India’s energy transition is quietly becoming an agricultural story. Not because farmers are consuming more energy, but because agriculture is increasingly expected to produce it.
India is projected to be the single largest contributor to global energy demand growth over the next decade (IEA 2025). Much of the current discussion on rising energy needs focuses on artificial intelligence (AI) and data centres. But energy demand growth is far broader and more structural. Rising incomes, urbanisation, electrification, and a warming climate are expanding energy needs across households, transport, and industry. Cooling demand is a telling example: global air-conditioner ownership alone is expected to rise from about 1.6 billion units today to nearly 5.6 billion by 2050 (IEA)- roughly ten new units being added every second for the next three decades (as also noted at the recently concluded India Energy Week 2026).
Energy demand growth is structural, lifestyle-driven, and unavoidable. Which is why bioenergy is not optional for India and agriculture is therefore critical.
India’s biofuel vision is mandate-driven
Over the past decade, India’s energy policy has steadily built demand for biofuels through explicit blending mandates and sectoral targets. Ethanol blending in petrol is approaching 20%. Biodiesel blending targets continue for diesel. Compressed biogas is mandated for blending into city gas distribution networks. Biomass co-firing is required in coal power plants. More recently, Sustainable Aviation Fuel (SAF) targets have been announced for international flights.
These are not pilot ideas. They create assured, policy-driven demand for biomass-based fuels across transport, power, and aviation sectors and all at the same time.
What is “biomass” in India’s biofuel context?
In policy language, biofuels depend on biomass. In practice, this includes crop residues, dung, poultry litter, press-mud, bagasse, municipal organic waste, slaughter waste, used cooking oil, agro-industrial by-products, and other organic streams across rural and urban India. While biomass includes municipal and industrial organic wastes, the scale, geography, and continuity required for India’s biofuel mandates make agricultural biomass the central pillar of the bioenergy system.
On paper, this biomass appears abundant. On the ground, it is dispersed, seasonal, bulky, moisture-sensitive, and already embedded in rural livelihoods.
When biofuel ambition runs ahead of system readiness: The ethanol lesson
Ethanol-blending levels have risen rapidly (Figure 1) and are now exceeding 20% in many parts of the country. From 1.9 BL in ESY 2018-19, bioethanol supply to OMCs for fuel blending increased to 10 BL in ESY 2024-25. In 2024-25, 68 percent of total receipts of ethanol by OMCs came from grain-based ethanol, with maize and rice supplying 4.8 BL and 2.1 BL respectively. The share of sugar-sector was 32 percent. About 12.6 MMTs of maize and 4.8 MMTs of rice were diverted for producing ethanol for fuel production in 2024-25.
While ethanol was being supplied, the supporting systems of blending are visibly strained. Distilleries face seasonal feedstock constraints tied to crop cycles. Oil marketing companies (OMCs) continue to face storage and dispensing challenges for higher blends. Vehicle fleets are only gradually transitioning to E20 compatibility, raising concerns around wear, maintenance, and fuel efficiency.
In effect, the system is adjusting after the mandate, rather than before it. The cart has been placed before the horse. The same pattern risks repeating across other biofuels unless agricultural and biomass systems are strengthened first.
Four structural challenges rarely discussed in biofuel debates
1. Aggregation and logistics: Biomass lies scattered across millions of farms, cattle sheds, mills, and municipal yards. Collecting, baling, drying, storing, and transporting it requires local infrastructure that barely exists today. Without preprocessing and aggregation systems, year-round supply to biofuel plants remains unreliable and costly.
2. The 3Fs or the food-fuel-feed debate: Much of what is labelled “surplus biomass” already has uses like residues as fodder and for bedding, dung as compost and cooking fuel, crop matter for soil nutrition and thatching. When crops such as maize, rice, and sugarcane directly enter ethanol supply chains, the issue moves beyond residues to land, water, fodder, and food systems. The recent Economic Survey, citing OECD-FAO analysis, notes that biofuel mandates across countries have historically led to durable shifts in crop acreages as farmers respond to assured demand. Without careful land-use planning and biomass market sizing, energy policy signals can unintentionally reshape cropping patterns.
3. Feedstock conflicts across biofuels: Biofuels are now beginning to compete with each other. The same residues are being counted for 2G ethanol, CBG, pellets, co-firing, and even SAF. Municipal waste and used oils are projected simultaneously for multiple fuel pathways. In absence of a national feedstock allocation logic, India risks over-estimating biomass potential on paper and creating stranded biofuel assets on the ground.
4. Absence of a unified biomass market and governance framework: India does not yet have standard biomass quality norms, transparent price discovery, long-term contracting platforms, or a national system mapping biomass availability and flows. Biomass markets remain local and fragmented. For investors, feedstock risk remains high. For farmers, market access remains uncertain.
What the Union Budget quietly reveals
Recent budget signals reinforce this mismatch. Support continues for biofuel production capacity, with higher outlays for 2G ethanol and incentives for biogas-blended fuels. Measures such as reduced excise duty on biogas-blended compressed natural gas is a welcome step towards improving viability of the biogas plants. In FY25-26, GOI allocated about Rs. 150 crores to Ministry of Petroleum and Natural Gas (MoPNG) for a scheme for providing financial support for collection of biomasses. For FY 26-27, this allocation has been reduced to Rs. 100 crores. Plants are being funded faster than biomass systems are being built. This mismatch is not minor. It is central.
Farms will decide India’s biofuel future
Biofuels offer India a rare opportunity: to link farmer incomes with clean energy production, reduce fossil fuel imports, and support climate commitments simultaneously.
But this promise will not be realised by building more refineries alone. It requires building rural aggregation enterprises, storage systems, biomass pricing mechanisms, and clear allocation priorities across fuel pathways.
The future of India’s biofuels will not just be decided in plants. It will also be decided in fields.
(Shweta Saini is Agricultural Economist, Founder & CEO, Arcus Policy Research. Pulkit Khatri is Agricultural Economist, Lead Capacities, Arcus Policy Research)