India’s Transition Away from Diesel: Implications and Policy Suggestions

  • Recent remarks by India’s Road Transport Minister have ignited debate regarding the country’s transition away from diesel-powered vehicles and the possibility of imposing an additional 10% GST as a “pollution tax.”
  • While these comments have sparked alarm in the car industry, the government’s commitment to reduce air pollution and greenhouse gas emissions remains a driving factor behind this move.

India’s Reaction to Diesel

  • Policy move: The Minister’s remarks are consistent with a broader policy move aimed at lowering India’s dependency on diesel. The government intends to generate 40% of the country’s electricity from renewable sources by 2070, with net-zero emissions.
  • Diesel Consumption: Diesel currently accounts for over 40% of India’s petroleum product consumption, with the transportation sector being a major consumer.
  • High Taxation: The government currently levies a 28% tax on diesel cars, plus an extra cess based on engine size, for a nearly 50% tax rate.

The Effect on Diesel-Powered Vehicles

  • Several automakers have reduced their diesel lineups in response. Maruti stopped producing diesel vehicles in 2020, citing the high cost of upgrading to meet BS-VI emission standards.
  • Concerns about emissions: Diesel engines release greater quantities of nitrogen oxides (NOx), contributing to environmental concerns. The Volkswagen scandal in 2015 significantly harmed diesel’s global reputation.
  • Fuel efficiency: While diesel engines provide higher fuel efficiency and torque, the price differential between diesel and petrol has narrowed since fuel price deregulation in 2014.

Reasons for Individual Diesel Preference

  • Diesel engines have a higher energy content per litre and natural efficiency, making them ideal for large vehicles and hauling.
  • Cost: Historically, diesel was much cheaper than petrol, resulting in a predilection for diesel-powered automobiles. However, the price disparity has lessened.

Reasons for Carmakers’ Reluctance to Take on Diesel

  • Emissions Challenges: Diesel engines release higher levels of nitrogen oxides (NOx), making them less ecologically friendly than petrol engines.
  • Volkswagen Scandal: The 2015 Volkswagen emissions scandal, in which the corporation falsified pollution controls during lab testing, harmed diesel’s reputation around the world, including in India.
  • BS-VI Emission Standards: The implementation of BS-VI emission standards beginning April 1, 2020, created a substantial issue for diesel automobiles. Meeting these tight requirements necessitated complicated and costly improvements.
  • Financial viability: To upgrade diesel engines to meet BS-VI standards, three critical components were installed: a diesel particulate filter, a selective catalytic reduction system, and an LNT (Lean NOx trap). This technological upgrade resulted in hefty expenses for automakers, rendering diesel solutions commercially unviable.

Changing Economics’

  • Impact on Diesel Buyers: Since the deregulation of fuel prices in 2014, the historical pricing advantage of diesel over petrol has shrunk. The price differential is currently around Rs 7 per litre, considerably decreasing the economic incentive for diesel automobiles.
  • Consumer Shift: Diesel automobiles, formerly popular among Indian customers, have slowly lost market share, accounting for less than 20% of total passenger vehicle sales in 2021-22.

Policy Implications

  • Phasing Out Diesel: In order to meet environmental targets, many countries are phasing out diesel automobiles.
  • Challenges in India: Due to significant expenditures made by carmakers and oil firms in transitioning to BS-VI norms, implementing a comprehensive ban on diesel vehicles in India poses challenges. Furthermore, the commercial vehicle industry is strongly reliant on diesel, so an immediate prohibition would be problematic.
  • Experts stress the necessity of technology-agnostic regulations that prioritise high operational standards, particularly emissions standards. Transitioning to alternative fuels such as liquefied natural gas (LNG) and investigating electric vehicles (EVs) can help to reduce greenhouse gas emissions significantly.
  • The Energy Transition Advisory Committee report emphasises the potential of hydrogen as a motive fuel, which might reduce emissions and revolutionise the logistics industry.
  • Environmental Initiatives: Oil marketing corporations have taken initiatives to reduce diesel’s environmental impact, such as lowering sulphur levels and introducing biodiesel requirements.

@the end

  • Environmental concerns, emission reduction goals, and shifting fuel economics are driving India’s shift away from diesel.
  • While a diesel pollution tax is still hypothetical, it illustrates the government’s dedication to cleaner and greener alternatives.
  • This transition has repercussions for the automobile industry as well as individual vehicle users, emphasising the need for cleaner, more sustainable mobility solutions.
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