Dilute acid (DA) pretreatment results in the formation of inhibitory compounds and pseudo-lignin along with the burden of unnecessary materials like ash, extractive, lignin or their condensed products that reduces the conversion efficiency of cellulose to monomeric sugar. Indian Oil Corporation Limited (IOCL) has developed a modified pretreatment (MP) in order to reduce the enzyme dosage during ethanol production. This method uses extraction of biomass in water and varying alkali concentration of 0.2, 0.4 and 0.5%, prior to pretreatment as a strategy to reduce the enzyme dosage and improve the ethanol yield. The environmental and economic impact of these MP scenarios in comparison with conventional pretreatment (CP) is studied. The ethanol production increases from 218 to 267 L using MP. The introduction of extraction step prior to DA pretreatment fulfills the objective of reducing enzyme dosage by 23–39%. However, overall life cycle assessment (LCA) results revealed that performance of MP2, MP3 and MP4 is on a negative side in all the environmental impact categories as compared to CP due to the use of alkali, where a huge amount of emissions are released during the production stage. Overall, MP1 using water as a media for extraction is the most environmentally suitable pretreatment process for ethanol production. Life cycle costing (LCC) results showed that cost of 1 L ethanol production could be lowered down from 0.87 to 0.70 United States Dollar (USD) using MP1 scenario. From an environment and economic perspective, it is recommended to use only water as an extraction media for biomass, as this can reduce the enzyme dosage, emissions and cost.