Fueling options: Scaling India's E20 ambition through ecosystem transformation

This is a thought leadership report issued by S&P Global. This report does not constitute a rating action, neither was it discussed by a rating committee.

In the wake of the Strait of Hormuz crisis, India's E20 program has advanced from a fuel-blending mandate into a broader energy security option. Its sustainable implementation will be shaped by ecosystem readiness and sustainable feedstock supplies while keeping pace with increasing demand.  

India imports about 88% of its crude oil needs and significant shares of other energy fuels. More than just a blending component, ethanol has delivered $22 billion in farmer income, reduced CO₂ emissions by 95.2 million metric tons, decreased crude oil imports and provided foreign exchange savings of more than $25 billion between ethanol supply year 2014-15 and May 2026. Achieving higher ethanol adoption through E20, E85 or E100 will require more than policy intent. 

Ethanol's evolving role in India's multifuel ecosystem

Increasingly viewed as a multipurpose energy molecule, ethanol is expected to serve gasoline blending, sustainable aviation fuel and clean cooking. As demand increases, supply sustainability will require a sharper focus on feedstock supplies, feed and food markets, and the commercial viability of second-generation ethanol from agricultural residues and biomass. 

More recently, ethanol's use in clean cooking has been explored, but because it has a lower energy density than LPG, it requires larger fuel volumes and a dedicated distribution infrastructure to deliver comparable performance. 

A multifuel strategy for transportation, including conventional fuel, biofuel and electric vehicles, gives rise to gasoline demand scenarios with slight variations in gasoline consumption growth. S&P Global analyzes gasoline demand scenarios based on the varying rate of EV penetration, economic growth and technology diffusion with improved infrastructure. 

In the base-case scenario, gasoline demand in India's transport sector continues to rise into the 2040s as economic growth, rising household incomes and continued urbanization drive increased passenger vehicle ownership. Despite increasing adoption of EVs, the expansion of the light-duty vehicle fleet and relatively low car ownership per capita compared with developed economies support ongoing growth in gasoline consumption. As mobility demand rises and more households enter the middle class, gasoline remains a key transport fuel for much of the outlook period.

Securing sustainable ethanol supplies long term: Fuel and food to the fore 

Although India has diversified its ethanol feedstock mix, feedstock sustainability is still an area of concern. In 2023-24, the government accelerated its ethanol blending but experienced weather-related production shocks. Sugarcane output fell significantly, and ethanol production was supported by corn plus rice allocated by the Food Corporation of India. Grain-based ethanol production surpassed molasses-based output for the first time in ethanol supply year 2024-25. Grain-based ethanol economics, supported by higher corn-based ethanol prices and a higher minimum support price for corn, encouraged expansion in corn acreage. However, the surge in production led to corn sales below the minimum support price, leaving ethanol producers profitable while squeezing farmers’ margins. Diverting more corn to ethanol is tightening availability for the animal feed sector, raising concerns about feedstock allocation and market sustainability. While the shift toward grain has facilitated year-round ethanol production, challenges remain, such as lower farm productivity, weather-related shocks for sugarcane, corn and rice, and logistical and structural challenges for feedstock procurement.

The vulnerability of feedstock supply highlighted by recent drought conditions underscores the urgent need to enhance farm productivity. Although maize has been increasingly used in ethanol production, its current yields of 3.6 metric tons per hectare are below the global average of 5-6 metric tons per hectare. As India sets higher ethanol blending targets, feedstock sustainability is a greater challenge than production capacity, requiring a balanced approach to agricultural productivity, climate resilience and resource allocation. 

E20: From policy ambition to consumer adoption

India's E20 journey is at a crossroads, divided between a policy-driven objective and a nationwide consumer reality. The next phase of growth will depend on balancing feedstock sustainability and consumer acceptance to ensure that E20 delivers energy security and environmental benefits at scale.

Some challenges need to be addressed for consumer adoption of E20 and higher blends of ethanol into gasoline. 

• Vehicle compatibility: This has caused uncertainty, with concerns about reduced mileage and damage to engine parts. Pure ethanol has a higher octane number (~108.5 RON) than pure gasoline (~84.4 RON), providing superior anti-knock characteristics and supporting the operation of higher-compression engines. However, ethanol has a 35% lower calorific value (~29.7 MJ/kg) compared with gasoline (~46.4 MJ/kg), resulting in lower energy content per unit of fuel. While ethanol can enhance combustion quality and engine efficiency, its lower energy density may reduce volumetric fuel economy unless engines are specifically optimized for higher ethanol blends. Per the E20 road map, new vehicles must be materially compliant by 2023 and fully E20 compliant by 2025. According to some auto industry sources, there is no evidence of engine damage in non-E20-certified vehicles. The reported reduction in vehicle mileage associated with the use of E20 blended fuel can be mitigated through E20 calibrated vehicles. Ethanol-blended fuel requires material compatibility and robust infrastructure because it is hygroscopic, which poses a risk of phase separation in the fuel tank. According to the Indian Ministry of Petroleum and Natural Gas, E20 has been rolled out in consultation with the Society of Indian Automobile Manufacturers, the Automotive Research Association of India and key automobile manufacturers after extensive testing. A greater understanding of engine readiness and performance, especially for higher blend rates, will be required if ethanol is adopted by consumers in a sustained way.

• Clarity in cost benefit to consumer: The Indian government has addressed the fuel economy of using E20 and conventional gasoline by insulating the domestic fuel market from global crude oil price volatility. However, the lack of transparency regarding the cost structure and cost benefit to consumers negatively impacts fuel acceptance.

• Consumer choice: While ethanol-blended fuel is a strategic lever for enhancing energy security and achieving environmental objectives, the absence of clear pricing signals, ambiguity around vehicle compatibility and limited fuel choice at retail outlets raise concerns among consumers, particularly owners of older vehicles and those wanting to optimize cost and performance. The complexity of India's fuel distribution network means that providing multiple fuel choices at retail pump stations is challenging and requires investment in logistics, storage and supply chain segregation.

Brazil and the US: Global benchmarks for ethanol blending   

A comparison with Brazil and the US reinforces the need for a consumer-aligned energy security solution, rather than a policy-led initiative, for faster implementation of India's E20 program. 

US and Brazilian government incentives and subsidies were critical in establishing production capacity, infrastructure and consumer adoption during the industry's formative years. Today, ethanol pricing in both countries is primarily market-based, although policy support remains through blending mandates and regulatory frameworks rather than the direct subsidies that characterized the industry's early development.

Corresponding infrastructure at pump stations and vehicle fleet compatibility have been aligned with the blending options. The US has largely normalized E10 as a key fuel, with higher blends such as E15 and E85 available mainly for compatible vehicles and supported by a mature corn ethanol supply chain and credit mechanisms. 

Brazil operates the world's most advanced consumer-driven ethanol fuel market, with extensive flex-fuel adoption and direct competition between ethanol and gasoline at the pump. Use of higher-ethanol blends is widespread, with high flex-fuel vehicle penetration, and Brazil provides consumer choice between gasoline-ethanol blends of E25/E32 and hydrous ethanol, with pricing signals reflecting competitive fuel prices. Based on past years, hydrous ethanol price levels must remain at 70% compared with gasoline C (gasoline blended with 30%-32% anhydrous ethanol) for its consumption to be competitive. 

Looking forward: Ethanol as a flex-fuel option in India

India has made significant progress toward E20 adoption, but the next phase requires onboarded customers and a robust ethanol ecosystem. While policy support has accelerated blending, for long-term market success, consumers must view ethanol as a compelling choice. Continued collaboration among fuel suppliers, automakers, policymakers and consumers will be essential to address technical considerations related to higher-ethanol blends and build confidence in ethanol-powered mobility.

As India moves from policy ambition to large-scale implementation, the initiative must be supported by four key pillars: a transparent pricing mechanism to preserve consumer value; alignment of policy implementation and vehicle fleet transition for using higher ethanol blends and phased flex-fuel vehicle deployment; expansion of multifuel retail infrastructure to accommodate consumer choice and to support higher ethanol blends; and uniform distribution of E20 gas stations across India to ensure nationwide accessibility. 

Robust fuel quality standards and sustainable feedstock inputs into production units will be important for successful implementation. By balancing energy security objectives with consumer choice, and market readiness with infrastructure preparedness, India can create a self-sustaining ethanol ecosystem that supports decarbonization while transforming the agriculture, mobility and energy sectors.