BT Explainer | If ethanol costs ₹71/litre, why is the government blending it with petrol?

The Centre on Thursday defended its ambitious Ethanol Blended Petrol (EBP) Programme in the Lok Sabha, saying the initiative is aimed at strengthening India's energy security and supporting farmers rather than maximising profits for public sector oil marketing companies (OMCs).

The clarification came in response to a question on whether ethanol costs more than petrol and why the government continues to promote ethanol-blended fuel.

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How much does ethanol cost?

For the current Ethanol Supply Year (November 2025 to October 2026), the government said OMCs are procuring ethanol at around ₹71 per litre, including GST and transportation.

The estimated procurement cost is:

* IOC: ₹71.18 per litre
* HPCL: ₹71.10 per litre
* BPCL: ₹71.21 per litre

The weighted average ex-mill price across various feedstocks including sugarcane juice, B-heavy molasses, C-heavy molasses, damaged foodgrains, surplus FCI rice and maize is ₹66.61 per litre, excluding GST and transportation.

So why blend ethanol if it isn't the cheapest fuel?

According to the government, the objective of the EBP Programme is not to minimise procurement costs for oil companies.

"The procurement framework is designed to ensure adequate ethanol availability, provide remunerative prices to producers and support the agriculture sector; it is not intended to maximise OMC profits," Minister of State for Petroleum and Natural Gas Suresh Gopi told the Lok Sabha.

Instead, the Centre says ethanol blending serves multiple strategic objectives:

* Reducing India's dependence on imported crude oil
* Protecting consumers from global oil price shocks
* Strengthening energy security
* Supporting farmers by creating demand for agricultural feedstocks
* Lowering vehicular emissions

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How did ethanol help during the West Asia crisis?

The Centre argued that the benefits of ethanol blending became evident during the recent West Asia crisis.

According to the government, while global crude oil prices rose by 70-80%, domestic petrol prices increased by only around 7-8%.

It said that when the Indian crude basket touched nearly $135 per barrel, the market price of petrol could have been around ₹125 per litre. However, consumers in Delhi continued to pay ₹94.77 per litre, aided by calibrated government interventions and the availability of domestically produced ethanol, which OMCs procured at around ₹70 per litre.

The government also said public sector OMCs incurred an average under-recovery of about ₹11 per litre on petrol, amounting to approximately ₹21,300 crore during the period.

 What about concerns over E20?

Responding to concerns over vehicle safety, the Centre reiterated that higher ethanol blends were introduced only after extensive testing by agencies including the Automotive Research Association of India (ARAI), the Society of Indian Automobile Manufacturers (SIAM), oil marketing companies and automobile manufacturers.

It said more than 23 crore vehicles, including over 20 crore two-wheelers and 3 crore petrol cars, have been operating on higher ethanol blends without any verified evidence of widespread engine failures attributable to ethanol blending. The government added that manufacturers continue to honour warranty obligations for vehicles using E20 fuel.

The bottom line

The Centre's message is that ethanol blending should not be judged solely on whether ethanol is cheaper than petrol. Instead, it views the programme as a long-term strategic investment in reducing crude oil imports, cushioning consumers against global oil price volatility, improving energy security, supporting farmers and lowering emissions, even if it does not maximise the profits of public sector oil marketing companies.