Biofuels in India: Opportunities and Challenges

India produces more than 25 million tonnes of used cooking oil and agricultural residue every year, much of which is either wasted or contributes to environmental pollution. While the pollution due to burning of the “Parali”  —  rice straw or stubble left behind after harvesting the rice crops mainly in northern states of Punjab and Haryana has been in news for the last few years, the water pollution due to the used oil is still to get the desired national focus.

For Parali, the state is providing the incentive to farmers as well as encouraging the  other fuel (Coal ) burning companies as cement plant, power plants, brick kiln and others who use coal based boilers to utilise Parali based bio fuel — pellets and bricks. A number of small and medium companies are setting up units to produce the Parali based pellets and bricks, looking at Government mandates to large companies thereby creating a ready market and addressing the last mile supply chain issues by appropriate incentive for collection from farmers. The Recent notification by Government mandating all brick kilns in Punjab and Haryana to utilise Parali based bio fuel only will go a long way in addressing the concerns of pollution caused by the burning of Parali by farmers  by promoting the alternative avenues.

Today,  India faces the challenge of balancing food security with its growing biofuel ambitions. Diverting edible crops like sugarcane, maize, or edible oils to biofuel production risks driving up food inflation and threatening nutritional security. Recognising this, India’s 2018 biofuel policy amendment prohibits using food crops for fuel, instead focusing on non-edible oils and waste-based inputs.

This shift opens up opportunities for second-generation (2G) biofuels derived from used cooking oil, acid oil, press-mud, and agricultural waste. These sources allow biofuel production to scale sustainably without impacting the food basket, supporting both energy goals and the nation’s commitment to safeguarding food availability and affordability.

Bio-diesel  potential in India

India’s annual diesel consumption exceeds 100 million tonnes, so even a modest 5 per cent biodiesel blending mandate creates a market opportunity of over 5 million tonnes per year, valued at more than USD 4-5 billion. The country’s rapidly expanding aviation sector also stands to benefit from Sustainable Aviation Fuel (SAF) mandates, particularly for international flights under ICAO/CORSIA guidelines, unlocking an export market worth over USD 2 billion in the next decade.

Additionally, biofuel adoption offers significant carbon credit potential; each tonne of biofuel used can displace about 2.5 tonnes of CO2, translating to an extra USD 200-300 million annually through carbon monetisation at current voluntary market rates.

By converting this untapped resource into fuel through organised collection and bio-conversion networks, the country can significantly reduce waste while creating new economic opportunities. This approach not only lessens the waste burden in both urban and rural areas but also enhances rural livelihoods, supports informal sector incomes, and encourages local entrepreneurship. The Government’s SATAT scheme, which targets the establishment of 5,000 compressed biogas plants, underscores India’s commitment to integrating circular economy principles and transforming waste into a valuable energy resource.

India imports over 80 per cent of its crude oil, with dependency reaching a record 90.6 per cent in May 2025, due to rising consumption and declining domestic production. This heavy reliance exposes the country to global oil price shocks and geopolitical risks, making energy security a strategic priority. Biofuels present a domestic alternative that can help reduce this vulnerability, strengthen energy sovereignty, and lower the nation’s annual fossil fuel import bill, which hovers around USD 100 billion.

Unlike centralised petroleum refineries, biofuel production can be decentralised and regionalised, promoting equitable energy access and enhancing resilience against supply disruptions or disasters.

By diversifying its energy matrix with biofuels alongside solar and hydrogen, India can build a more integrated, low-carbon, and robust energy system, reducing its exposure to external shocks and supporting long-term sustainability.

Challenges in producing bio diesel from used oil

FSSAI mandates that Food business operators in India must not reuse the cooking oil beyond a total polar compound limit of 25 per cent — used generally for not more than three times. After this oil is to be discarded.

India consumes about 27 billion litres of cooking oil annually, and out of this 1.4 billion litres of used oil can be collected and processed to make biodiesel.

Presently the enforcement of the FSSAI guidelines for reuse of cooking oil is very weak. There is a complete  lack of awareness amongst shopkeepers and the grass-root enforcement agency hardly show any interest in regulatory compliance.

Today, the used oil by large hotel/restaurant is taken by agents, who then sell it to the small vendors or mix with other oil and sell to householdsmainly the poor families.

Such an arrangement is not only defeating the very purpose of the FSSAI regulation but also affecting the health of such person who are eating products made out of such used oil and these are largely the poor families. Enforcement of the FSSAI regulation is therefore critical for the emergence of the sector promoting production of bio diesel from used oil.

Issues in collection of used oil

The other challenge is lack of infrastructure for collection of the used oil from the various food establishment and households. In some cases the used oil especially in case of household is thrown in the drain further lending into the river and other water bodies.

This affects the biodiversity of the water bodies to a great extant. The used oil from the food outlet along the River Ganga does affect the biodiversity of the revered River. Similar is the case with other rivers and rivulets in India.

An organised collection process supported by awareness, enforcement and incentive is necessary for a long term and sustainable solution to meet the challenges of pollution and other health hazard caused by used oil and enabling exploration of the potential for conversion to bio diesel.

National Bio fuel policy 2018, proposes for 5 per cent blending of diesel with biodiesel by 2030. This will require the production of 500 crore liters of biodiesel annually. Setting up collection units and thereby supporting a large manufacturing unit around major municipality, area alongwith hotel chains can result in promoting sustainable units for biodiesel.

Indian Institute of Petroleum research (CSIR-IIP) has developed a mobile unit which can produce biodiesel based on availability of 20 litres of used oil every day. Such initiatives can promote small scale units in all the areas — highways, towns and eateries near Ganga or other such rivers.

This will support in creating a large number of employment opportunities at the local level and redefine the food delivery outlets in terms of following the FSSAI guidelines on use of oil.

If organised properly through the active involvement of local traders association, NGO/ civil

society organisation and the district administration, this can become a Movement “Andolan” of unique type involving each household and safeguarding the health and well being of every citizen in the country.

Future potential and interventions required

India’s biofuel sector benefits from subsidies under the SATAT scheme and oil marketing company blending mandates, which support biodiesel and ethanol pricing.

However, challenges remain, including the absence of incentives for collecting inputs like used cooking oil and acid oil, uneven GST treatment, and delayed payments to suppliers.

Addressing these issues requires introducing feedstock-linked incentives for collectors, creating carbon credit bundling platforms for MSME biofuel producers, and fast-tracking approvals from State Pollution Control Boards and SEZs. Immediate action should focus on building a national collection grid for UCO and acid oil through public-private-NGO collaboration, mandating sustainable aviation fuel usage in select flight corridors, and enforcing transparency in blending compliance among oil marketing companies with real-time tracking.

These steps, combined with existing capital subsidies, tax benefits, and low-interest loans, will help unlock the full economic and environmental potential of India’s waste-to-fuel sector.

(Dinesh Kumar Tyagi is retired IAS officer; Suman Bose is President and Co Founder — GreenSource Energy Pte Ltd (Singapore) and Co Founder of GoFar Advisory & Investments Pte Ltd)