Ranked first in vulnerability to climate change, and third in carbon dioxide emissions, India's stakes in clean energy cannot be higher. As one measure, switching to electric vehicles (EVs) will cut both air pollutants like particulate matter hurting health, and carbon dioxide causing climate change. That is the significance of Indian government's pronouncements on electrifying vehicles by 2030, and Delhi's announcement of an EV policy, as in Gujarat and Karnataka.
India is late to the EV market but can make a strong entry if the government, industry, and the public join in. Delhi is a natural first mover, being the world's most air-polluted capital city, and projected to be the biggest in the world before 2030. Delhi's three-year policy is to raise EVs' share in new vehicles to one quarter by 2024. A total electrification of public transportation could be a major first step. The crucial question is if consumers will follow suit.
To EV buyers, the cost of ownership, including upfront, fuel and maintenance costs, of an EV (Rs. 14.44 lakh) is almost as much as an ICE vehicle (Rs.15 lakh). This price comparison is a deterrent to EV adoption, especially with its upfront cost that is thrice that of the Internal Combustion Engine (ICE).
The proposed cut in upfront costs through income tax benefits (up to Rs 2.5 lakh), 'Green Car loans' from banks, lower GST, registration tax exemptions and central and state incentives can make EVs actually cheaper than ICEs. Delhi government's policy would waive the registration fee and road tax and give an incentive of up to Rs 1.5 lakh for new EVs.
Furthermore, local production of batteries, vehicle parts and raw materials (now imported from China) should lower EV costs. India had only 650 charging stations for cars and SUVs in 2018 compared to about 456,000 charging points in China. Charging of electric vehicles is also challenging: for example, many people do not park their cars inside their houses and park them on the roads. Karnataka proposes a 20 percent subsidy on installation of EV charging stations.
Industry's entrepreneurship matters. Indian manufactures should learn from Tesla's investment in the high end of technology backed by a committed team of engineers and experienced industry professionals. India plans to offer $4.6 billion in incentives to companies setting up advanced battery manufacturing.
Government subsidies, tax exemptions and industry partnership should boost EVs' demand, if the experience of others (Germany, US, Netherlands, China).is a guide. India, however, needs to ensure effective execution of the incentive scheme. There also needs to be strong coordination of the central and local governments. A publicity campaign will help to help change driving habits and overcome psychological resistance to adopting EVs.
To be sure, a program of subsidies and tax exemptions has a sizable fiscal cost to the government. But policy decisions need to be mindful that gains from EVs are not only customer satisfaction and economic but also positive health effects from less air pollution and a check on global warming.
In a social accounting in the US, the benefits of an EV over its life includes less maintenance and fuel savings ($5,618)) and environment, health, national security and development benefits (totaling $6,785) compared to the costs of the EV of $3,870 more than ICE. The health gains during an EV's lifetime (10 years) and 120,000 miles accrue from less tailpipe emissions. EVs in Beijing reduced SO2, NOx, PM2.5 and PM10 by 7.9%, 10.8%, 3% and 9.1% respectively.
That said, vehicular tailpipe emission is only one source, and a large part of PM emissions comes from dust re-suspension and abrasion of brakes and tires. Moreover, EVs will be environmentally beneficial only if the manufacturing process of EVs and their battery supply of electricity for charging stations are non-coal and non-thermal. In Delhi, the electricity generation capacity is 75-80% dependent on coal thermal plants.
But in evaluating the government's fiscal cost, it needs to be noted that India can, by one set of estimates, save about 64% of energy demand for road transport and 37% carbon emissions by 2030, with accompanying health benefits, if electrification is adopted efficiently and quickly. From a national security perspective, India could save ₹1.2 lakh crores worth of imported oil. This calculus makes the choice in promoting EVs clear.
Switching to cleaner sources of fuel for vehicles is an imperative for India. But shifting to EVs will not be automatic nor the process problem-free. Fiscal incentives will be needed, and they should be implemented efficiently. On balance, the social gains to the country of cleaner energy from EVs far outweigh the fiscal costs of supporting this drive.
The authors are with Lee Kuan Yew School of Public Policy, National University of Singapore.
This article was first published in The Economic Times on 13 November 2020.
(Photo credit: Noya Fields)