Executive Summary

India is rapidly accelerating its biofuel adoption as part of its dual agenda of energy security and climate commitments. With fossil fuel import dependence crossing 85% for crude oil and 50% for natural gas, biofuels have emerged as a critical lever to diversify the energy mix, reduce the trade deficit, and lower carbon emissions in hard-to-abate sectors.

Recent policy actions signal both near-term demand creation and medium-term structural transformation:

Compressed Biogas (CBG) – The SATAT initiative (Sustainable Alternative Towards Affordable Transportation) continues to gain traction, with new offtake agreements by oil marketing companies (OMCs) and policy clarity on CBG blending with natural gas.

Ethanol Blending – The E20 target has been advanced to Ethanol Supply Year (ESY) 2025-26, setting a more ambitious timeline that requires rapid scaling of feedstock availability, distillery capacity, and distribution infrastructure.

Sustainable Aviation Fuel (SAF) – With international aviation decarbonization mandates approaching, India has initiated pilot projects for SAF production and is progressing towards refinery readiness, opening a high-value export and compliance-driven demand stream.

These developments are triggering deeper changes across the value chain, from farmers supplying additional feedstock, to companies investing in 2nd generation ethanol plants, to logistics networks adapting for new fuels. The next few years will be crucial in shaping how India balances growth with sustainability, while also positioning itself as a global player in the biofuel space.

 

India’s Net Zero Vision and the Role of Biofuels

Contribution to Energy Security, Rural Economy, and Decarbonization

 

Energy Security

Reduction in Fossil Fuel Imports: By substituting a portion of fossil fuels with biofuels, India can decrease its import bill, thereby enhancing energy security.

Diversification of Energy Sources: Biofuels diversify the energy mix, reducing vulnerability to global oil price fluctuations.

Rural Economy

Income Generation for Farmers: Cultivating biofuel feedstocks provides farmers with additional income sources. For instance, the establishment of bioethanol plants in Gujarat is expected to generate significant income for local farmers.

Job Creation: The biofuel industry encompasses various stages, including cultivation, processing, and distribution, all of which create employment opportunities in rural areas.

Decarbonization

Emission Reductions: Biofuels emit fewer greenhouse gases compared to conventional fossil fuels, aiding in the reduction of overall emissions.

Support for Renewable Energy Targets: The integration of biofuels complements other renewable energy initiatives, contributing to the achievement of India’s renewable energy targets.

Why Biofuels Are Central to the 2070 Net Zero Target?

India’s commitment to achieving net-zero emissions by 2070 necessitates a multifaceted approach, with biofuels serving as a cornerstone in this strategy. Here’s how biofuels contribute:

• Decarbonization of Transportation: The transportation sector is a significant emitter of greenhouse gases. By integrating biofuels like ethanol, compressed biogas (CBG), and sustainable aviation fuel (SAF), India can substantially reduce its carbon footprint in this sector.
• Renewable Energy Integration: Biofuels offer a renewable alternative to fossil fuels, aligning with India’s broader renewable energy goals. They can be produced from various feedstocks, including agricultural residues, municipal waste, and dedicated energy crops.
• Energy Security: Reducing dependence on imported fossil fuels enhances national energy security. Biofuels, being domestically produced, contribute to energy independence.
• Economic Growth and Rural Development: The biofuel industry can stimulate economic growth, especially in rural areas, by creating jobs and providing additional income streams for farmers.

 Current Status of Biofuels in India

1. Ethanol Blending Rates

India’s Ethanol Blended Petrol (EBP) programme has grown rapidly in the last decade.

– In 2014, blending was just 1.5%.

– By 2021, the target of 10% blending was achieved.

– In 2023-24, the average blending rate was 14.6%.

– For the 2024-25 ethanol supply year, blending was around 19.3%.

– As of July 2025, official data shows a blending rate of 19.05%, with some months reaching 19.9%.

India is now very close to achieving its milestone of 20% blending (E20) ahead of the 2025 target.

2. Ethanol Production and Capacity

To support higher blending, ethanol production capacity has been expanded significantly.

– Installed/announced capacity (mid-2025): ~1,700-1,820 crore litres per year.

– Actual supply for blending in 2023-24: ~707 crore litres.

– Feedstocks now include B-heavy molasses, sugarcane juice, damaged food grains, maize, and surplus rice, reducing dependence on just sugarcane.

This rapid increase in capacity has enabled OMCs to procure sufficient ethanol and maintain high blending rates.

3. SATAT / Compressed Biogas (CBG)

The Sustainable Alternative Towards Affordable Transportation (SATAT) scheme, launched in 2018, set a target of 5,000 CBG plants to produce around 15 million tonnes per year of CBG.

Progress so far (2024-25):

– Commissioned plants: 75-110 (depending on source).

– Letters of Intent (LoIs): ~2,200 issued to investors.

– CBG sold in 2023-24: ~19,700 tonnes.

While investor interest is strong, actual commissioning is slow due to feedstock logistics, financing challenges, and coordination with city gas networks.

4. Sustainable Aviation Fuel (SAF)

India is moving from policy discussions to pilot projects in SAF.

– Indian Oil Corporation (IOC) is upgrading its Panipat refinery to produce ~30,000 tonnes of SAF per year from used cooking oil, with operations expected by 2026.

– Delhi IGI Airport has been chosen for pilot SAF trials to test the logistics and supply chain for airlines.

– Government discussions set indicative blending targets of 1% SAF by 2027 and 5% by 2030.

The challenge lies in feedstock availability (mainly used cooking oil) and the higher cost of SAF compared to conventional jet fuel.

5. Key Takeaways

– Ethanol blending is on track to achieve 20% by 2025, supported by strong capacity expansion.

– SATAT has generated huge interest, but the gap between LoIs and actual commissioned plants highlights execution hurdles.

– SAF is still at a pilot stage, but refinery readiness and airport trials mark a big step forward.

– Together, these biofuel initiatives will help India reduce oil imports, support rural income, and move towards its Net Zero 2070 vision.

Technology Pathways for Biofuels in India

First-Generation (1G) Ethanol – Sugarcane & Grains

• Made from sugarcane juice, molasses & food grains.
• Main driver of India’s ethanol blending program.
• Supports farmers & reduces oil imports.

Second-Generation (2G) Ethanol – Crop Residues & Biomass

• Uses crop residues like rice straw, corn cobs, bagasse.
• Prevents stubble burning & improves sustainability.
• Several new plants being set up under government push.

Bio-CNG (Compressed Biogas) – Waste-to-Energy

• Produced via anaerobic digestion of organic waste.
• Can replace LPG & CNG in transport and households.
• Part of the SATAT scheme with hundreds of plants coming online.

Sustainable Aviation Fuel (SAF) – Future of Flying

• Made from feedstocks like used cooking oil & biomass.
• Produced through HEFA (Hydroprocessed Esters and Fatty Acids): From used cooking oil, waste fats, vegetable oils , ATJ (Alcohol-to-Jet), FT (Fischer–Tropsch): From gasified biomass or municipal solid waste.
• Refineries in India are running SAF pilots for airlines.

 

Feedstock Availability & Value Chain Considerations

1. Sugarcane, grains & rice

• India’s sugar output is projected to decline from 31.5 MMT (2023-24) to 25.7 MMT (2024-25).
• To safeguard sugar availability, the Government has restricted the use of cane juice and B-molasses for ethanol.
• As a result, ethanol production is shifting towards grains and surplus rice, with the FCI allocating 5.2 MMT of rice in 2024-25.
• Ethanol output is expected to reach ~10.5 BL in 2025, close to the E20 blending requirement.
• However, large-scale rice diversion raises food security concerns, particularly in years of weak harvests.

2. Agri-Residues & Waste Utilisation

• India generates 500-550 MMT of crop residues annually, a significant share of which is burnt, causing severe air pollution.
• 2G ethanol plants (Reliance Jamnagar, IOCL Panipat) are pioneering the use of paddy straw and other residues.
• Bio-CNG (CBG) projects under SATAT also utilise cattle dung, press mud, and crop waste, offering a scalable, non-food-based pathway.
• These initiatives reduce the “food vs fuel” conflict and support long-term feedstock sustainability.

3.Logistics and Supply Chain Challenges

• Collection & Storage: Residues are seasonal and bulky, with limited storage and processing infrastructure.
• Transport Costs: Biomass transport becomes uneconomical beyond 50-100 km, making decentralised biorefineries more viable.
• Rice Diversion: Supplying subsidised FCI rice to distilleries adds fiscal and logistical burdens.
• Food vs Fuel: With global grain price volatility, excessive reliance on food grains for ethanol could create economic and political trade-offs.

 

Market Outlook and Demand Projections

Ethanol (E20 – 20% Ethanol in Petrol):

• India currently produces around 5.8 billion litres of ethanol a year, enough for about 12% blending with petrol. To meet the E20 target (20% ethanol blending by 2025-26), demand will need to grow to 10-11 billion litres annually. This means expanding both 1G ethanol (from sugarcane and grains) and 2G ethanol (from agricultural residues and other biomass).

CBG (Compressed Biogas – SATAT programme):

• Today, India produces roughly 5 billion standard cubic meters (SCM) of compressed biogas. The SATAT initiative aims to scale this to 15 billion SCM by 2030, supporting cleaner fuels for transport through more biogas plants across the country.

SAF (Sustainable Aviation Fuel):

• Currently, SAF production is very small (<0.1 million tonnes). But with India’s growing aviation sector and global climate targets, SAF demand could rise to around 1.5 million tonnes by 2030, produced from waste oils, alcohol-to-jet, and other advanced processes.

Risks & Challenges

Food vs. Fuel

• Using crops for biofuels can reduce food availability and push up prices.
• Land allocation between food and fuel requires careful planning to avoid social and economic issues.

Technology Scale-Up (2G Biofuels & SAF)

• 2G Biofuels: Made from crop residues and waste, but production is expensive and feedstock supply is inconsistent.
• SAF (Sustainable Aviation Fuel): Growing demand, but high costs and limited production infrastructure slow progress.

Investment & Financing Hurdles

• Large investments are needed, but uncertain returns and long payback periods discourage investors.
• Policy changes and immature markets make financing challenging.
• Example: Shell wrote off $600 million in 2025 due to a biofuels project cancellation.

Regulatory Uncertainties

• Rules for biofuels and SAF differ across countries, making compliance costly and complex.
• Changing policies can impact project viability.
• Example: EU’s ReFuelEU Aviation requires increasing SAF blending (2% in 2025 & 70% by 2050), but limited supply and high costs create challenges.

Opportunities for Industry & Investors

 

1.Ethanol: Growth in the Fuel Sector

Market Expansion & Blending Targets:

India aims to achieve 20% ethanol blending in petrol by 2025. In 2024-25, the average blending rate is already around 19.3%.

Market Size & Production:

The Indian ethanol market was valued at $6.5 billion in 2023 and is expected to grow to $10.45 billion by 2029, at a CAGR of 8.8%.

Key Players & Investment Opportunities:

Leading companies like Shree Renuka Sugars, Balrampur Chini Mills, and Triveni Engineering are well-positioned to benefit from rising ethanol demand. Government blending mandates and incentives create a stable investment environment.

2.Compressed Biogas (CBG): Emerging Opportunities

Market & Policy Support:

Under the GOBARdhan scheme, India has set up over 100 CBG plants, with more under development. CBG helps manage agricultural waste, reduces methane emissions, and provides renewable energy.

Regional & Private Sector Focus:

States like Uttar Pradesh, Maharashtra, and Punjab are becoming hotspots due to agriculture and government support. Private companies are increasingly investing in CBG infrastructure, encouraged by favorable policies and incentives.

3.Sustainable Aviation Fuel (SAF): Strategic Growth Area

Market Outlook:

Global SAF supply doubled in 2024, and demand is projected to reach around 2 million tonnes by 2025. The EU and UK are introducing SAF mandates to support adoption.

Investment & Infrastructure Needs:

Significant investment is required in production facilities, distribution, and blending infrastructure. Public-private partnerships are essential to scale up production and integrate SAF into existing aviation fuel supply chains.

4.Role of Public-Private Partnerships (PPPs)

Policy Implementation:

PPPs help implement biofuel policies effectively, aligning government goals with industry capabilities.

Infrastructure Development:

Collaborations between public and private entities are key to building the necessary production and distribution infrastructure.

Strategic Importance:

Strong PPPs are critical for sustainable growth, helping India meet its renewable energy targets and ensuring long-term development of the biofuels sector.

India’s Biofuels Policies & Investments

1. National Policy on Biofuels

• Targeting 20% ethanol blending in petrol by 2025
• Ethanol can be produced from sugarcane juice, molasses, and other feedstocks
• Oil companies already achieved nearly 19.3% blending in 2024-25

2. Pradhan Mantri JI VAN Yojana

• Supports 2nd Generation (2G) ethanol from agricultural residues
• Government provided ₹1,970 crore for commercial and demo plants
• Reduces water use and promotes sustainable ethanol production

3. GOBARdhan Scheme

• Promotes Compressed Biogas (CBG) plants across India
• Over 100 plants operational, more in development
• Helps manage waste, reduce methane emissions, and generate renewable energy

4. SATAT Scheme

• Encourages CBG production and use as an alternative to CNG
• City Gas Distribution companies must blend up to 1% CBG in fuel by 2025-26

5. State Level Initiatives

• Punjab: Pilot project for green hydrogen from paddy straw
• Gujarat: Amul producing bioethanol from whey; investing ₹70 crore to expand
• Karnataka: Promotes biofuel use to reduce emissions and support sustainability

6. Global Biofuels Alliance (GBA)

• Launched at G20 2023 to promote sustainable biofuels
• India is a key member along with 22 countries and 12 organizations