Biofuels and compressed biogas (CBG) play a crucial role in decarbonising the oil and gas (O&G) sector, by providing renewable alternatives to fossil fuels. Biofuels, derived from organic materials, can significantly reduce greenhouse gas emissions, when blended with conventional fuels in transportation and industrial applications. To this end, India has been promoting biodiesel and ethanol blending to decarbonise the oil sector. CBG produced from agricultural waste, sewage and organic waste serves as a clean substitute for natural gas, reducing the carbon footprint of energy production. In India, the government is working towards blending CBG for the city gas distribution (CGD) network in a bid to decarbonise the gas sector. These renewable energy sources help diversify the energy mix, decrease the dependency on fossil fuels and drive the transition towards a more sustainable and low-carbon energy system in the O&G sector.
Renewable Watch delves into the current status, policy interventions, challenges and future outlook across the biodiesel, ethanol blending and CBG segments…
India is the world’s third largest primary energy consumer, as per The Energy and Resources Institute. The country’s heavy reliance on imported crude petroleum – accounting for over 80 per cent of its energy needs – underscores the importance of alternative energy sources. This dependency poses significant economic and strategic challenges, especially in light of volatile global oil markets and increasing climate change concerns. In response, the Indian government has set an ambitious target of reducing carbon emissions by 30-35 per cent by 2030 under its Nationally Determined Contributions. Under this strategy, the government has prioritised the development of biofuels, as witnessed by the rapid growth of the biofuel sector, over the past few years.
Biodiesel
Biodiesel is a critical component of India’s strategy to diversify its energy mix and reduce dependence on crude oil imports. The government targets 5 per cent blending of biodiesel in diesel by 2030, as per the National Policy on Biofuels. To this end, the government has introduced several key initiatives such as the reduction of goods and services tax on biodiesel to 5 per cent and promotion of the use of non-edible oilseeds, used cooking oil and other alternative feedstocks. These incentives have helped the uptake of more biodiesel by oil marketing companies (OMCs). Between April and November 2024, public sector OMCs procured 366.8 million litres of biodiesel, an increase from 292.5 million litres during the same period in 2023.
Ethanol blending
India’s Ethanol Blending Programme (EBP) has made remarkable progress, with blending levels reaching 16.23 per cent in December 2024, compared to 14.6 per cent in October 2024 at the end of the Ethanol Supply Year (ESY) 2023-24. The programme targets 20 per cent of blending in petrol till ESY 2025-26 and perhaps plans to further raise the blending percentage after achieving this target. Moreover, the government has proposed blending targets of 1 per cent in 2027 and 2 per cent in 2028 (initially for international flights) for sustainable aviation fuel.
Ethanol production capacity has doubled in four years to 16.23 billion litres in September 2024, contributing to Rs 1,086 billion in foreign exchange savings since 2014. Public sector OMCs have introduced E20 petrol (20 per cent ethanol) at over 17,400 retail outlets nationwide. Over the past decade, the EBP has contributed to a net reduction of 557 lmt of carbon emissions and facilitated Rs 924 billion in payments to farmers, highlighting the government’s commitment to achieving the 20 per cent blending target. Additionally, OMCs have made disbursements of Rs 1,459.3 billion to distillers and Rs 875.58 billion to farmers, further bolstering the agricultural economy and promoting rural income.
The Pradhan Mantri JI-VAN Yojana has been instrumental in driving ethanol production. With Rs 908 billion allocated for second-generation ethanol projects, the scheme promotes the use of lignocellulosic biomass and agricultural residues. Amendments in August 2024 extended the scheme to financial year (FY) 2028-29 and the inclusion of advanced biofuels produced from lignocellulosic feedstocks such as agricultural and forestry residues, industrial waste, synthesis (syn) gas and algae in place of 2G ethanol and introduced the new aforementioned blending targets.
CBG
The CBG segment has seen robust policy and industry support under the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative, launched in October 2018. The SATAT programme set a target of establishing 5,000 CBG plants by 2025, aiming to produce 15 million metric tonnes annually. However, progress has been slower than anticipated. As of December 2024, only 80 CBG plants were operational and 72 are under construction, as per the Rajya Sabha question-answers. Further, various private sector entities have announced their plans to set up CBG plants, with the number exceeding 550.
To accelerate CBG integration, the government launched the CBG-CGD Synchronisation Scheme, mandating GAIL to synchronise CBG with CGD networks. According to GAIL, as of January 2025, this scheme facilitated the supply of approximately 130,000 SCMD of biogas (2,943 mt) through 80 CBG producers and 32 CGD entities. Additionally, the government allocated Rs 9.94 billion for FY2024-26 for the Development of Pipeline Infrastructure Scheme, enabling pipeline connectivity for 100 CBG projects. This scheme addresses logistics bottlenecks by funding pipeline connectivity between CBG plants and CGD networks, reportedly enabling pipeline connectivity for 100 CBG projects. Financial assistance of up to Rs 287.5 million per project has been allocated for pipeline infrastructure. Further, the National Biofuel Coordination Committee has mandated a phased CBG blending obligation for CGD networks, starting with 1 per cent blending in FY2025-26 and rising to 5 per cent by FY2028-29. To incentivise investment, the Ministry of New and Renewable Energy provides concessions such as interest subventions and continued the issuance of concessional customs duty certificates for the establishment of CBG projects.
Challenges and future outlook
Despite robust policy support, the biofuels and CBG segments face several challenges. While biodiesel adoption has increased, challenges remain in the consistency of feedstock availability such as UCO and non-edible seeds, limiting scalability. The production of biodiesel is limited by the low supply of these critical inputs. Ethanol production is constrained by its dependency on sugarcane and maize, both water-intensive crops. The majority of vehicles in India, especially pre-BS VI models, are not compatible with E20 fuel, necessitating a phased implementation. Meanwhile, the CBG segment struggles with the high capital cost of setting up plants as well as producing CBG and logistics challenges in transporting the feedstock. Inefficient supply chains and inadequate storage facilities add to operational challenges.
The government’s long-term strategy includes incentivising farmers to grow non-edible oil crops and easing regulatory barriers to biodiesel blending. Furthermore, India’s commitment to promoting advanced biofuel technologies such as 2G/3G ethanol and sustainable aviation fuel is a significant step towards achieving the same. Further, innovations in waste-to-CBG technologies and streamlined supply chains are essential for accelerating progress. The government, in response to these challenges, has taken several measures such as interest subvention schemes, administered pricing mechanisms and tax incentives.
Looking ahead, the biofuel market is poised for substantial growth. Valued at $44 billion in 2023 by Wood Mackenzie, it is projected to grow to $125 billion by 2050, with a potential to reach $500 billion under net zero scenarios. To realise this potential, the government must focus on monetising by-products such as organic manure and expanding carbon credit trading. Additionally, amendments to the Pradhan Mantri JI-VAN Yojana and SATAT scheme are expected to attract greater private sector investment. International partnerships such as the Global Biofuels Alliance and collaborations with Brazil and Italy are expected to improve feedstock utilisation, enhance production efficiency and facilitate the development of advanced biofuels such as lignocellulosic ethanol and gas fermentation.
India’s biofuel and CBG segment is poised for significant growth, driven by a strong policy support, private sector participation, technological advancements and international collaborations. These segments will remain integral to the country’s renewable energy strategy, having the potential to significantly contribute to India’s green energy goals, reduce dependence on fossil fuels and decarbonise the O&G sector.
