Ethanol is an alternative fuel which can be produced from starch containing materials, molasses and cellulosic and lignocellulosic feedstock such as cotton straw, wheat straw, rice straw, bagasse and bamboo. It has higher octane than petrol and burns slowly and completely, resulting in reduced emissions.

In December, 2014, the Government allowed Second Generation (2G) route for procurement of ethanol. Oil PSUs have planned to establish twelve 2G Ethanol bio-refineries in 11 States of India. They have also entered into Memorandums of Understanding (MoUs) with State Governments and Technology Providers for setting up five 2G ethanol bio-refineries.

On 25 December, 2016, foundation stone of the first 2G ethanol bio-refinery to be set up by Hindustan Petroleum Corporation Limited in Bathinda, Punjab, has been laid.