NITI Aayog In 2021: Ethanol Blending Will Reduce Petrol Prices
The mass rollout of E20 blended petrol (20 percent Ethanol and 80% petrol) has created a major commotion among vehicle owners in India. In the past few days we saw many voicing concerns around E20 fuel and their use in older vehicles. Adding to this, E20 petrol hasn't become much cheaper, despite the lower production costs. Interestingly, the NITI Aayog had recommended a reduction in E20 petrol prices in 2021. It further asked the government to introduce tax breaks for users of blended fuel. This would help in bringing the cost further down. It had also said that the transition will be successful only if blended petrol comes cheaper than the regular one.
Image: Screenshot of the NITI Ayog report
The NITI Aayog report from June 2021, said that shifting to E20 fuel could bring savings of Rs 30,000 crore every year and could also offer 'equivalent efficiency at lower cost than petrol'. The body insisted the price of blended fuel to be lower than that of the purer form, for this.
This will be realised by bringing tax breaks as well. The lower price, the body hoped, would compensate for the mileage drops brought about by the lower calorific value. It looked quite promising (and logical) in theory. Who would complain of getting a lower mileage if the fuel price is low enough to compensate for it?
It is also to be noted that in other countries, vehicles compatible with higher ethanol blends were incentivised with tax cuts and other benefits and India should ideally take a similar approach as well.
How It Panned Out
The report and the ideas it put forward, looked interesting. But as it turns out, severe price parity exists between E20 petrol and unblended petrol. E20 is being sold at almost the same price, if not higher in some cities. If we look at the split, the Ethanol-blended petrol is significantly cheaper than the purer versions. E20 has a wholesale price of around Rs 61/l (including GST) in Delhi. The purer versions cost Rs 95/l. This means that even at pumps, the blended fuel should be notably cheaper than the other. It is, however, not the case.
The price parity is driven by various taxes (excise duty, VAT) and duties. Blended and purer forms priced close to each other essentially takes away the biggest reason to forgive the mileage drop and other concerns that E20 brings to the table. In the larger picture, many users claim that blended fuel is giving them higher cost per kilometre with their current prices and the drops in fuel efficiencies.
In short, for the system to become efficient, the retail price (price at pumps) of E20 petrol should fall in a way that the monetary benefits of the wholesale prices of blended fuels is passed on to the end consumers. The existing parity between the two should be shattered.
Government Admits The Mileage Drop
Earlier this week, the Ministry of Petroleum and Natural Gas had admitted that using E20 petrol will have a 'marginal' impact on the vehicle's fuel efficiency. A social media post further explained that it could be around 1-2 per cent for E10-compliant vehicles, and up to 3-6 per cent for older ones. The government also said that the drop can be reduced with proper engine tuning and by upgrading to E20 compliant parts.
The NITI Aayog report backs this assessment and says that a drop of up to 7% can be estimated in fuel efficiency of four-wheelers which are not E20 compliant. It is important to note that the majority if four wheelers on our roads today aren't E20- ready. The move towards it started only after 2022.
Union Minister Nitin Gadkari has acknowledged the mileage drop as well. He, however, reiterated that the use of E20 fuel will not cause damage to the engine or other key powertrain components.