Any tax on biodiesel discourages users, killing this sunrise industry

The Ministry of Petroleum & Natural Gas (MoP&NG) has given a big push for the ethanol blending program and is close to achieving 5 percent blending at National level. The biodiesel blending program started on 10 August 2015 as a pilot in 4 cities has now been extended to 6 states and sold through nearly 3000 retail outlets in the country within a year. The railways slowly but surely have started consuming biodiesel across its various zones. 

The Government is well aware about the potential of biofuel in India. Biodiesel is the most appropriate tool being envisaged to achieve the GHG reduction targets. In order to bring about substantial reduction in emissions, it is essential that biodiesel is made widely available to the common man through the retail outlets of the Oil Marketing Companies (OMCs).

But the MoP&NG or Railways can only create a conducive marketing environment the key taxation issues can only be addressed by a national policy. 

Challenges on the way

India is at the threshold of rapid scaling of the biofuel program and still have many challenges to be addressed. Biodiesel Association of India (BDAI) has sought value added tax (VAT) relaxation on blending of biodiesel from states for promoting green fuel blending and energy security in the country. Currently VAT on biodiesel blending goes upto 14-30 percent in several states and the industry has warned that if the states do not provide promotional VAT rate on B5 Blends, the biodiesel blending in retail segment would be killed. The states are required to declare a promotional VAT rate for Biodiesel blending. A small levy of 10 paise per litre on high speed diesel (HSD) could fund the entire blending programme.

Andhra Pradesh, Telangana, West Bengal, Tamil Nadu, Gujarat are leading biodiesel producing states and these states charges 24 -30 percent on blending. The Centre provides excise relief for biodiesel blends that is once duty paid diesel is blended with biodiesel no additional duty is required. But none of the states has come forward to offer promotional VAT. This has resulted in biodiesel getting taxed at the rate of 24-30 percent in the blended form.

The current blending programmer is largely supported by the central government. The Government is in office for nearly three years now, the sector has been demanding a changed National Policy for Biofuels that will encourage investment and create millions of jobs with overall environmental protection. 

The UCOs and biodiesel 

The Used Cooking Oils (UCOs) are major health problem resulting in obesity, hearth and cancer in masses. There is a need to create awareness about the health hazard. The UCO could be used as a feedstock to manufacture biodiesel. There is also a need for a national policy on UCO that should ensure end traceability for vegetable oils, material balance by all major vegetable oil consumers. UCO Sales only to authorized collection agency. This will ensure UCO elimination from our food chain.

India produces nearly 22 million tonnes of oil and nearly 2 million tonnes of UCO is available for blending. Imagine a city like Delhi with large amount of UCO can provide huge scope for blending and this can further enhance biofuel economy. Used Oil collection in system in metro cities will certainly offer urban jobs.

Recommendations 

The biodiesel industry has recommended that India needs promotional policy and taxation rates for green fuel biodiesel. Promoting green fuel biodiesel would go long way in curbing vehicular emission and to protect environment. At present the use of biodiesel is completely voluntarily and there is no mandate on the polluters to reduce the emission by using Biodiesel. A national policy that mandates the use of green fuels is urgent need of the hour. Any tax on biodiesel will discourage the users and kill this sunrise Industry.

The government needs to amend the Biofuels policy of 2009 to achieve the national target of reducing crude imports by 10 percent. While the Oil Ministry has been gearing up the blending and distribution networks across the country. 

There are several issues which require urgent and adequate attention by the government. The Finance Ministry needs to continue Excise Duty exemption on Biodiesel (B-100) and its inputs even after April 1, 2017 till notification of revised National Biofuels Policy. This could be one of the steps to provide a reliable and functional solution to the problem of heavy vehicular/Industrial pollution in the cities of India. It is a well-known fact that bio-diesel across the world is being promoted as green fuel which helps in mitigating particulate emission from diesel vehicles. 

It is stated that various countries in the European Union have made it mandatory to blend 7 percent of bio-diesel, which has helped them in reducing the vehicular particulate emission substantially thus, making the quality of air ambient. It is pertinent to note here that bio-fuels and bio-diesel are derived from renewable resources like Used cooking oils and waste vegetable oils and other Agricultural resources and therefore, the same provide a strategic advantage to promote sustainable development in an environmentally being and cost effective manner. 

Also, by blending bio-diesel the dependence on import of fossil fuel, which resource is quite limited, will also come down substantially thus, making fuel cleaner, affordable and environment friendly. 

Budget 2017-18: Decide direction  

Hopefully, Union Budget 2017-18 would bring in some relief and momentum, with promotional tax structure and policy reforms, to this sunrise industry. At present, in India, use of bio-diesel is very limited even though it is cheaper than HSD. The sector essentially seeks implementation of the pending National Policy on Bio-fuels. The policy sets out the vision, medium term goals, strategy and approach to bio-fuel development, proposes framework of technological, financial and institutional interventions and enabling mechanism, however the policy is yet to be notified.

An indicative target of 20 percent blending of bio-fuels, both for bio-diesel and bio-ethanol, by 2017 is proposed. To start with India can aim at achieving 10 percent blend of bio-diesel with petrol and diesel, which will bring about substantial reduction in the greenhouse gas emission and gradually increase blending of bio-diesel with petrol and diesel. 

If Union Budget successfully addresses these concerns. The bio fuel sector can further increase production of biofuel to 1 billion liters within 12 months of blending mandate. It is widely agreed that such increase in bio-fuel blend in petrol and diesel, particulate emission will also reduce considerably by 20 percent, as compared to the current position. 
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Sandeep Chaturvedi is the president of Biodiesel Association of India (BDAI)