Want Cheaper E20 Petrol? Govt Says NO!

The Ministry of Petroleum and Natural Gas has responded to growing public confusion over the cost of E20 petrol, clarifying that ethanol-blended fuel is currently more expensive to produce than conventional petrol. This official explanation counters public perception that ethanol-based fuel should be cheaper, a belief largely rooted in older data and assumptions that no longer hold true.

When ethanol blending policies were originally framed, ethanol was indeed cheaper than petrol. Reports like the one from NITI Aayog in 2020-21 projected consumer savings from ethanol blends based on that pricing gap. But as market dynamics have shifted, those early assumptions have become outdated.

The average procurement cost of ethanol, including transport and GST, now stands at Rs 71.32 per litre. In contrast, the base price of petrol in Delhi is Rs 52.83 per litre. When taxes and dealer commissions are added, petrol retails at Rs 94.77 per litre, but the raw material itself remains cheaper than ethanol.

This reversal in cost structure has effectively eliminated any scope for ethanol-blended petrol to undercut regular petrol in price at the pump. And with ethanol prices tied to agricultural procurement frameworks and production costs, the government sees limited room for downward adjustment in the short term.

Energy Content and Efficiency Complicate the Picture

Beyond procurement costs, ethanol’s lower energy density also poses challenges. Ethanol contains around 33 percent less energy than petrol, which directly impacts fuel economy. Studies have shown that E10 fuel, which blends 10 percent ethanol with petrol, typically results in a 3 percent drop in fuel efficiency. With E20, now the standard across most of India, the drop in efficiency may be closer to 6 percent in vehicles not calibrated for higher ethanol content.

The ministry, however, has pushed back against suggestions that the fuel economy losses are drastic. Officials say that mileage depends on various factors including engine tuning, vehicle condition, driving habits, and maintenance. They argue that in real-world conditions, many of these factors outweigh the effect of fuel blend alone.

There’s also the matter of compatibility. Some manufacturers have been selling E20-compliant vehicles since 2009, and for these engines, the impact on fuel economy is believed to be negligible. The ministry maintains that as more E20-ready vehicles hit the roads, consumer experience will improve and the concerns around efficiency loss will diminish over time.

Policy Push for Biofuels Remains on Track

Despite cost concerns, the government is continuing with its ethanol blending programme. The National Policy on Biofuels, introduced in 2018, initially set a target of 20 percent ethanol blending by 2030. This was later advanced to 2025-26. Blending has steadily increased, averaging 12.06 percent in 2022-23 and rising to 14.6 percent the following year. By February 2025, the blending rate had reached 19.6 percent, effectively hitting the 20 percent target ahead of schedule.

This achievement reflects the logistical and infrastructural improvements made over the last few years, even as pricing remains a challenge. Ethanol production capacity currently stands at 1,364 crore litres annually, with key producing states including Uttar Pradesh, Maharashtra, and Karnataka. The blend targets are theoretically achievable based on current capacity, though implementation hurdles such as transport costs and regional demand mismatches persist.

Government support has included fixed procurement pricing, 5 percent GST on ethanol used for blending, and soft loans for expanding production facilities. These interventions aim to strike a balance between making ethanol production economically viable and keeping blended fuel affordable for consumers.

Farm Income and Rural Benefits Strengthen Justification

While ethanol may not offer immediate savings at the pump, policymakers argue that its broader economic benefits justify continued investment. Ethanol production has had a measurable impact on crop prices, especially corn and sugarcane. Corn prices, for example, have jumped to Rs 2,600 per quintal from around Rs 1,200, providing farmers with better income and encouraging diversification.

The sugar industry has also seen positive effects. By creating a reliable outlet for excess sugarcane production, ethanol has helped address long-standing payment delays to farmers. The government sees this as a critical intervention to prevent rural distress and reduce the risk of farmer suicides.