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“ Fuel Efficiency Standards and Labeling of Vehicles in India ”

On 6th- 7th December, 2007 at Le-Royal Meridian , Chennai, India

Background

Stabilizing and reducing atmospheric Green House Gas Concentration are essential to Global Sustainable development. Intensified efforts shall be required for shifting energy usage from fossil fuels to non-carbon energy resources in the overall context of improving overall global energy efficiency. Many international agencies including IEA, ADB who have undertaken sufficient policy frameworks towards increasing energy efficiencies to contain climate change. Some of the efforts are focused on efficiency improvement in the Transport sector.

ENERGY EFFICIENCY AND CLIMATE CHANGE FOR ON ROAD TRANSPORTATION

Over the twentieth Century, the Global Average Surface temperature of the earth has increased by 0.6oC predominantly due to the atmospheric concentration of the CO2, which has increased by 31% since 1750. These changes had affected sustainable development and have increased anthropogenic activity and Green House Gas emissions principally derived from fossil fuel energy usage. While there has been a strong implication for climate change and air quality but GHG emissions have equally affected the human life. One of the major sector contributing to these emissions is the Transport Sector which uses 20% of the worldwide all sector energy consumption and projected to use over 60% of all energy usage by 2025. Due to strong economic activity and high population growth, energy usage in most of the Asian Countries has increased dramatically with major contribution coming from India and China. It has been projected that both these economies put together shall consume 45% of the total world increase in oil by 2025. While China’s energy usage for transportation is expected to grow by 6-9% per year, India’s demand shall grow @ 3%. The emerging Asian economies are net oil importers and any increase in demand puts a pressure on the budget and therefore it becomes imperative that more and more fuel efficient and cleaner technologies are put in place, which can provide both global and local environmental sustainability.

Increased energy efficiency in the transportation sector and reduction of GHG emissions is crucial to development of Indian economy. It is therefore important to improve the energy efficiency of individual vehicle so as to increase the distance traveled per unit of fuel. This requires us to initiate process changes that promote lower fuel consumption per passenger or freight Km traveled.

INTEGRATED ENERGY POLICY 2006

The Integrated Energy Policy 2006 states that Per capita consumption of energy in India is one of the lowest in the world. India consumes 439kg of oil equivalent (KGOE) per person compared to 1090 in China, 7835 in US and the world average of 1688. With a robust economic growth of nearly 8 to 10% India’s future energy requirement shall be higher in case it wishes to catch up with the leading world economies. While at present, the domestic demand of petroleum product is about 112 MMt, this demand is likely to touch to 337 to 462 MMt. of oil, which shall be around 6-8% of the total world demand for oil. Though the transportation sector consumed petroleum products at a constant rate of 5.7% per annum between 1980 and 2004, it moderated to 2.95% between 2000-2005 and expected to grow @ 3% till 2025. With India’s population ranging at 1.1billion in 2006-07, the Energy requirement of the primary commercial energy in terms of Mtoe was 397-403Mtoe. This is likely to touch to 1856-2289 Mtoe by 2031-32, when population touches around 1.5 billions. However, even with this high demand, the transport sector is likely to be powered by the fossil fuels, as even in the most optimistic scenario the likelihood of finding alternate sources of energy for transport sector seems bleak.
IEP, 2006 also states that no economic substitutes are obvious for the transport sector at least till 2031-32. Energy Efficiency of vehicles and use of mass transport, therefore have to have high priority. If the Energy efficiency of all motorized transport vehicles is increased by 50%( an efficiency level that is already achieved in the world today), India’s oil requirement will go down by some 86 Mt by 2031-32 and this initiative along with similar initiative in the transportation sector can contribute to the reduction of our oil level by over 25% from the most oil intensive scenario in 2031-32.

INDIAN AUTOMOTIVE SECTOR

The Indian Automotive industry was de-licensed in July 1991 and has shown a spectacular rate of growth on an average of 17% for the last few years. It is now worth Rs. 1,65,000 crores with exports in the automotive sector showing a CAGR of 30% per year for the last 5 years. Even with this rapid growth, the contribution in the global terms is very low and India’s share of automotive export is only 0.3% of global trade. In the recently released Automotive Mission Plan 2006-2016, it has been projected that Indian automotive industry would be in the order of USD 122-159 billion in 2016 from the present level of USD 34 billion.

The Automotive Mission plan envisages that by 2016 while India will enjoy its eminent position of being the largest tractor and three wheeler manufacturer in the world, second largest two wheeler manufacturer and would emerge as the seventh largest car producer and retain its forth position in the truck manufacturing industry. By 2016, it is projected that Automotive sector would double its contribution to the Country’s GDP from its current level of 5% to 10%. Its contribution to the manufacturing sector would rise to 30-35% from the current level of 17%. The share of the manufacturing sector in Indian GDP is expected to go around 35% from the current level of 17% by 2016. It is estimated that the India’s on road vehicle population shall touch a high of approximately 372 million vehicles from the present level of about 82 million vehicles with the corresponding increase in the vehicle fuel consumption.

11TH FIVE YEAR PLAN:

As part of its policy objectives for the 11th Five-Year Plan the Government of India has tasked PCRA and BEE to take the lead in establishing and implementing Fuel Efficiency Standards.

POLICES FOR IMPROVING THE EFFICIENCY OF NEW VEHICLES

India’s 11th Five-year plan (2007-2012) strongly advocates policies for improving the efficiency of new vehicles. The policy clearly outlines that the combination of polices including tougher regulations, financial incentives, continued R&D, and consumer education and marketing should be adopted to ensure that the vehicles sold during the next few decades should be ‘Gas Sippers’ rather than “ Gas Guzzlers”.

TOUGH FUEL ECONOMY STANDARDS

The plan calls for tougher fuel economy standards, as they would significantly increase new vehicle efficiency across the fleet. The current fuel economy standards should be averaged for each category and may be increased by 8% per year during the XI Plan and 5 % beyond the end of XI Plan. This way, the average fuel economy of all new cars, commercial vehicles and two wheelers would increase by about 45 percent by 2012. It also promulgates that the Vehicle manufacturers will protest and say “it can’t be done” or “it will cost a fortune,” but would comply as experience in the US indicates that when the original US CAFE standards were debated, the car manufacturers complied with the original standards at reasonable cost and with high consumer acceptance.

FINANCIAL INCENTIVES

Tougher fuel standards should be complemented by financial incentives that facilitate compliance. Financial incentives should provide both positive and negative signals—helping to build consumer demand for high-efficiency vehicles while penalizing those who purchase inefficient vehicles.

Relatively inefficient cars—those with a composite fuel economy rating below the average may be subject to a “gas guzzler tax.” The tax, for instance, could be an additional 8 percent excise duty for vehicles at efficiency of above 90 percent of the average and increases to a maximum of additional 24 percent excise as fuel economy drops. Similar principle may also be applied to other vehicles including commercial vehicles and two wheelers, category wise. The additional revenue could be used to pay for incentives offered to buyers of high-efficiency vehicles.

High first cost is a major obstacle to the widespread production and sale of hybrid and fuel cell vehicles. Tax incentives could be offered in order to stimulate mass production and support initial sales of these innovative vehicles. The amount of the tax incentive (or most of the incentive) should be based on the fuel economy achieved. Also, vehicles should have relatively low pollutant emissions as well as high fuel efficiency in order to be eligible for a tax incentive.

LABELING AND PROMOTION

Complementing stronger standards and financial incentives, the government could introduce energy labeling to high fuel efficiency and low-emitting vehicles. This would make it easier for consumers to identify “greener vehicles,” and for manufacturers or others to promote “buying green.” Energy labeling may be based on a combination of fuel economy and tailpipe emissions, recognizing the best vehicles in each category but also giving all vehicles an absolute score so that buyers could compare vehicles across categories.

RESEARCH AND DEVELOPMENT

Given the importance of dramatically improving new vehicle fuel economy in the coming decades, R&D on highly efficient vehicles and technologies such as fuel cells, hybrid-electric drive trains, and lightweight materials should be expanded.

POTENTIAL FUEL SAVINGS AND OTHER BENEFITS

Tougher fuel economy standards and other complementary policies would provide a wide range of benefits in addition to lowering our oil import dependence. Consumers could save while carbon dioxide emissions would drop. Further, improving vehicle efficiency would reduce emissions of hydrocarbons and other air pollutants, making it easier for urban areas to meet ambient air quality standards.