The Case for Carbon Credits for 1G Ethanol in India
- Sankalp Suman
- Oct 10
- 5 min read
As India sits on the cusp of launching her own carbon markets via the CCTS for the first time, the industry looks keenly to the list of activities that would be eligible to produce carbon credits.
Understanding India's Carbon Market Framework
In a cap-and-trade system like the one India is constructing its carbon market upon, ideally activities undertaken by the obligated entities to reduce their footprints should be generating carbon credits. But after a lot of public outcry and expert inputs, it has since also been decided to include a “voluntary” offset market in the CCTS, which would ease the burden on the obligated entities to directly reduce their emissions.
This move makes logical sense, as the industries currently mandated to reduce their carbon footprint under the CCTS are ones like cement, oil & gas, and aluminum, which can only reduce their emissions directly to a certain point. While it may not be an obvious problem in the first few cycles, without having an alternative offset market in the long term sets the CCTS to be failing in meeting its objectives—either due to the targets being scientifically impossible to meet or the deliberate reduction in the quantum of reductions required so as to continue the scheme.
The Necessity of Offset Markets
Therefore, offset markets are necessary for the health and sustainability of the compliance part of the ICM. While currently these offsets are left to be voluntary in nature, if one is to learn from the models developed by countries like Singapore and South Korea, there would eventually be a mandated component of 5-10% required to be purchased through the offset markets.
However, in all of this jargon and thick layers of policy, one very important opportunity remains missing—which is Indian biofuels, especially the first-generation (1G) ethanol—something that India is producing in abundance but not really cashing upon its whole gamut of benefits vis-à-vis its environmental impact.
Challenges with Current Methodologies for Biofuels
The BM 001 methodology that the BEE has released for public review as part of the “offset” scheme does mention biofuel, but as it is a replica of the CDM methodology on the subject, it presently requires dedicated plantations set up for biofuel production for it to be eligible to produce carbon credits—something that is practically impossible to do in India. When viewed juxtaposed to the Essential Commodities Act, especially in the case of maize and sugarcane, it might even border on being illegal.
While this initial concern may be addressed in forthcoming drafts of these methodologies, other constraints present in it—while allowing next-generation biofuels like second-generation (2G) ethanol—still render carbon credits for 1G ethanol practically impossible.
India's Ethanol Success and the Missed Environmental Opportunity
This should be viewed seriously by our policymakers as a huge missed opportunity for the country, as we have outperformed our own expectations by achieving 20% blending five years before schedule and are most likely to go ahead on increasing the base blend or allowing for flex-fuel blending with 100% ethanol dispensation, as is already available on 400-odd Indian pumps.
While so far the development of the ethanol program has been driven by its ability to replace foreign imports, increase energy security, and augment farmer incomes—the environmental impact of this gargantuan measure is mostly qualitatively assessed and not truly capitalized upon.
This becomes even more relevant when we consider how going above a 20% blend without any price differentiation between gasoline and ethanol would be a big blow to the consumers, with data suggesting an almost 30% loss in efficiency (mileage) when extended up to 100% blend of ethanol.
Economic Hurdles in Ethanol Adoption
Given that the Oil Marketing Companies (OMCs) already face stiff price competition from gasoline prices for ethanol, it is still more difficult for the supply side to create this price parity without some additional scheme or support being provided.
Carbon Credits: A Win-Win-Win Solution
Carbon credits come as a natural win-win-win solution for all of these issues. It has already been quantified under various research and policy papers that 1.2-1.5 tonnes of CO2 is saved by mixing every one kiloliter of ethanol with gasoline due to the same amount of fossil fuel use avoided.
Extrapolating this, India has saved more than 50 million tonnes of CO2 emissions so far and would soon cross even 100 million tonnes in the next two years.
A robust carbon accounting and crediting mechanism would drastically feed into India’s NDC goals and affect it up to as much as 5-7%—an opportunity we have so far missed.
Fitting Carbon Credits into India's CCTS Framework
Now the question remains: how would such a scheme work within the existing framework of Indian CCTS? And the easy answer is: it will not.
When we look at global precedents where carbon-based credits are given for 1G ethanol production, like in Brazil and the USA—it is a dedicated scheme addressing this singular issue.
Learning from Global Precedents
While the Inflation Reduction Act 2022 (IRA) in the US gives tax credits based on carbon reductions, Brazil’s RenovaBio policy mandates the OMCs to buy these credits from the ethanol producers, and these credits are traded in open markets with the ethanol producers competing to make their product as carbon negative as possible in order to fetch a higher value for their produce.
While this policy is now being extended to other biofuels like CBG and SAF, the very existence of this act makes Brazil aim for achieving a negative footprint for their ethanol, which presently remains at 22gm CO2/MJ.
An important point to note here is that Indian ethanol, due to differences in fertilizer use and the prominence of manual harvesting, is 30-40% less carbon intensive—and this difference really starts showing when we are not able to capitalize in our SAF production, where every gram of CO2 fetches a premium price from the fuel markets.
As a result of RenovaBio, Brazil’s framework has also been easily integrated within CORSIA’s list of carbon intensity for SAF from various feedstocks in various countries, while an Indian number remains woefully missing—causing another missed opportunity for Indian farmers.
Recommendations for Integration and Benefits
So, looking at global examples, India must also mandate the OMCs to either claim these credits as carbon reductions instead of carbon neutrality by purchasing them from ethanol producers. This would:
Create a transparent framework to achieve their own publicly declared net-zero targets, upon which several critical international investments are hinged.
Promote low-carbon production of ethanol and climate-resilient farming in India, which would have cascading benefits of its own.
Now, how this fits into the CCTS is for the policymakers to decide. Either OMCs can get a special exemption from meeting their mandatory targets if they purchase these ethanol carbon credits, or these credits are allowed to be claimed for mandatory reductions in the entire cap-and-trade system as a special category.
Given that the volume of these credits will be in millions, the latter choice might negatively impact the prices of other credits in the cap-and-trade system, and therefore the former seems to be a better choice. Keeping OMCs exempt from CCTS and having a specialized “BharatBio” scheme for Indian biofuels is also another way to go.
Conclusion: Seizing the Immense Gains
What is sure is the many gains that India can have—not just for NDCs but for future internationally traded biofuels like SAF—are immense, so there is enough incentive to make it work even if the answers are not easily visible.
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