How government aims to save billions in forex with ethanol blended petrol
For a country that imports over 85% of its crude needs, any savings in the oil imports bill is important. With the Middle East conflict and the US-Iran war raising India’s crude oil import cost, the use of ethanol-blended petrol is back in focus. Ethanol-blended petrol is made by mixing ethanol with petrol. Ethanol is a biofuel that is derived from a wide variety of food crops and feed stocks like sugarcane and petrol. Under the Ethanol Blended Petrol Programme, the original target for achieving E20 petrol sales across the country was set at 2030, which was then advanced to 2025-26. From April 1, 2026, the mandated standard petrol across the country is E20. In E20 petrol around 20% ethanol is mixed in petrol.What is the logic for ethanol blending? With a biofuel in the mix, E20 petrol aims at lowering emissions, at the same time reducing the requirement of petrol in the fuel mix, hence also working towards building energy security in the long run.
In fact Union minister Nitin Gadkari has been pushing for 100% ethanol blended petrol which will have over 90% of ethanol in its fuel mix.So, is ethanol blended petrol the way forward for India? What are the advantages and challenges in place? What about industry concerns on fuel efficiency for cars? Where does India stand globally in terms of ethanol petrol adoption?
E20 petrol: Forex & crude bill savings, focus on energy security
As per the latest government estimates, the ethanol blending programme has so far resulted in foreign exchange savings of around Rs 1.59 lakh crore. There has been a reduction of 813 lakh metric tonnes of carbon dioxide emissions. Around 270 lakh metric tonnes of crude oil has been substituted since 2014.According to Sourav Mitra, Partner – Oil & Gas, Grant Thornton Bharat, RBI’s recent research paper presents a compelling case for ethanol blending; it estimates that a 10% rise in crude prices can lead to 0.20% rise in domestic inflation. And the benefits extend beyond the obvious savings in crude import bills. Ethanol blending materially strengthens India’s energy security and cushions the economy from global oil price shocks. Replacing a portion of petrol demand, which is significantly derived from imported crude oil, with domestically produced ethanol diversifies India’s transport fuel basket, says Mitra.
Fundamentally what this does is: it lowers exposure to volatile international crude prices, improves balance‑of‑payments stability during oil price spikes by conserving foreign exchange that would otherwise be spent on imports, and reduces inflationary pressures. CHUA Wei Jun, principal Biofuels analyst at S&P Global Energy provides more perspective: India’s ethanol blending program has made notable progress in reducing the country’s reliance on imported crude oil. In 2025, the initiative was estimated to reduce crude processing by about nine percent and is projected to increase further in 2026, as it achieved a 20% blending rate since late last year. This roughly translates to around one billion dollars savings due to decreased crude import requirements and projected to nearly double as the crude price remains high due to war related supply disruption.
Benefits beyond energy security & crude oil bills
Benefits for the agriculture sector have also been noted by experts. Ethanol blending creates a stable, counter‑cyclical domestic demand for agricultural produce, it redirects energy spending from overseas oil suppliers to Indian farmers and rural industries, thereby strengthening rural incomes and reducing macroeconomic vulnerability during global energy disruptions, says the Grant Thornton India expert.Manas Majumdar, Leader Oil & Gas, Fuels & Resources, PwC India says that the EBP helps in diversifying transport fuel supply, and also building domestic value chains that cushion the economy when global crude prices spike. The EBP helps by
- Building greater resilience through stronger domestic supply chains: Government measures to support the EBP such as expanding permitted ethanol feedstocks, administered pricing for molasses based ethanol procurement, enabling long‑term offtake agreements (LTOAs) between OMCs and dedicated ethanol facilities, supporting advanced biofuel projects (including lignocellulosic/2G pathways) through schemes such as PM JI‑VAN, facilitating multimodal ethanol movement, and expanding ethanol storage and handling infrastructure, collectively help build a robust domestic biofuel ecosystem, says Majumdar.
- Strengthening the rural economy: EBP has facilitated direct payments of more than Rs 1.4 lakh crore to farmers over the last decade, directly supporting farm incomes and strengthening the rural economy. And if global oil price spikes can impact prices and demand; ethanol-linked rural income flows can potentially act as a partial stabilizer, especially in agrarian regions of India.
“Internationally, Brazil’s long-standing E27 gasoline blend and flex-fuel vehicle ecosystem show how biofuels can structurally reduce oil-price vulnerability by enabling consumers to switch fuels based on relative prices. For India, the same logic strengthens energy security, rural income stability, and supply diversification,” he says.
CHUA Wei Jun of S&P Global Energy is of the view that ethanol blending has provided the sugar industry with a stable and reliable revenue stream, mitigating the volatility in the sugar market, absorbing surpluses and incentivizing farmers.Moreover, the life-cycle emissions of ethanol blended petrol are significantly lower than those of unblended petrol, aligning the initiative with India’s long-term net-zero goals as well.
Ethanol blended petrol: Challenges & concerns
But while the savings in forex and energy security benefits stay, there are still several challenges that exist and need to be streamlined to maximise the gains. For one, there is always the debate on food versus fuel security. If emphasis is on feed for the blend, then will food security take a hit? There are also concerns about the impact of E20 petrol, and increasingly more blended variants of petrol on cars.Last year, the government sought to allay concerns by quoting studies conducted by NITI Aayog, IOCL, ARAI and SIAM. According to the government, concerns around significant mileage loss, vehicle damage and insurance issues are largely unfounded, with any efficiency impact being marginal while E20 offers higher octane levels, better engine performance and lower carbon emissions.
At the same time, some concerns persist among users of older, non‑E20 compliant vehicles, particularly around performance and transition readiness. “Going forward, this underscores the importance of a well‑sequenced rollout, supported by improved consumer awareness, vehicle calibration, and gradual fleet transition,” says Saurav Mitra.But other challenges are there, and ones that will need to be addressed, if the government is looking to scale up the ethanol blending percentage. Some of these are:
- Feedstock challenge: There is dependence on sugarcane, maize and grains. This in turn creates supply volatility amid food-vs-fuel concerns and seasonal availability cycles.
- Capacity challenge: Experts point to heavy reliance on 1G ethanol which directly makes use of the food crop. They suggest scaling up 2G ethanol production and feedstock sourcing. Experts say that scaling up 2G and 3G ethanol can help reduce the dependence on food crops by using crop residues, agricultural waste, lignocellulosic biomass and other renewable feedstocks.
- Logistics challenge: The production is currently concentrated in a few states. Hence there is a need for stronger transport, storage and blending infrastructure.
- Storage & distribution gap: More blending terminals, dedicated tanks and depot-level segregation for E0, E10 and E20 fuels are needed.
- Sustaining E20: There needs to be reliable year-round feedstock supply and efficient nationwide logistics to maintain higher blending levels.
- Water consumption varies significantly across feedstocks. Rice-based ethanol is estimated to require around 10,790 litres of water per litre of ethanol, compared with roughly 4,670 litres for maize and 3,630 litres for sugarcane, highlighting the need to favour less water-intensive feedstocks wherever possible.
- India currently has an overall ethanol blending target under the Ethanol Blended Petrol Programme, but no separate target for 2G ethanol. Introducing phased 2G ethanol sub-targets could create assured demand, strengthen investor confidence and steadily increase the share of advanced biofuels.
- Advanced biofuels are still at an early stage of scale-up in India, making continued R&D, technology upgrades and innovation critical for long-term success.
International standards
Globally, Brazil is seen to be the ‘gold standard’ in adoption of ethanol-blended petrol.Brazil represents the global upper benchmark, currently operating at E30, with a proposal to raise the mandatory blend to 32%, as a next step. Widespread ethanol availability, decades of investment in flex‑fuel vehicles, sugarcane‑based ethanol, and integrated agro‑industrial policies underpin Brazil’s success model and this success is underpinned by flex‑fuel adoption, with over 80% of new vehicle sales capable of running on high ethanol blends, including E100, says Saurav Mitra.In the United States, E10 remains the dominant petrol blend. While E15 is permitted for newer vehicles (post‑2001), its adoption has been constrained by Clean Air Act Reid Vapor Pressure (RVP) limits that restrict summer sales, with year‑round availability largely relying on temporary waivers.
Despite abundant ethanol supply, higher blends have not scaled rapidly due to regulatory uncertainty, infrastructure constraints, and partial vehicle compatibility.In contrast, most EU countries, with the major exception of France which has Superéthanol-E85, continue to operate at E10 blends, reflecting a more cautious approach driven by regional constraints. Against this backdrop, India’s move toward E20 is seen as ambitious, particularly for a predominantly non–flex-fuel fleet. Among major economies, India is surpassed only by Brazil. “The international experience clearly shows that higher ethanol blends scale successfully only when vehicle readiness, feedstock sustainability, and consumer choice evolve in tandem. These provide great lessons for India to reduce the time it takes to catch up to Brazil in terms of ethanol blends,” says Saurav Mitra.The Middle East crisis has brought home with stark clarity the vulnerability in global supply chains and the importance of energy security. As India looks to build more strategic petroleum reserves, its move to diversify into other renewable sources of energy, the move to blend ethanol in petrol to reduce imports will also play a crucial role. However, as experts point out, the step comes with its set of supply chain and implementation challenges which will need to be overcome if the percentage of blending has to be stepped up for more notable gains and for more agriculturally sustainable benefits.
