Wednesday, February 22, 2012

Why no Bio-fuel in India yet?

Background
India is an economy that is in its ascendant phase and with the expansion of the financial base, the nation is seeing never before prosperity levels. During our parents’ generation, owning a house was the primary investment goal, and the car was relegated to a poor fifth or sixth on the priority list, to only appear after house, children’s education, children’s marriage, Television, 2-Wheeler and for the obscenely rich minority, a car. Now, the trend has been reversed and arguably the car and one’s lifestyle figure on the top of the list. This has resulted in Indians owning some 40 Million Cars and about 3.7 Million units being added to the streets each year (2010 figures). This has resulted in an explosion of the demand for lubricants and fuel which are mostly imported and subsidized and has also contributed to enormous pollution concerns in all our towns and cities. Thus, the need of the hour is to tackle the issue of rising oil prices, high cost of subsidy to the Government and to address the problem of growing vehicular emissions polluting the environment.

Concerns
It is of serious concern that the Indian Government seems to have no specific long-term policy to address the issue of our dependence on fossil fuels. We continue to import ever larger quantities of fuels spending billions of dollars in precious foreign exchange each year, and the well-entrenched Oil Industry propagated idea that ‘fossil fuel is cheap and near limitless’ has not even been challenged. This problem is only expected to spiral upwards as the population is seeing increasing affluence and aspirations towards a higher, more western style of living and consumption patterns. Due to the legacy of socialist policy making, the Government has been subsidizing or controlling the price of Diesel fuel as this is the fuel of choice for the transport industry and thus, in the current set up, any increase in the fuel cost (diesel) would invariably lead to a rise in the prices of essential commodities. The subsidy burden is increasing each year due to higher oil prices and the increasing vehicular population, and will continue to do so in the perceivable future until the whole artificially propped set up collapses.

In my view, this subsidy is being funded from money that should be ideally spent on other, more important sectors like health, education or infrastructure, and such an enormous subsidy spending (India's fuel subsidies might cost it as much as $17.5 billion this year, according to Lombard Street Research, a British firm of economists) is unfair to the vast majority of the population, as they depend on the Government to spend on the more critical sectors, to improve their lot, rather than on fuel subsidy that touches only a small section of the needy population.

Even in the issue of encouragement of adopting more fuel efficient cars and thus bring down the fuel consumption per capita, the Government seems to have its eyes crossed. While the world is quickly moving towards and aggressively encouraging the use of EV’s or Electric Vehicles and Hybrid cars that run on fossil fuel initially, but switch over to electric power stored in batteries resulting in dramatically lower tailpipe emissions and lower fossil fuel consumption, the Indian Government does not seem to recognize this class of vehicle as a ‘special product’ and it makes one sad to mention that an imported Hybrid Prius is taxed in exactly the same manner as an obnoxiously fuel guzzling SUV such as the Hummer, @ of some 300%!

Suggestions
Critical and immediate
§  The Government should urgently implement a system of ‘Post Utilization Fuel Subsidy’, wherein only specific sectors that genuinely require the subsidy are targeted and provided the subsidy if needed. Perhaps they can introduce a Pre-paid Registered Transporters Card which will provide subsidized Diesel only to transporters of food and infrastructure goods and the farming sector, etc. This will prevent expensive SUV’s and other elitist toys running on subsidized diesel, while the struggling lower income Motorcycle owner pays a higher price for Petrol because there is an atrocious cross-subsidy component between the two fuels.
§  The Government should immediately request all members of the public who can manage without the fuel subsidy, perhaps the passenger car owners or individuals having incomes above INR 10 Lakh per annum to switch to branded fuels of public sector oil companies or private fuel companies like Reliance, Shell etc. This move will largely have to be voluntary of course, and the Government will need to appeal to the general public to comply, in the larger interest of society.
§  The Government, in addition to the above initiatives, should enact or modify the tax laws that would result in the encouragement of the production, sale and ownership of EV’s and Hybrid Vehicles by making them virtually tax-free so that large numbers of people will be encouraged to switch over to these vehicles, which will go a long way in making our country more self-reliant and environment friendly.
Desirable in the short to medium term
§  The government should strictly implement its already existing rule (The Gazette of India: Extraordinary [Part I- Sec. I] Ministry of Petroleum & Natural Gas Resolution, New Delhi, 3rd September, 2002 No. P-45018/28/2000-C.C.) concerning the blending of fossil-bio fuels mixtures with immediate effect.
§  Bio Diesel from Jatropha seeds should be aggressively promoted and should be mixed with fossil diesel at the maximum permissible ratio which will not require any engine modifications.
§  Methanol or Ethanol blended petrol at the maximum permissible ratio which will not require any engine modifications should also be made compulsory.
§  Suitable additives can be included in the mixture to ensure that the burn will be clean and complete, as well as maintain the current anti-knocking properties of the fuels.
§  All diesels available in the country should be compulsorily made into ‘Ultra Low Sulphur’ grade to reduce SOX emissions.

Benefit to Agriculture, farmers and the environment
§  We have large tracts of fallow lands in the northern districts of Karnataka (and similar lands in backward semi-arid and arid districts across the country) which can be converted into large scale Jatropha growing areas. I understand that these plants can be grown using very poor quality of water, including municipal waste water, which will yield us the benefit of using marginal lands for main stream agriculture, recycle large quantities of municipal waste water, increase green cover and provide much needed income to the subsistence farmers in these districts. Of course, suitable precautions need to be put in place to prevent food growing lands being diverted for bio fuel crops.
§  Intensive research needs to be carried out to identify a suitable grain that can be grown for preparation of ethanol that will be more efficient that cane sugar, which is a water intensive crop and is also quite burdensome to the environment. As ethanol can be misused, it will have to be made unfit for human consumption.
§  I feel that we can achieve a high success rate in the Bio Fuels initiatives and also reduce problems of leakage, corruption and other issues by making the oil companies themselves responsible for acquiring their requirements of the raw materials for the manufacture of the two bio-fuels, and the production of the Fuels, their processing, the blending with fossil fuel and additives etc. can be fully under the control of the oil companies.

Other Benefits
§  It is quite evident that the benefits of implementation of the above measures will result in the saving of about 20% on the fuel import account, as the mixing of bio-fuels in Petrol and Diesel is possible to the extent of E10 / M10 for Petrol and B20 for Diesel, without any infrastructure changes to the oil transport, storage, dispensing mechanisms in place or modifications to the engines running them.
§  Bringing traditionally non-farming lands into agriculture, even for cash crop agriculture, the benefits to the environment and to the farmers can be expected to be dramatic. A clear policy that mandates some safety measures to counter mono-cropping and soil / water table degradation can be put in place, but it is obvious that the benefits far outweigh the possible concerns.
§  Post Utilization Subsidy and the promotion of customers switching to Private Fuel Retailing Companies or Branded Fuels of the Public Sector Oil Companies will result in a massive saving on the Fuel Subsidy Account and leave precious funds for spending on the social sector.
§  The above initiatives, together with the encouragement of the production, sale and ownership of Hybrid Vehicles by making them virtually tax-free so that large numbers of people will be encouraged to switch over will go a long way in making our country more self-reliant and environment friendly.

1 comment:

  1. I'm happy to note that the Government has made a small beginning towards the encouragement of green transportation technologies. In the recent budget, tax breaks were announced for the import of critical components like batteries used in EV's and Hybrids. If this is the evidence of intent, then one is really happy! Please visit http://ictsd.org/i/news/biores/101956/

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