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November 2015 Sectoral

Published on: 2015-11-25 13:22:04     1986 times read    1  Comments
Ethanol Production : Prospects and Challenges

--By Krishna Pokharel 

No matter what the underlying reason for India’s unofficial blockade on Nepal is, it’s once again proved that Nepal is highly dependent on its southern neighbour for petroleum (Diesel, petrol, kerosene, LP Gas etc) supplies. India knows this very well very well and on occasions uses this as an arm-twisting strategy against Nepal. If we were importing petroleum products from other countries such as China or third countries, perhaps the impact of the blockade would be minimal. 

The fact is the undeclared blockade creates fuel scarcity in Nepal. Therefore, we should seriously work on the development of alternative sources of energy instead of just importing it from India. We could develop and promote renewable energy like solar, wind, ethanol production etc. Many inputs such as sugarcane, corn, sorghum, corn stover can be used for ethanol production. However, in this article I would only emphasise on the ethanol production from sugarcane, which is highly feasible in Nepal. There are already many sugar mills operating in Nepal. We can use the residuals obtained during sugar production for ethanol production. 

The production of ethanol would be feasible in less than six months, as claimed by entrepreneur Arun Chand in an interview with a news website recently. He further added that the sugar industry can provide about six thousands kilolitres of ethanol per year at the current capacity. This indicates that our sugar industry is in a good shape to provide enough inputs for ethanol production. 

Govt’s Role
Each and every finance minister talks about the blending of ethanol in petrol, but Nepal Oil Corporation (NOC) has not done anything in this regard. Learning from past severe scarcities of petroleum products, NOC can start the process of blending ethanol in petrol right away. If we start blending by just 10 percent, it increases the supply by 10 percent of the total supply. In other words, it also decreases Nepal’s dependency on petrol by 10 percent. 

Blending ethanol in petrol is not a new concept, though it has not been done in Nepal. Many countries in the world such as the United States, Brazil, many EU countries, and even African nations like Ghana are blending ethanol in proportion from 10 percent to 15 percent, in general. Most of these countries made it mandatory to blend ethanol into petrol.  For instance, the government of Brazil made it mandatory to blend ethanol with gasoline ranging from 10 percent to 25 percent in 1976. 

Car companies, in the Brazilian car industry, like Chevrolet, Ford, Volkswagen, Honda, Mitsubishi, Toyota etc developed flexible-fuel vehicles that can run on any proportion of gasoline (E10-E25 blend) and hydrous ethanol (E100). In Brazil, there are many automobiles which can operate on 100 percent ethanol. It was made possible by government policies which encouraged the car industry to produce those types of automobiles. Specifically, sugarcane ethanol in Brazil represented about 16.7 percent of the country's total energy consumption by the automotive sector in 2007. Most of the sugarcane production concentrated in the Pernambuco states, the Northeast region of the country. 

The above example is used to show the role of the government in developing renewable energy. The government can subsidise the initial stage and phase it out when the ethanol industry becomes more competitive and mature enough to absorb the market shock. Many people may question why the taxpayers’ money should be given to this industry. This argument is reasonable, but we need to pay some costs on something to be less dependent on the foreign market.

For example, the federal government of the United States provided more than USD 20 billion in subsidies on corn ethanol; most ethanol is produced from corn in the U.S., but the tax credit on corn ethanol was ended in 2012. However, some other renewable products such as pure biodiesel and renewable diesel that meet federal specifications are eligible for USD 1.00 per gallon (3.785 litres) tax credit upon use or sale.

However, these examples do not mean that tax credit or subsidies are mandatory for ethanol production in Nepal. My point here is that if the private sector is not able to produce ethanol on a market-level basis, then the government may support them for a short period of time. 

To bring the available residual from the sugar mills to the market, the government can make it mandatory to blend ethanol in petroleum products (gasoline). For example, in the US, a 10 percent mix of ethanol in gasoline is mandatory by law. Similarly, Brazil uses sugarcane ethanol for mixing with fossil fuel (petroleum products). Brazil is the world’s second largest producer and exporter of ethanol. The mandatory policy increases ethanol consumption and eventually deceasing the demand for fossil fuel, which is a big step for moving in a direction of being relatively less dependent on imported fuel. 

Prospects of Ethanol in Nepal
There are many reasons for moving in the renewable energy direction, but one of the critical reasons is for the sustainable production of energy to meet growing demand. In Nepal, potential biofuel crops are Jatropha, corn, soybean, sugarcane. As mentioned by Dr A N Das and Manahari Khadka in the joint MFSE and NPC Nepal for Bioenergy Policy meeting in Nepal, about 100,000 hectares of land is available for the production of these crops, but there is no reliable data available for the current biofuel production status. 

Nepal’s Terai region can produce large amounts of sugarcane. The production of sugarcane has comparative advantages in the Terai because of the flat landscape; they can use heavy machinery for plantation and the harvest of sugarcane, which significantly decreases the cost of production. 

An ethanol plant can make more than one product (ethanol). For example, they can produce whisky (spirit), sugar, electricity from sugarcane biomass, purified carbon dioxide from the fermentation process and methane. Some plants in Pernambuco, Brazil are producing sugar, whisky, electricity in addition to ethanol. It generates higher revenue from sugarcane for a company. It also saves cost through multiproduct production due to the sharing of fixed cost over many products. 

Most importantly, the sugarcane ethanol production increases employment in the local area through the increased production, saves valuable foreign currency from going outside because we need to import less petroleum products and it decreases foreign dependency on petroleum products. In addition, when the demand for ethanol increases, it also increases the demand for sugarcane, then farmers could get fair prices for their products, which will support to increase the income of the subsistence farmers. Now sugarcane producers are obliged to accept the prices of sugar mills due to the lack of enough demand and monopoly of sugar mills in setting sugarcane prices. 

There any many advantages of blending sugarcane ethanol to petroleum products. However, there are some obstacles which could hinder the use of ethanol production. Petrol pumps may need to update their storage, which increases operational costs. Thus, they may not be willing to do it if the government does not make it mandatory. The perception of the users of petroleum products may also affect the use of ethanol. They might worry that the ethanol blended petrol may destroy their car engines. Therefore, further research may be needed to find what impact ethanol blending with petrol will have on locally produced vehicles. 

Pointwise Advantages from Ethanol Production
1. Reduce dependency on international fuel market, make relatively independent. Though 10% is not big enough supply, but this helps domestic market in a situation like the ongoing undeclared blockade. 
2. Increase employment, especially in the areas of sugarcane farms and ethanol production
3. Save  valuable foreign currency, positive impact on the economy
4. Make independent in sugar consumption as well

Challenges in Ethanol Production and Blending Ethanol into Petrol
1. Government may need to provide subsidy or tax credit to ethanol producers 
2. Auto industry may need to upgrade the engine of vehicles. In general, no upgrade in engine is needed for 10% ethanol blend 
3. At the decreasing price of gasoline (petroleum), petrol with ethanol could be expensive

In a nutshell, many developing countries including African countries like Kenya, Ghana etc. have already started blending ethanol in petroleum products. The Nepal government should also make it a mandatory policy. Sooner or later, we should move in the direction of blending ethanol with petroleum products. The blending percentage can be determined based on the scale of ethanol production, type of engine, and so on. I believe, sooner would be better. 

The writer is a Graduate Research Assistant and PhD candidate at the Department of Agricultural Economics, Kansas State University, USA and can be reached at kpokharel@ksu.edu


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Ryan Sharma

A good analysis about renewable energy. It could help to solve the energy issue in Nepal. The government of Nepal should think about it, otherwise it has no meaning....

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