1 BIOFUELS AND ENERGY SECURITY OF INDIA Ramprasad Sengupta* & Robin Singhal Centre for Economic...

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BIOFUELS AND ENERGY SECURITY OF INDIA

Ramprasad Sengupta*&

Robin Singhal

Centre for Economic Studies and Planning

School of Social SciencesJawaharlal Nehru University

New Delhi - 110067*Corresponding Author

email: [email protected] 2010

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The Energy policy of India has given prime thrust on energy

security while the notion of security builds in itself majorconcerns for

(1) Energy adequacy to support the growth process

(2) Provision of safe and clean energy (Life line requirement) for all irrespective of their

ability to pay, for removing energy poverty

(3)Energy supply at competitive prices.

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Energy Policy: Energy Security and Climate Change

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Control of Climate Change not the immediate policy objective. However, the concern for cost competitiveness and clean energy supply in the interest of security have got important fall out in terms of control of CO2 emissions as well for India.

The recent commitment of Indian Government to its Parliament on the eve of Copenhagen Conference has been however made explicitly in terms of bringing down the CO2 intensity of GDP at some target level, but not in terms of absolute emission cuts.

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Integrated Energy Policy Document Definition of security:

“We are energy secure when we can supply life line energy to all our citizens irrespective of their ability to pay for it as well as meet the effective demand for safe and convenient energy at competitive prices, at all times and with a prescribed confidence level considering shocks and disturbances that can be reasonably expected.”.

Major issues: Conservation, Fuel Substitution, Cleanliness, Cost Effectiveness, Energy Distribution.

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Comparative Primary Energy Use across some Major Countries and Regions (Source: World Bank (2009): World Development Indicators 2009)

Countries

Per Capita

National Income (PPP$) 2007

Energy per capita kgoe 2007

Energy Intensity of GDP

(Kg/PPP$) 2007

Share of Biomass in

total Primary Energy

2007 (%)

Electricity consumption per capita (in

thousand KWhr) in 2007

India 2740 529 0.204 27.2 714

China 5420 1484 0.294 9.9 2488

USA 45840 7766 0.182 3.5 14314

High Income Countries

36340 5321 0.154 3.7 10283

World 9947 1819 0.185 9.6 2998

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Comparative Carbon Dioxide Emissions across some Major Countries and Regions

Countries

Population

(million) 2007

Per Capita National

Income (PPP$) 2007

Carbon Dioxide

Emissions (million metric

tonnes) 2006

Per capita Carbon Dioxide Emissios (Metric Tonne)

2006

India 1125 2740 1509.3 1.4

China 1318 5420 6099.1 4.7

USA 302 45840 5748.1 19.3

High Income Countries

1056 36340 13377.9 12.7

World 6610 9947 30154.7 4.4

Source: World Bank (2009): World Development Indicators 2009

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TREND AND PATTERN OF ENERGY CONSUMPTION IN INDIA

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Industry

Transport

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Percentage Distribution of Households using major source of energy for Cooking : 2004-05

All India Biomass LPG Kerosene Others

Rural 84.1 8.6 1.3 6

Urban 23.7 57 10 9.3

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Percentage Distribution of Households using major source of energy for Lighting: 2004-05

All India Electricity Kerosene Others

Rural 54.9 44.4 0.7

Urban 92.3 7.1 0.6

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ENERGY SECURITY -

THE ISSUE OF OIL SECURITY FOR INDIA

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Domestic front In 2007-08, the total quantity of crude oil supplied was

1,55,790 thousand tonnes. The domestic production accounted for only 22 percent of total domestic consumption in 2007-08 (i.e. 34118 thousand tonnes).

In 2007, the total crude oil reserves were 7,25,000 thousand tonnes.

The Reserve to Production ratio for the year 2007 was 21 years only. If we consider the total quantity of crude oil supplied to meet consumption instead of domestic production, the ratio reduces to 5 years only.

The share of imports has been steadily rising and in 2031-32, the share of imports is projected to be 90 per cent.

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Source: Authors’ calculation based on data from GOI, 2010 and GOI, 2006

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Year

Share of net import in

total primary commercial

energy supplies (%)

Share of oil import in total net

import of energy (%)

Import as percentage of total oil

supplies***

Global oil price index 1993=100

Real global oil price index for

India 1993=100

1 2 3 6 4 51971 24.32 100 63 3.24 21.881980 24.85 98.6 61* 56.11 172.171985 12.07 100 - 66.34 1351990 17.24 86.6 39** 78.38 106.551995 22.1 84.1 - 107.97 90.232000 30.43 84.5 64 246.82 152.622005 32.07 75.22 - 461.34 235.82

Source: 1. Estimated by the author on the basis of crude oil price data collected from British Petroleum and Energy balances for non-OECD countries of the International Energy published by OECD

2. Column 6 from Ministry of Petroleum and Natural Gas, cited in Subramanian et al (2005)

Note: * Figure pertains to year 1981, ** Figure pertains to year 1991, *** total oil supplies refers to sum of production and import of crude oil in India for the respective years.

INDIA’S IMPORT DEPENDENCE OF ENERGY

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International crude oil market The oil crises of 1970s and 1980s have shown the

vulnerability of the process of economic growth in oil importing countries.

In nominal terms, the price of crude oil has increased from a level of US$ 12 per barrel in 1999 to US$ 100 per barrel in November 2007.

In July 2008, it touched a record high of US$ 147 per barrel. In December 2008, the crude oil was traded at US$ 38 per barrel. During 2009, the prices rebounded and it was traded at US$ 70 per barrel in August 2009.

The Indian basket of crude oil which was priced at US$ 36 per barrel in May 2004 sharply rose to a level of US$ 132 per barrel in July 2008, an increase of 267 per cent in just 4 years.

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Global oil supply• In 1956, Marion King Hubbert - an American geoscientist

made a peak oil analysis to predict that the oil production in US Lower 48 states would peak in early 1970s.

• According to proponents of peak oil analysis, the world’s annual crude oil production will reach its global maxima (or its peak) when countries accounting for world’s 50 per cent of the total annual crude oil production start witnessing a decline in their annual production levels, (Tsoskounoglou, Ayerides and Tritopoulou, 2008).

• In 2005, out of the 50 largest oil producing countries 24 nations which account for 40 per cent of global production of crude oil registered a decline in their production levels by 4.34 per cent from the previous year.

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Recent peak oil studies and peak time predictions

Ultimate Recoverable

Reserves of crude oil (in billion barrels)

Year of peak

Nel and Cooper, 2009

World 2682 2014

Maggio and Cacciola, 2009

I 2250 2009

II 2600 2015

III 3000 2021

Nashawi, Malallah and Al-Bisharah, 2010

World 2140 2014

OPEC 1321 2026

Non-OPEC 819 2006

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HUBBERT’S MODEL FOR PEAK OIL ANALYSIS

Q = K/(1+noe-at), no = (K - Qo)/Qo

Q is Cumulative oil production in period t K is ultimate recoverable reserves of crude oil t denotes the time period Qo denotes the level of cumulative oil production in the arbitrarily chosen

time period To

Note that the first derivative of the logistic function is a bell shaped curve which attains its maximum at the time of peak when half of ultimate recoverable reserves (K) has already been exploited (i.e. Q = K/2) and thus represents the complete cycle of annual crude oil production as hypothesized by Hubbert.

As a result, to model the cycle of crude oil production and determining the peak, he developed the following model:

dQ/dt = P = aQ – (aQ 2)/K

or P/Q = a [1- (Q/K)]

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India's annual crude oil production from 1970 - 2007, in thousand tonnes and in million barrels

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Model: P/Q = a + (a/K)*Q

Time period 1980-2007 1985-2007

a 0.151055 0.135404

a/K -1.44E-07 -1.22E-07

Ultimate recoverable reserves (K)

1.05E+06 1.11E+06

To 1980 1985

Time of peak 1995 1995

R-squared 0.842 0.841

Adjusted R-squared 0.836 0.834

Authors’ calculations

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SUMMARY OF RESULTS

This peak in India’s crude oil production manifests itself in the continued India’s dependence on foreign supply of crude oil in the 21st century.

Model I - 1980 - 2007Total Ultimate Recoverable Reserves of Crude oil (URR)

10,50,000 thousand tonnes

Year of peak 1995Estimated peak year’s cumulative oil production


Actual cumulative oil production in 1995


Model I - 1985 - 2007Total Ultimate Recoverable Reserves of Crude oil (URR)


Year of peak 1995Estimated peak year’s cumulative oil production


Actual cumulative oil production in 1995


Source: Authors calculation

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Implications A peaking global crude oil production implies that

countries will either have to compete for the scarce resource in the international market by paying a higher price or will have to diversify their fuel mix in order to reduce their dependence on foreign supply of crude oil.

Though there is lack of consensus about the actual time of peak and the level of global crude oil reserves, but it becomes necessary for the oil importing countries to take note of the growing uncertainty about the international crude oil market.

In Indian context, as one of the important initiative in this regard would be to diversify the fuel mix for meeting energy demand of the transport sector.

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BIOFUELS –

AN ALTERNATIVE ENERGY SOURCE

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There are several socio-economic and environmental benefits from biofuels which are the motivating factors behind policies promoting these fuels in both developed and developing countries. Economic: saving foreign exchange by reducing import dependence

for petroleum products, contributing to nations’ energy security Environmental : addressing the problem of local air pollution and reducing CO2

emissions causing climate change as they are considered to be carbon neutral. Social : employment opportunities, rural development.

However, the production of feedstocks for these biofuels put additional pressure on resources such as land, water and others.

It is important to ensure that policies, plans and strategies thus formulated encourage sustainable biofuels which ensure that the objective of energy security does not conflict with nations’ food security.

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Indian Biofuel Initiative

In July 2002, a Committee on Development of Biofuels was set up under the Chairmanship of Dr. D.N. Tewari. The terms of reference of the committee were to suggest measures for encouraging the production and use of biofuels namely bioethanol and biodiesel (GOI, 2003).

A National Policy on Biofuels was announced in December 2009. The policy is aimed at mainstreaming the use of biofuels – bioethanol and biodiesel, for Indian transport sector. A target of 20 per cent blending of biofuels has been set for the country by 2017 (GOI, 2009).

Further, the policy has approved the setting up of National Biofuel Coordination Committee under the Chairmanship of Prime Minister and Biofuel Steering Committee, in line with the recommendation of the Committee on Development of Biofuels (ibid).

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CONTINUE….. The Indian policy toward biofuels aims to resolve the food

versus fuel conflict by promoting non-food feedstocks and cultivation of oilseeds using wasteland and

The use of wasteland for cultivating non edible plant borne oilseeds such as jatropha curcas is encouraged for biodiesel production.

In case of bioethanol production, sugarcane molasses - a byproduct from the process of producing sugar from sugarcane juice is being used.

However, the Commission for Agricultural Costs and Prices recommends the use of excess sugarcane for direct bioethanol production from cane juice, in a situation where there is excess supply of sugarcane.

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National Biofuel Policy for India- key features

20 per cent blending for both bioethanol and biodiesel has been proposed, to be achieved by 2017.

A 10 percent ethanol blending for motor gasoline is supposed to be mandatory from October 2008. The pricing of bioethanol (produced from molasses) is still a contentious issue, acting as a deterrent in uptake of bioethanol for blending. Till date, biodiesel blending is not mandatory in India.

The policy grants permission to sugar industry for producing ethanol directly from sugarcane juice, in case it does not affect the sugar production and availability of ethanol for industrial use.

Minimum Purchase Price (MPP) will be announced for both - bioethanol and biodiesel. MPP for bioethanol will be based on its production cost and import parity price. MMP for biodiesel will be linked to retail diesel price.

It appears from the policy document that even if edible oilseeds are to be used for biodiesel production, they are to be cultivated developing wastelands. Since this may invollve higher cost, the policy aims to support such plantations through a separate minimum support price mechanism other than the one currently in place for oilseeds used for edible oil production.

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A concessional excise duty of 16 per cent is already being waived in case of bioethanol. Biodiesel is exempted from excise duty.

Further, the policy promises concessions in Custom and Excise duty for imported plant and machinery for biofuel production, biofuel-compatible vehicle engines, and other applications which are not manufactured indigenously.

In case need arises, import of biofuels will be allowed subject to the approval of National Biofuel Coordination Committee. No permission will be granted for importing Free Fatty Acid (FFA) oils.

Foreign Direct Investment in plantations for biofuels is not allowed. FDI in biorefinery industry would be allowed upto 100 per cent, in case biofuel produced is for domestic use only.

The policy aims to declare biofuel industry as a priority sector for lending purpose by financial institutions and banks in the country. National Bank of Agriculture and Rural Development (NABARD) will be the lending institution for farmers for plantations.

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Projections for Crude Oil, Diesel and Motor Gasoline demand for India, in 2011, 2021 and 2031

Authors' calculations Planning Commission

Year

Crude Oil (Million

tonnes of oil

equivalent)

Crude Oil

(Million tonnes)

Diesel (Million tonnes) 30 %

Petrol (Millio

n Tonnes) 5 %

Year

Crude Oil (Million

tonnes of oil

equivalent)

Crude Oil

(Million tonnes

)

Diesel (Millio

n tonnes) 30 %

Petrol (Million Tonnes) 5 %

2011

145 142 43 7201

1166 162 49 8

2021

267 261 78 13202

1278 272 82 14

2031

492 481 144 24203

1486 476 143 24

Notes: Crude Oil - 1.022 Million tonne of oil equivalent per tonne

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Projections for Biodiesel Demand and Land requirement for biodiesel in India

Authors' Calculations

Planning Commission

Year

Diesel (Million Tonnes) 30 %

Biodiesel (Million Tonnes) 20 %

Land requirement for Biodiesel (Million hectares)

Year

Diesel (Million Tonnes)30 %

Biodiesel 20% (Million Tonnes)

Land requirement for Biodiesel (Million hectares)

2011 42.59 8.52 3.49 2011 48.73 9.75 8.15

2021 78.43 15.69 6.42 2021 81.60 16.32 13.65

2031 144.31 28.86 11.82 2031 142.66 28.53 23.86

Per hectare yield of biodiesel 2.441 tonne Per hectare yield of biodiesel 1.196 tonne

Per hectare yield of jatropha seeds

10 000 kgPer hectare yield of jatropha seeds

4555kg

Quantity of jatropha seeds required for one litre of biodiesel

3.28 kgQuantity of jatropha seeds required for one litre of biodiesel

3.28 kg

One kg of biodiesel1.2486 litres of

biodieselOne kg of biodiesel

1.2486 litres of biodiesel

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Land use classification and estimates for India

(in million hectares) 1950-51 1990-91 2006-07Forests 40.48 67.81 69.81Not available for cultivation

47.52 40.48 42.63

Permanent pastures and other grazing land

6.68 11.4 10.36

Land under miscellaneous tree crops and groves

19.83 3.82 3.45

Culturable waste land 22.94 15 13.24Fallow lands 28.12 23.37 25.72Net sown area 118.75 143 140.3Reporting area for land utilisation statistics

284.32 304.88 305.51

Total Geographical Area 328.73 328.73 328.73Source: Agricultural Statistics at a Glance

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Wasteland is described as “degraded land which can be brought under vegetation cover with reasonable effort, and which is currently under-utilized and/or land which is deteriorating for lack of appropriate water and soil management or on account of natural causes. Wastelands can result from inherent/imposed disabilities such as by location, environment, chemical and physical properties of the soil or financial or management constraints” (GOI, 2005).

The total wasteland is broadly classified into 13 sub categories. However, it is essential to carry out a comprehensive assessment of the viable categories of wasteland for feedstock cultivation.

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Wastelands in India Million hectare

s1 Gullied and/or Ravenous land* 1.90

2 Land with or without scrub* 18.79

3 Waterlogged and Marshy land 0.97

4 Land affected by Salinity/Alkalinity 1.20

5 Shifting cultivation* 1.88

6 Under-utilised/Degraded Notified Forest land* 12.66

7 Degraded pastures/grazing land* 1.93

8 Degraded land under plantation crops* 0.21

9 Sands (riverine/coastal/desert) 3.40

10 Mining and Industrial Wasteland 0.20

11 Barren rocky area 5.77

12 Steep sloping areas 0.91

13 Snow covered and/or Glacial area 5.43

Total wastelands 55.27

Wastelands suitable for jatropha cultivation 37.38*Notes: The categories with asterisk sign above are suitable for jatropha cultivation in India.

Source: Department of Land Resources, 2005; GOI, 2005 and TERI, 2005 cited in Biswas, Pohit and Kumar (2010)

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In a market economy, the profitability and the ground rent from land use for alternative crops decide the pattern of land use in agriculture.

In a regime of high oil price, the high Gross value of Output to Cost ratio and high ground rent for jatropha plantation crop may induce diversion of land use from food crops to such energy plantation.

Hence, the concern for food security in a scenario of sustained oil price rise in real terms, decline in per capita domestic food grains availability and existence of substantive amount of poverty.

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The setting up of bio refinery would further encourage diversion of land in any State where it is located.

Pricing of jatropha seed on the basis of its energy potential parity with high speed petroleum diesel price, would ensure high return.

Small cultivators with limited credit availability, may again be restrained from switch to such land use for jatropha if the credit requirement be substantive due to relative high cost of cultivation per acre.

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Indicators for feedstock Competitiveness

Three important determinants of agricultural land use considered are:

Paid out cost (Cost A2) - It is a sum total of all actual expenses (in cash and kind) incurred by a farmer in production and rent paid for leased in land.

Profit Margin - It is a measure of earnings accruing to a farmer per Rupee of expenditure incurred by him in farm operations. It is defined as the ratio of Gross Value of Output to Paid out cost.

Ground Rent – It is defined as the difference between Gross Value of Output for a crop and Cost C1 incurred by a farmer. Cost C1 is a sum total of all actual expenses (in cash and kind) incurred by the farmer in production, interest on value of owned fixed capital assets (excluding land) and imputed value of family labour.

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The Directorate of Economics and Statistics under Ministry of Agriculture operates a scheme entitled ‘Comprehensive Scheme’ for studying cost of cultivation of principal crops across the country.

The three determinants of agricultural land use for principal crops considered here are based on the information obtained from the “Report of the Commission for Agricultural Costs and Prices for the crops sown during 2009-2010 season”. The reference year is 2005-06.

Since cost of cultivating jatropha curcas is not covered under the above scheme, the estimates obtained from Tamil Nadu Agricultural University has been considered. The cost is calculated to be Rs 24656.25 per hectare for 2005-06 and assumed to be same across all Indian States.

The relative competitiveness in terms of cost, profitability and land rental have been worked out for various competing crops in selected states as given in the following tables.

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Paid out cost (Cost A2) in Rs. per hectare for 2005-06Andhra

Pradesh Haryana Maharashtra Tamil Nadu

Uttar Pradesh

Uttaranchal

Karnataka

Sugarcane 35260.59 24833.04 58761.13 46445.81 16724.3 11761.06

Jowar 7284.26 9778.86 4819.92 4181.97

Maize 10636.19 10843.44 4857.52 4771.75 9508

Gram 7024.33 7595.31 6241.79

Cotton 15284.88 11885.97 14394.91 16911.34

Moong 5568.6 8128.22

Sunflower 6567.53 7197.15 5544.46

Urad 5304.72 8408.64 4218.11 2643.7

Paddy 16319.72 15988.37 17333.26 19924.21 10690.5 9611.17 17351.24

Groundnut 11706.85 14113.62 12545.47 8265.13

Tur 6406.92 4448.6 6915.27Rapeseed & Mustard

7887.07 7173.8

Wheat 13628.42 12588.82 10342.85Bajra 4223.96 8087.68 3750.49Soyabean 10652.03

Safflower 4598.45Ragi 12495.61 7565.7 10187.53Sesamum 6526.39Masur 5699.82Barley 10645.34VFC Tobacco

43980.91

Jatropha * 24656.25 24656.25 24656.25 24656.25 24656.25 24656.25 24656.25

* The cost of cultivating jatropha curcas is assumed to be the same across all states.

Authors’ calculation based on GOI, 2009 and GOI 2010.

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Profit margin (Gross Value of Output to Paid out cost Ratio) for 2005-06

Andhra Pradesh

Haryana Maharashtra Tamil Nadu

Uttar Pradesh

Uttaranchal Karnatak

a Sugarcane 2.31 2.73 1.39 2.15 4.00 4.87Jowar 1.36 0.82 0.50 1.20Maize 1.79 1.80 1.90 1.98 1.96Gram 2.49 1.96 3.77Cotton 1.59 1.92 1.23 1.32Moong 2.58 0.96Sunflower 1.56 1.48 1.35Urad 4.98 1.11 2.40 2.42Paddy 1.83 2.20 1.20 1.29 1.81 2.14 1.86Groundnut 1.22 1.21 1.50 1.41Tur 2.46 4.24 2.06Rapeseed & Mustard

2.96 2.76

Wheat 1.97 1.64 1.54Bajra 1.42 1.06 2.07Soyabean 1.25Safflower 1.57Ragi 0.60 1.40 0.71Sesamum 1.99Masur 3.12Barley 1.68VFC Tobacco 1.29Jatropha 1* 2.03 2.03 2.03 2.03 2.03 2.03 2.03Jatropha 2* 2.43 2.43 2.43 2.43 2.43 2.43 2.43Jatropha 3* 4.87 4.87 4.87 4.87 4.87 4.87 4.87* indicates simulated value at alternative prices of seed output - 1 for Rs 5/-, 2 for Rs 6/-, 3 for Rs 12/- per kg of seeds. Source: Authors' calculations based on GOI, 2009 and GOI, 2010

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Ground Rent (in Rs per hecatre) for 2005-06

Andhra

Pradesh Haryana Maharashtra Tamil Nadu

Uttar Pradesh

Uttaranchal Karnataka

Sugarcane 39339.09 37007.3 11898.77 41021.5 40669.22 41757.03

Jowar 446.88 -4701.06 -3679.26 -694.07

Maize 5388.04 4337.8 -710.96 -581.24 7112.99Gram 9405.26 4821.71 13830.32 Cotton 3980.85 3516.79 20.63 129.07 Moong 7535.2 -2231.92 Sunflower 1755.26 2014.66 649.29Urad 21122.91 -1036.15 3977.06 1996.3

Paddy 10296.33 15371.16 -527.3 617.82 4153.9 4815.01 11222.7

Groundnut -963.15 -1316.27 2052.03 1294.33

Tur 6454.84 8515.97 5451.55Rapeseed & Mustard

9968.84 8801.22

Wheat 8926.13 4152.25 131.23 Bajra -3100.7 -2582.44 -407.02 Soyabean 749.63 Safflower 578.54

Ragi -9965.42 -1594.08 -6010.98

Sesamum 4150.05

Masur 8954.49

Barley 1847.32

VFC Tobacco 10465.33

Jatropha 1* 25343.75 25343.75 25343.75 25343.75 25343.75 25343.75 25343.75

Jatropha 2* 35343.75 35343.75 35343.75 35343.75 35343.75 35343.75 35343.75

Jatropha 3* 95343.75 95343.75 95343.75 95343.75 95343.75 95343.75 95343.75* indicates simulated value at alternative prices of seed output - 1 for Rs 5/-, 2 for Rs 6/-, 3 for Rs 12/- per kg of seeds. Source: Authors' calculations based on GOI, 2009 and GOI, 2010

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CRITICAL BIODIESEL AND HIGH SPEED DIESEL PRICE BASED ON

JATROPHA CURCAS SEED OIL

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Critical Biodiesel Price/High Speed Diesel is the minimum price of HSD/Biodiesel for which returns to a farmer are just sufficient to cover the opportunity cost of diverting land from cultivating a principal crop to jatropha cultivation.

These are estimated based on the Techno economic data on bio-refinery prepared by IRADe for Technology Information Forecasting and Assessment Council (TIFAC) and those on jatropha cultivation prepared by the Tamil Nadu Agricultural University.

The biorefinery cost of producing biodiesel from jatropha seed oil (excluding the cost of feedstock) is assumed to be Rs 9.50 per kg of biodiesel. The biodiesel yield is assumed to be 1 kilogram from 3.28 kg of jatropha seeds.

The critical biodiesel and HSD prices have been calculated considering that 1 kg of biodiesel is equal to 1.2486 litres of biodiesel and 1 litre of biodiesel is equal to 0.93117 litre of High Speed Diesel.

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Biodiesel Comparison

Specification Biodiesel Petro- Diesel

Specific Gravity 0.88 0.85

Flash Point 192 oC 55 oC

Kinetic Viscosity 4.84 2.7

Carbon Residue 0.024 0.35

Centane Value 52 47.5

Sulphur 0 0.5

Calorific Value -Kcal 9470 10170

Source: Tamil Nadu Agricultural University

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Critical High Speed Diesel Price (HSD), US $ per barrel 2004-05

Andhra Pradesh

Haryana Maharashtra Tamil Nadu Uttar

Pradesh Uttarancha

lKarnataka

Sugarcane 81 102 97 83 83 87 106

Wheat 60 54 51

Bajra 49 49 50

Paddy 64 65 52 53 53 55

Rapeseed & Mustard

59 57

Cotton 62 65 51 50 56

Ragi 51 46

Groundnut 55 47 57 51

Urad 57 48 53 52

Jowar 51 49 48 51

Sesamum 54 56

Barley 52

Masur 53

Gram 61 52 59

Tur 58 57 61 53

Maize 52 50 47 54

Moong 54 48

Soyabean 52

Sunflower 52 53 51

Safflower 53

VFC Tobacco 56

Notes: The exchange rate for 2004-05 is assumed to be Rs 42.25 per US Dollar.

Source: Authors’ estimates based on GOI, 2008

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CRITICAL ETHANOL AND GASOLINE PRICES BASED ON MOLASSES TO

ETHANOL ROUTE

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Critical Bioethanol/Gasoline Prices is the threshold price level corresponding to a principal crop at which cultivation of sugarcane competes out the principal crop presently sown in terms of its ground rent earning.

The Critical Bioethanol/Gasoline prices has been estimated under two technological scenarios: When sugarcane molasses is used as feedstock for ethanol

production. When sugarcane juice is used directly for producing ethanol.

The cost of converting molasses into ethanol (excluding the cost of feedstock) for an Integrated Indian Sugar Plant is found to be Rs 4.03 per litre.

These cost estimates are based on Indian Government’s Report of the Committee on Development of Biofuels. In addition, 12 per cent is considered to be the normal rate of return for equity.

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The per unit cost of molasses for competing sugarcane prices is calculated using the formula: (Price of one tonne of molasses divided by Price of one tonne of sugarcane) * Competing Price of Sugarcane (Rs per kilogram).

The price of molasses considered is Rs 3600 per tonne (or 1000 kilogram) which is based on the economics of producing ethanol from molasses for a Private Indian Ethanol Plant.

The yield of anhydrous ethanol per tonne of molasses is considered to 220 litres. The conversion factor from ethanol to motor gasoline is calculated to be 1 litre of Gasoline = 1.5 litre of ethanol.

This is based on World Bank Policy Research Working Paper by Timilsina and Shrestha (2010) which calculates the gasoline equivalent price as US$ 0.3 per litre when price of one litre of ethanol is US$ 0.2 per litre for Brazil.

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Critical price of gasoline (in US$ per barrel) for 2005-06Andhra

Pradesh Haryana

Maharashtra

Tamil Nadu Uttar

PradeshUttaranchal

Jowar 129.53 90.50 69.30Maize 136.26 76.26 54.49 44.00Gram 141.72 100.60 73.33Cotton 134.34 136.89 95.50 72.61Moong 139.18 93.11Sunflower 131.31 97.62Urad 157.66 94.38 75.95 57.99Paddy 142.93 156.00 94.92 73.03 60.79 52.17VFC Tobacco 143.16Groundnut 127.61 94.09 74.28Tur 137.71 66.44Wheat 145.61 60.79 45.08Bajra 126.22 92.74 54.88

Rapeseed & Mustard 147.29 66.81Soyabean 96.28Safflower 96.10Ragi 84.91 71.11Sesamum 76.10Masur 67.01Barley 57.80

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CRITICAL ETHANOL AND GASOLINE PRICE BASED ON SUGARCANE JUICE

TO ETHANOL ROUTE

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At present, there is no Ethanol Plant in India producing ethanol directly from sugarcane juice. The critical ethanol and gasoline prices thus calculated are based on Brazil’s economics of producing ethanol from sugarcane juice directly.

The cost of producing ethanol (excluding the cost of feedstock) is considered to be US$ 0.2 per litre. These cost estimates are based on Almeida et al (2007). We have assumed the exchange rate for India to be Rs 45 per US Dollar.

The ethanol yield from one tonne of sugarcane juice is assumed to be 85 litres. Based on the calculated competing sugarcane price (in Rs per kg), we have calculated the critical ethanol prices.

The gasoline equivalent price has been calculated assuming 1 litre of gasoline as being equal to 1.5 litre of ethanol, based on World Bank Policy Research Working Paper by Timilsina and Shrestha (2010).

67

Critical price of Gasoline (in US$ per barrel)Andhra

Pradesh

HaryanaMaharashtra Tamil Nadu

Uttar Pradesh

Uttaranchal

Jowar 86.36 96.96 84.19Maize 90.84 89.49 75.71 66.68Gram 94.48 104.16 91.64Cotton 89.56 91.26 100.53 86.71Moong 92.78 98.82Sunflower 87.54 102.03Urad 105.11 99.73 89.25 78.67Paddy 95.29 104.00 100.11 87.03 81.04 73.54VFC Tobacco 95.44Groundnut 85.08 99.52 87.98Tur 91.80 85.82Wheat 97.07 81.04 67.59Bajra 84.15 98.56 76.04

Rapeseed & Mustard 98.20 86.13Soyabean 101.08Safflower 100.95Ragi 92.98 85.57Sesamum 89.36Masur 86.30Barley 78.51

68

COMPARATIVE GROUND RENT ANALYSIS FOR SUGARCANE CULTIVATION IN INDIA

69

We have calculated the revised ground rent earnings from sugarcane cultivation under three scenarios: Case A: when molasses is used for ethanol production in an

Integrated Indian Sugar Plant. Case B: when ethanol is produced from molasses by a Stand Alone

Distillery in India. Case C: when ethanol is produced directly from cane juice based on

Brazil’s economics of producing ethanol.

The price of ethanol for calculating value added to per unit of sugarcane for ethanol production is assumed to be Rs 21.50 per litre.

The cost of producing ethanol (excluding the cost of feedstock) is considered to be Case A: Rs 4.03 per litre of ethanol (based GOI, 2003) Case B: Rs 5.83 per litre of ethanol (based on GOI, 2003) Case C: Rs 9 per litre of ethanol (based on Almeida et al, 2007)

70

Ground Rent (in Rs per hectare) for 2005-06

Andhra

Pradesh Haryana Maharashtra Tamil Nadu Uttar Pradesh Uttaranchal

Sugarcane 39339.09 37007.3 11898.77 41021.5 40669.22 41757.03I When sugarcane molasses is used for ethanol productiona) Integrated Sugar PlantGross value of output (Rs per hectare) 81512.67 67699.96 81764.3 99920.19 66934.81 57280.77yield (kg/hectare) 68749 58007 82489 94357 56893 49077Initial Price (Rs per kg) 1.19 1.17 0.99 1.06 1.18 1.17Value added to Sugarcane from ethanol production (Rs per kg) 0.04 0.04 0.04 0.04 0.04 0.04Revised price of sugarcane (Rs per kg) 1.23 1.21 1.03 1.10 1.22 1.21Revised GVO (Rs per hectare) 84403.60 70139.19 85233.01 103887.95 69327.19 59344.48Cost C1 42173.58 30692.66 69865.53 58898.69 26265.59 15523.74Revised Ground Rent (Rs per hectare)

42230.02 39446.53 15367.48 44989.26 43061.60 43820.74

b) Stand alone distillery

Gross value of output (Rs per hectare) 81512.67 67699.96 81764.3 99920.19 66934.81 57280.77yield (kg/hectare) 68749 58007 82489 94357 56893 49077Initial Price (Rs per kg) 1.19 1.17 0.99 1.06 1.18 1.17Value added to Sugarcane from ethanol production (Rs per kg) 0.02 0.02 0.02 0.02 0.02 0.02Revised price of Sugarcane (Rs per kg) 1.21 1.19 1.01 1.08 1.20 1.19Revised GVO (Rs per hectare) 83043.71 68991.78 83601.33 102021.52 68201.82 58373.71Cost C1 42173.58 30692.66 69865.53 58898.69 26265.59 15523.74Revised Ground Rent (Rs per hectare)

40870.13 38299.12 13735.80 43122.83 41936.23 42849.97

II When sugacane juice is used for ethanol production

Gross value of output (Rs per hectare) 81512.67 67699.96 81764.3 99920.19 66934.81 57280.77yield (kg/hectare) 68749 58007 82489 94357 56893 49077Initial Price (Rs per kg) 1.19 1.17 0.99 1.06 1.18 1.17Value added to Sugarcane from ethanol production (Rs per kg) 0.03 0.03 0.03 0.03 0.03 0.03Revised price of Sugarcane (Rs per kg) 1.21 1.20 1.02 1.09 1.20 1.20Revised GVO (Rs per hectare) 83461.70 69344.46 84102.86 102595.21 68547.73 58672.10Cost C1 42173.58 30692.66 69865.53 58898.69 26265.59 15523.74Revised Ground Rent (Rs per hectare)

41288.1242 38651.79845 14237.33315 43696.52095 42282.137 43148.363

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Comparative Ground Rent for Sugarcane (in Rs per hectare) for 2005-06

Andhra Pradesh

Haryana Maharashtra Tamil Nadu Uttar

Pradesh Uttaranchal

Sugarcane 39339.09 37007.3 11898.77 41021.540669.2

241757.03

I When sugarcane molasses is used for ethanol production

a) Integrated Sugar Plant

Revised Ground Rent 42230.02 39446.53 15367.48 44989.2643061.6

043820.74

b) Stand alone distillery


342849.97

II When sugarcane juice is used for ethanol production


443148.36

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1 BIOFUELS AND ENERGY SECURITY OF INDIA Ramprasad Sengupta* & Robin Singhal Centre for Economic...

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