Photo by Peder Steril. Source: Creative Commons
India’s rapid economic growth and growing middle-class are likely to accelerate car ownership over the next decade.
The recent cricket match between India and Sri Lanka in Delhi was historic, not for the quality of cricket or result, but for the unique sight of Sri Lanka’s cricketers emerging on the field with pollution masks and gamely playing on despite hazardous conditions in India’s capital city. Any visitor to Sri Lanka wouldn’t be surprised by their actions, since the blue skies over Colombo and the island’s other cities are rarely seen in urban India. Perhaps overlooked in the aftermath was the decision by Sri Lanka’s government to introduce a carbon tax on polluting vehicles in the 2018 budget, a policy the Indian government should consider implementing to tackle air pollution.
India’s rapid economic growth and growing middle-class are likely to accelerate car ownership over the next decade, causing vehicle purchase choices by consumers to have a major impact on urban air quality. A carbon tax on polluting vehicles is an efficient policy since it increases the cost of SUVs and polluting vehicles, and nudges consumers towards cleaner alternatives. It also incentivises car manufacturers to develop electric and hybrid models, and generates tax revenues to enable the government to build infrastructure like charging stations for electric vehicles (EVs).
The challenge of selling Electric Vehicles in India
The current Indian government has outlined an ambitious target to allow only the sale of electric vehicles (EVs) in the country by 2030, in an effort to tackle rising air pollution and curb fuel consumption. However, consumer demand for electric and hybrid vehicles has been sluggish, with only 5,000 EVs sold across India in 2016, in contrast to 3 million internal combustion engine (ICE) vehicles sold in the same year. The government has backed the 2030 target with a preferential tax structure for EVs under the newly introduced Goods and services tax. EVs are taxed at a relatively low 12% rate when compared to conventional vehicles, which are taxed between 28- 52% depending on the vehicle size. However, this modest tax incentive is unlikely to overcome structural challenges that have hindered the adoption of EVs:
Economic: Many research studies have stated that Indians are among the most price-sensitive consumers in the world. Unless EVs are sold at a lower retail price than conventional vehicles, they are unlikely to find many buyers. Consumers preference for polluting diesel vehicles over petrol in the past confirms this assertion. At this stage, India needs a mass market EV that the public can afford, over the glamorous but relatively expensive Tesla. The government should also extend tax incentives to imported EVs and hybrids that are currently only granted for vehicles manufactured in India.
Infrastructural: India lacks public charging stations, which acts as a major barrier in the adoption of EVs. The investment required to build this infrastructure is significant and will necessitate the coordination of national, state and city governments. At this stage, limited progress has been made without the participation of the private sector. Research from countries with the highest EV sales, such as Norway and Netherlands, highlight increased charging stations as the main factor behind EV adoption, above even monetary incentives.
Behavioral: The average time taken to fully charge an electric vehicle is about 4 hours. Having personally braved congested traffic conditions in Indian cities, I’m fairly certain consumers will be reluctant to charge their vehicles at public charging stations.Therefore EVs are likely to be adopted in India through a decentralised private charging infrastructure at residences, offices and shopping malls, which will require significant public outreach over the next few years.
Alternative solutions to curb urban air pollution
Beyond those outlined above, India faces other unique challenges in the adoption of EVs such as an underdeveloped electricity distribution infrastructure and the lack of an indigenous manufacturing base for battery technology. EVs are likely to play an important role in the future, but in India’s current context, there are alternative solutions that the government should pursue to alleviate urban air pollution. These include:
1) Hybrid vehicles
Hybrids act as a bridge between conventional and electric vehicles, since their engines utilise a mix of ICE and electric properties. Pure hybrids don’t need charging whereas plug-in hybrids (PHEVs) take less time to charge than EVs, which can help overcome consumer anxiety over utilising EVs over long distances (range anxiety). The government has taxed hybrid vehicles at an astounding 42% tax rate under the GST, despite these vehicles being 25–35% more fuel efficient than conventional vehicles. Although hybrids aren’t fully electric, they can displace demand for conventional vehicles in the coming years and reduce India’s fuel consumption.
I recently travelled to Georgia (the country) and was amazed to find that many taxis operating for shared taxi companies were Toyota Prius (hybrids). Upon speaking to local experts, I discovered that in 2015, the Georgian government reduced the import tax on EVs and hybrids and increased it for conventional vehicles to tackle air pollution. According to the Georgian government’s statistics, the proportion of hybrids and electric cars in the total import of cars in 2014 was 0.7%. In 2016, it jumped significantly to 5.7%, an eightfold increase from two years ago. This success was achieved without public outreach or mandatory targets, and demonstrates consumer response to economic incentives. India should learn from Georgia’s experience and lower taxes on hybrid vehicles.
2) Scrappage policy
According to research published by ICCT, an international transport think-tank, the majority of pollutants released by India’s transport sector are caused by older heavy duty vehicles (aged 10 or more years). The government and judiciary have issued orders to get these vehicles off the road, but weak enforcement and the lack of periodic registration of vehicles have undermined these efforts.
The government should introduce a scrappage program with incentives for consumers to trade in their older vehicles for newer ones. A similar end-of-life policy has been successfully implemented in the EU and would make a significant difference to urban air quality. It is an optimum time to introduce a scrappage program since India is adopting BS VI standards in 2019. Under the new standards, conventional vehicles will have better emission control technology and therefore be significantly less polluting than older vehicles.
3) Make in India — Electric and hydrogen vehicles
Electric and potentially hydrogen vehicles are likely to play an important role in the future and the government should look to facilitate the development of these technologies to make India a manufacturing hub. Hydrogen fuel-cell vehicles offer many advantages over electric vehicles since their refuelling times are significantly lower (3–5 minutes). They are also likely to be cleaner than EVs, since most of India’s electricity is generated from coal power plants.
The government should consider introducing a technologically-neutral carbon tax which penalises or rewards businesses for their emissions. The revenues collected should be utilised for the construction of charging stations, increasing public transport options and facilitating research on hydrogen vehicles. The government’s transport strategy is ambitious but shouldn’t sacrifice present air quality for potential future benefits.
As John Maynard Keynes, a famous economist presciently warned, “In the long-run, we’re all dead.”