land use for

plantation of non-edible oilseed bearing plants or other feedstocks of biofuels,

and on allotment of Government wasteland, degraded land for raising such

plantations. Creation of necessary infrastructure would also have to be facilitated

to support biofuel projects across the entire value chain.

10.0 AWARENESS AND CAPACITY BUILDING

10.1 Support will be provided for creation of awareness about the role and

importance of biofuels in the domestic energy sector, as well as for wide

dissemination of information about its potential and opportunities in upgrading

the transportation infrastructure and supporting the rural economy.

10.2 Significant thrust would be provided to capacity building and training

and development of human resources. Universities, Polytechnics and Industrial

Training Institutes will be encouraged to introduce suitable curricula to cater to

the demand for trained manpower at all levels in different segments of the biofuel

sector. Efforts will also be directed at enhancing and expanding consultancy

capabilities to meet the diverse requirements of this sector.

11.0 INSTITUTIONAL MECHANISMS

11.1 Under the Allocation of Business Rules, the Ministry of New &

Renewable Energy has been given the responsibility of Policy and overall

Coordination concerning biofuels. Apart from this, the Ministry has also been

given the responsibility to undertake R&D on various applications of biofuels.

Responsibilities have also been allocated to other Ministries viz. Ministry of

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Environment & Forests, Ministry of Petroleum & Natural Gas, Ministry of Rural

Development and Ministry of Science & Technology to deal with different

aspects of biofuel development and promotion in the country.

11.2 In view of a multiplicity of departments and agencies, it is imperative

to provide High-level co-ordination and policy guidance / review on different

aspects of biofuel development, promotion and utilization. For this purpose, it

is proposed to set up a National Biofuel Coordination Committee (NBCC)

headed by the Prime Minister. Ministers from concerned Ministries would be

Members of this Committee. The Committee would meet periodically to provide

overall coordination, effective end-to-end implementation and monitoring of

biofuel programmes.

11.3 The National Biofuel Coordination Committee will have the following

composition:

Chairman:

Prime Minister of India

Members:

i. Deputy Chairman, Planning Commission

ii. Minister of New and Renewable Energy

iii. Minister of Rural Development

iv. Minister of Agriculture

v. Minister of Environment & Forests

vi. Minister of Petroleum & Natural Gas

vii. Minister of Science & Technology

viii. Secretary, Ministry of New and Renewable Energy –

Convener

Coordinating Ministry:

Ministry of New and Renewable Energy

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