A report by India Ratings and Research highlights the need for supply chain development, policy support, and investment to meet biodiesel blending targets, as progress remains slow due to feedstock challenges and economic viability concerns.
13 Mar 2025 | 3194 Views | By Sarthak Mahajan
India Ratings and Research (Ind-Ra) has projected that achieving the government’s 5% biodiesel blending target by 2030 will require an investment of Rs 2500 Cr. The economic feasibility of this target depends on the development of a robust supply chain and government incentives, such as tax subsidies, to improve uptake ...
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India Ratings and Research (Ind-Ra) has projected that achieving the government’s 5% biodiesel blending target by 2030 will require an investment of Rs 2500 Cr. The economic feasibility of this target depends on the development of a robust supply chain and government incentives, such as tax subsidies, to improve uptake by oil marketing companies (OMCs).
According to Ind-Ra, progress in biodiesel blending has been slow, with the blending rate reaching only 0.6% in FY25 due to limited investments and challenges in the collection of used oil. Companies with integrated edible oil refineries are expected to be better positioned to expand capacity in the coming years.
The 5% biodiesel blending target is part of India’s National Policy on Biofuels, which also includes a 20% ethanol blending target for petrol. These measures are aimed at reducing fossil fuel dependence and promoting renewable energy.
Diesel consumption in India grew by 4.3% year-on-year in 2024 and has recorded a compound annual growth rate (CAGR) of 2.7% over the past decade. The growth rate is expected to moderate to 1.7% in 2025, driven primarily by commercial vehicles and buses. By 2030, when the blending targets are expected to be met, Ind-Ra estimates total diesel consumption will reach 104,000 thousand metric tons (TMT).
India’s biodiesel blending ratio remains below the set target. The Ministry of Petroleum and Natural Gas reported a 0.5% blending ratio in 2024, with Ind-Ra expecting a slight increase to 0.6% in 2025 based on procurement data from OMCs. Between April and November 2024, OMCs procured approximately 366.8 million liters of biodiesel. The number of registered suppliers has also increased, rising from 51 in 2023 to 69 in 2024.
The availability and variety of feedstocks are key factors in meeting the biodiesel blending target. However, challenges remain in the collection and processing of used cooking oil and other raw materials. The collection network for used cooking oil is fragmented, leading to inefficiencies and higher production costs.
To address this issue, the government is promoting collection centers and offering incentives to facilitate the procurement of used cooking oil. The Repurpose Used Cooking Oil (RUCO) initiative aims to improve collection and conversion into biodiesel.
Alternative feedstocks, such as non-edible oils, waste cooking oils, and animal fats, are also being explored to ensure a more stable supply. Meanwhile, the use of Jatropha as a biodiesel source has not been successful due to low yields and agronomic challenges.
Ind-Ra estimates that India will need an annual biodiesel production capacity of 5.50 billion liters to meet the 5% blending target by 2030. This would require a significant investment of Rs 24.77 billion over the next five years.
OMCs have been floating tenders to procure biodiesel, with 3.7 billion liters of biodiesel (B100) sought between 2022 and 2025. The latest tender, covering the supply of 0.86 billion liters between October 2024 and September 2025, has set the base procurement price at Rs 91.20 per liter for October 2024–January 2025 and Rs 100.12 per liter for February–September 2025 (excluding GST and transportation).
The economic viability of biodiesel blending is influenced by production costs, feedstock availability, and government incentives. Biodiesel production is currently more expensive than fossil diesel due to higher feedstock and processing costs. As a result, OMCs may be reluctant to increase blending rates unless financial support is provided.
Despite the cost challenges, biodiesel offers environmental benefits, including lower greenhouse gas emissions and improved air quality. Government subsidies, tax incentives, and blending mandates are considered critical in making biodiesel commercially competitive.
According to Ind-Ra, integrated players in the biodiesel industry are well-positioned to navigate supply chain challenges, though significant investments are required. Companies that diversify their feedstock sources—such as soybean oil, waste cooking oil, and animal fats—can reduce reliance on a single raw material and minimize supply risks.
Investment in advanced processing technology can also enhance efficiency and lower production costs. Market adaptability, including adjusting to oil price fluctuations and shifting demand patterns, is another key factor for long-term success. Sustainability initiatives, such as reducing carbon footprints and increasing the use of waste oils, could also help attract environmentally conscious consumers and investors.
Several countries have adopted biodiesel blending programs, offering insights for India’s strategy. In Indonesia, a palm oil export levy is used to bridge the price gap between biodiesel and fossil diesel. Brazil has implemented the National Program for the Production and Use of Biodiesel (PNPB) to support biodiesel adoption, focusing on reducing emissions and diesel imports. Colombia has promoted biodiesel through blending mandates and has removed gasoline subsidies to encourage biofuel adoption.
Different countries also rely on various feedstocks for biodiesel production. India primarily uses imported palm stearin oil, non-edible vegetable oils, and used cooking oil. Indonesia relies on palm oil, palm oil mill effluent, and used cooking oil, while Brazil uses soybean oil, Jatropha oil, and animal tallow. Colombia, on the other hand, produces biodiesel from locally grown palm oil.
Ind-Ra emphasizes that policy support will play a crucial role in increasing biodiesel adoption in India. Financial incentives, including tax benefits and subsidies, could encourage blending. Strengthening the domestic supply chain and promoting the use of locally available feedstocks could also help reduce costs.
Continued research and development efforts are essential to address challenges related to fuel properties, engine compatibility, and the feasibility of higher biodiesel blends. Additionally, increasing public awareness about biodiesel’s benefits could support greater adoption in the long term.
While India’s goal of achieving a 5% biodiesel blending rate by 2030 presents challenges, investments in production capacity, infrastructure development, and government incentives could help meet the target. Strategic efforts from both the public and private sectors will be essential in ensuring the long-term viability of biodiesel as a renewable fuel source.