life in general & financial markets: (part 4) india's obsession with diesel cars

(previous posts of this series are here --> part 1 dated 28 July 2010,   part 2 dated 14 November 2010 and   part 3 dated 22 February 2011)

The price differential between petrol and diesel has shot up to ugly levels thanks to the free pricing of petrol by oil companies (and the consequent frequent price hikes and particularly the recent weeks' sharp price hikes) and the government-controlled pricing of disel. Diesel is kept heavily subsidised. Petrol is far more expensive than diesel today than it ever was.

Affluent car buyers of India are choosing diesel cars over petrol cars due to the lower price of diesel. This keeps the car sales momentum going. Car manufactuers are surely lobbying (perhaps accompanied by bribing) the government to prevent the rise of diesel price.

Diesel also pollutes the environment much more than petrol. Below is a latest Centre for Science and Enivronment write-up on the subject:

EDITORIAL: Diesel: when bad policy makes for toxic hell
by Sunita Narain

Just consider. Every time petrol prices are raised, oil companies end up losing more money. Simply because the price differential between petrol and diesel increases further, and people gravitate towards diesel vehicles. More the use of diesel, more the oil companies bleed. Worse, we all bleed because diesel vehicles add to toxic pollution in our cities, which, in turn, adds to ill health and treatment costs.

This is very well understood. Yet nobody will do anything to fix the trend.

Today, it makes more sense for the next car buyer to buy an expensive personal car—perhaps even a Mercedes-Benz—but run it on the subsidised diesel. Today, according to government’s own estimates, the use of diesel in personal vehicles has zoomed. Some 15 per cent of the current consumption of diesel is in passenger cars. The agricultural sector uses less—12 per cent of the country’s diesel. This busts the myth that diesel prices are kept low for reasons of
public policy. In fact, keeping the price low but allowing its use in the private transport sector is clearly a deliberate policy to use the poor person’s fuel to subsidise the rich.

Oil companies also say that the under-recovery in diesel is now costing them big time. It is estimated that Rs 67,500 crore is lost annually in under-recovery on account of diesel alone. This is roughly 60 per cent of the total losses of the companies. Assuming that private cars consume 15 per cent of the diesel, the direct subsidy to car owners is over Rs 10,000 crore. This is socialism Indian style: taxing the poor to pay the rich. With each increase in the price of petrol, this gap widens. Bad for oil companies; worse for the environment.

The claim of car companies that the modern diesel vehicle is clean is far from true. Emission data shows current diesel cars emit seven times more particulates and three to five times more nitrogen oxides than petrol cars. There is sufficient evidence that tiny particulates—PM 2.5—emitted from a diesel vehicle are toxic and carcinogenic. This toxin is firmly associated with significant increase in cases of asthma, lung diseases, chronic bronchitis and heart ailments. Long-term exposure can cause lung cancer. The increased level of nitrogen dioxide contributes to the formation of ozone, which, in turn, damages our lungs. So be clear, diesel vehicles, however fancy and fitted, are costing us our health.

Today, Europe, which promoted diesel vehicles, is paying a heavy cost. It is struggling to meet air quality standards, even though it has invested heavily in the cleanest of fuels reducing sulfur levels to near-zero and has fitted vehicles with every kind of anti-pollution gizmo like particulate traps and de-NOx catalyst. Diesel also has higher levels of black carbon, which is today understood to be a key contributor to climate change. In the US, the car mecca, where emission standards and price do not differentiate between fuels, there is no market for diesel cars.

So why does Indian policy continue to provide this perverse incentive to pollute? The irony is that there is no policy that allows this use. It is a loophole. Car manufacturers struck gold when they realised that they could sell more vehicles if they could run them on cheaper and subsidised fuel. They exploit the fact that diesel price is kept lower because of its use for transportation of essential goods and for public transport—trucks use some 37 per cent of the diesel consumed and buses 12 per cent. They also know that dual pricing of fuel—different diesel prices for cars and buses or tractors—cannot be operated. They merrily exploit this helplessness.

Government agencies know this. They make all the right noises about the need to fix the price distortion. The market types glibly talk about the need to deregulate diesel. They say this because they know that even though they sit in power, they cannot remove government control over the price of this fuel, which is also essential for railways, transport of public goods and agriculture. They know that the inflationary impact of raising diesel price will be high; they know it will be opposed. But they use this convenient cover to do nothing about the most glaring of distortions—the use of the subsidised fuel by the rich and for private transport.

But given the rising economic cost and pollution, the option of doing nothing is not acceptable anymore. The options are either to link the price with emission standards or to ban production of personal diesel vehicles. If this is not possible, then the government should tax diesel vehicles—200 to 300 per cent of the price of the vehicle—to remove the fiscal distortion in price and policy. Our neighbour Sri Lanka has done so. In India, committee after committee has recommended that this be done. But it is not done.

Clearly, the lobby for big diesel is powerful. Clearly, it sits in glitzy chambers of commerce, which can bend policy to suit purse and purpose. It’s sad and deadly.

life in general & financial markets: (part 3) india's obsession with diesel cars

(part 1 dated 28 july 2010 of this series is here and part 2 dated 14 november 2010 is here)

I share below a latest statement from the Centre for Science and Environment on India's pathetic obsession with diesel cars.

Press Release

Finance Minister, it is time to take a decision to stop misuse of diesel subsidy by the rich diesel car owners. Any further delay will cost hugely to the nation and our health

New Delhi, February 18, 2011: India cannot afford to delay the decision to take away the current incentive for diesel cars given the public health and energy security implications -- the message that Centre for Science and Environment (CSE) has for Pranab Mukherjee, as he gets set to present this year’s Budget.

CSE has drawn the attention of the Finance Minister to the recent trends that show that the car industry is on an overdrive to introduce more new diesel car models even in the small car segments that had not seen much diesel penetration earlier. The combination of cheap diesel and lure of lesser taxes on small cars will make the diesel car numbers explode now. Already, diesel cars constitute 36 per cent of new car sales – this is expected to be half soon. Since 2008, the price gap has increased from 28 per cent to 35 per cent in Delhi. It is deplorable that cars are not being made to pay the full costs when the oil companies are losing Rs 7-9 per litre of diesel.

Says Anumita Roychoudhury, head of CSE’s air pollution team: “CSE condemns this perverse subsidy. If the use of subsidised diesel continues to increase, the government will continue to incur a huge revenue loss as it earns much less from excise on a litre of diesel used by cars, as opposed to petrol.” The Union government earns more than three times higher excise revenue from every litre of petrol used by a petrol car compared to a litre of diesel used by a diesel car. Revenue losses will compound with increased share of diesel cars and SUVs. Only in Delhi, this revenue loss amounts to close to Rs 300 crore. This can be mammoth on a nation-wide basis. “The government cannot justify this,” adds Roychoudhury.

The car industry is spawning the myth that fuel-efficient diesel cars will help save fuels and lower climate impacts. On the contrary, the market trend clearly shows that diesel is aiding a steady shift towards bigger cars that guzzle more fuel. While 85 per cent of the petrol cars sold in India have less than 1,200 cc engines, 64 per cent of diesel cars are just under 1,500 cc; the rest are all above. Despite fuel efficiency, bigger engines will always use more fuel and cheaper diesel fuel will encourage customers to opt for bigger and more powerful cars and thus undermine energy security. Higher petrol prices have effectively kept its market predominantly in small car segment.

CSE cautioned that cheaper diesel fuel will always encourage bigger cars, more driving and more fuel guzzling in the rebound. The ongoing India assessment of the International Council on Clean Transportation shows that these trends can lead to a cumulative loss of 6.5 mtoe (million tonne of oil equivalent) of energy between 2010 and 2020. This equals the fuel use of all four-wheeled passenger vehicles in 2006 -- around 6.6 mtoe. This defeats the objective of improving India’s energy security.

Auto industry’s claim of greater fuel efficiency and lesser carbon emissions from diesel cars is unacceptable as diesel fuel has higher carbon content than petrol. If more diesel is burnt encouraged by its cheaper prices, more heat-trapping CO2 will escape. Also, black carbon emissions from diesel vehicles are several times more heat-trapping than CO2 and this nullifies fuel efficiency gains.

The car industry is pitching for tax concession for bigger cars and to stop increase in taxes on diesel cars in this budget when ‘clean’ diesel (diesel with less than 15 ppm of sulphur) is not available in the country.

CSE researchers demand that “the excise on big cars and SUVs must remain at 24 per cent and the special excise duty on bigger cars, MUVs and SUVs must be fully restored and increased in the forthcoming budget. This is a critical energy security measure.”

It is ironic that tax differential is being officially justified in the name of agriculture and freight, but rich car owners benefit more. Cars have already become the second biggest user of diesel and beneficiaries of the official tax policy. Cars use up 15 per cent of the total diesel in the country – compared to 12 per cent by buses and agriculture, 10 per cent by industry, and 6 per cent by the railways.

CSE has drawn attention of the Finance Minister to the global practices in which other governments have taken fiscal measures to discourage diesel in cars. In Brazil, diesel cars are actively discouraged because of the policy to keep taxes lower on diesel. In Denmark, diesel cars are taxed higher to offset the lower prices of diesel fuel. In China, taxes do not differentiate between petrol and diesel. The European Commission has calculated the difference in lifetime pollution costs of Euro IV compliant diesel car and petrol car. The total pollution cost of a Euro IV diesel car is 1,195 Euros vis-a-vis 846 Euros for a petrol car. This nullifies the marginal greenhouse gas reduction benefit of diesel car and costs higher to the society.

The Finance Minister can not afford to ignore the economic and environmental consequences of diesel pricing. Several committees including Kirit Parikh Committee have already recommended additional excise duty to eliminate the incentives arising from the lower diesel taxes.

Tax measures are absolutely necessary to discourage diesel cars until the time India introduced clean diesel (diesel fuel with 10 ppm sulphur used along with advanced emissions control systems) nation-wide. Otherwise, health risk associated with conventional diesel emissions is very serious. Some of the deadliest air toxics, also carcinogens, are related to diesel emissions. These are even blamed for killing unborn foetuses. According to WHO and other international regulatory and scientific agencies diesel particulates are carcinogens.

What CSE demands

• Additional, substantial and effective excide duty on diesel cars to prevent dieselization of car segment.
• Align small diesel car definition with that of petrol. Currently small petrol car is legally defined as one with length not exceeding 4,000 mm and with an engine capacity not exceeding 1,200 cc. For diesel small car this has been relaxed to 1,500 cc for diesel cars. Make it same as small petrol car for the purpose of tax measures.
• Fully restore 24 per cent excise and increase further the special duty on all big cars.
• Taxes must also begin to reflect the actual fuel use in cars to prevent shift towards bigger cars that use more fuel and threaten energy security.

For more details, please contact Anumita Roychoudhury at anumita@cseindia.org. To set up interviews with CSE researchers and experts, write to Papia Samajdar at papia@cseindia.org, or speak to her at 99108 64339.

life in financial markets: fuels on fire

Recently, I wrote an editorial for the publication I work for on the issue of diesel-run SUVs and cars. 

Here is what I wrote:

Fuels on fire

The car market in our country has been on a roll in recent years notwithstanding the intervening global depression period of 2008 and early 2009. While car manufacturers--Indian or foreign--selling cars, including SUVs (sports utility vehicles) to Indians have all the reason to be mightily pleased with such a trend there is an underlying unpleasant side-effect that India as an ecological landscape is experiencing. 

In the last few years, almost all the high-end cars sold in India have been diesel. These cars, that includes sedans and SUVs, have costed upwards of Rs 7-8 lakh. Advocates for a less-polluted environment have always opposed the dieselisation of the car fleet. They have associated the deteroriating air quality in the cities to the sharply rising levels of tiny particulates of size less than 2.5 microns and nitrogen oxides, both of which arise more out of diesel exhaust emissions than from petrol vehicles. 

So nothing new was being said by union environment minister, Jairam Ramesh when he told the delegates of a UN conference on environment last week that in view of the growing carbon emission levels of India's transportation sector it was criminal for diesel subsidies to be used up in increasing part by large-sized cars and SUVs. It is estimated that these passenger vehicles gobble up 20 to 25 per cent of all diesel sold in the country. 

As a concept, discouraging the use of diesel passenger cars is ideal for climate change mitigation purpose but there are practical difficulties. Particularly if the solution being touted is differential pricing of diesel -- higher for cars and normal rates for trucks, tractors, power generators, agricultural pumps, railway trains and industrial use. Enforcing differential diesel prices at the retail outlet would be extremely difficult. 

One viable alternative was spelled out by a section of a February 2010 report of a government-nominated expert group on a viable and sustainable system of pricing of petroleum products headed by Kirit Parikh. After commenting that there was no economic reason to subsidise diesel car and SUV owners it laid out a formula to collect the same level of tax that petrol car users pay from those who use a diesel vehicle for passenger transport. 

Illustrating through an example and use of discounted rate over a 10-year life of a vehicle, the group stated that a petrol car owner who drove 8000 km a year and got an average mileage of 13.5 km per litre was paying Rs 10,000 more excise duty per year than what he would if he drove a diesel car. The calculation culminated in a figure of Rs 80,000 additional excise duty diesel cars should be required to pay. While this figure may seem low to some, the assumptions of car usage, mileage and discount rate can always be updated and fine tuned to levels that truly reflect the average of the use of passenger cars in the country. 

Whatever be the challenges in finding a solution to the dieselisation of the car industry in India, one has to be found and soon. Even in the US, where governments and consumers are wary of paying more for fuel-efficient vehicles there is heightened awareness of harmful effects of fuel-guzzling SUVs. India is racing ahead on the way to become a consumerist society but it does not have the knowledge and the maturity to deal with the negative environmental side effects. 

Whether unwitting or not, the subsidy being enjoyed by rich diesel car and SUV owners is neither wise nor sustainable.

life in general & financial markets: (part 2) india's obsession with diesel cars

In my July 28 '10 post I had written about the ugly obsession of India's affluent car & SUV owners, automobile manufacturers and government policy makers with the use of diesel.

I share below the latest editorial written by Centre for Science and Environment on diesel cars and SUVs that throws additional light on the matter.

Here goes:

Press Release
CSE supports JairamRamesh on restraints on SUVs and dieselisation of personal cars

New Delhi, November 13, 2010: Centre for Science and Environment (CSE) commends minister of state for environment Jairam Ramesh for slamming the expanding fleet of SUVs and the rampant use of cheap and toxic diesel in personal cars putting public health at risk.

Says Anumita Roychoudhury, head of CSE’s air pollution and urban mobility team, “CSE has been campaigning against these fuel-guzzling polluters for many years, and we fully support Mr Ramesh’s views as reported in national media. While the expanding SUV fleet with large engines undermine the fuel savings in the transport sector, the plume of emissions from India’s diesel cars make the urban air more toxic.”

Reign in the big bully and the guzzler
• Big cars and SUVs are a threat to energy security, climate and public health: CSE is concerned that the Indian market, so far dominated by small cars, is steadily shifting towards the mid to large car segments. This segment already represents about 36 per cent of the total car sales in India. This trend is supported by on-road surveys carried out by RITES and the Delhi Transport Department that show that nearly 30 per cent of the cars on Delhi’s roads are already mid-size and large cars. With large cars that are much less fuel-efficient than smaller cars, the total fleet’s fuel economy will worsen.
• The costs of bigger vehicles can be enormous: This is evident from global studies such as that of the International Council on Clean transportation that show fuel economy of a car fleet declines for a given increase in large vehicle market. A 10 per cent increase in large vehicle sales can roughly result in 2 per cent deterioration in fleet fuel economy. This means roughly, an additional 17,500 barrels of oil will be consumed annually by those 10 per cent large vehicle sales. Why should the Indian government let the country and the climate bear this unacceptable cost on account of luxury consumption, asks Roychoudhury.
• Cost to the consumer: Consumers actually end up spending more on fuel during the life time of large cars. Moreover, considerable numbers of large cars are run mainly on diesel, which undermines air quality. SUVs particularly are captive users of diesel. This defeats the government’s objective of improving vehicle fuel economy to protect India’s energy security and meet its climate goals. Dirty air increases the medical bills of the consumer.
• Use of cheap diesel in big cars and SUVs leads to more oil guzzling in the rebound: Studies in Europe have shown how use of cheaper diesel used in bigger vehicles and SUVs that are also used for long distance driving undermines the efficiency gains of improved vehicle technology. The actual fuel consumption goes up. Other governments are increasing taxes on bigger cars, especially SUVs – most exemplary is the case of China – to minimise the energy and pollution impacts of these vehicles.

Diesel: the toxic trap
The current official policies are encouraging massive dieselisation of the car fleet when ‘clean’ diesel (with 10 ppm of sulphur used with advanced after-treatment systems) is not available in the country. The market share of diesel cars is already over 30 per cent of new sales and is expected to be 50 per cent of new car sales soon.

CSE challenges the industry folklore that the current Bharat Stage III and IV diesel car fleet meets public health benchmark:
• Bharat Stage III and IV emissions standards legally allow diesel cars to emit several times more NOx and PM than petrol cars. Auto industry claims that they are adopting common rail injection systems for diesel cars and therefore they are clean. But our emissions standards are not fuel neutral as they differentiate between petrol and diesel vehicles. The difference is evident in the emissions factors developed by the Automotive Research Association of India for Bharat Stage III diesel cars that are sold across the country. These diesel cars emit 7.5 times more toxic particulate matter than comparable petrol cars (see graphs on our website). This means, one diesel car is equal to adding 7.5 petrol cars to the car fleet in terms of PM emissions and three petrol cars in terms of NOx emissions. Total air toxics from a diesel car that are very harmful and carcinogenic are seven times higher than that from petrol cars.

• Diesel and petrol cars meeting the same level of emission norms have different toxicity levels that determine the cancer causing potential. Data from Europe shows that the diesel cars’ toxicity becomes comparable with petrol only when they are fuelled with near zero sulphur fuel and are fitted with particulate traps. The International Agency for Research of Cancer (IARC), WHO, United States Environmental Protection Agency, etc have all classified diesel emissions as carcinogenic. The European Commission has calculated the difference in lifetime pollution costs of Euro IV-compliant diesel car and petrol car -- and it shows a major difference. The total pollution cost of a Euro IV diesel car is 1,195 Euros vis a vis 846 Euros for a petrol car. This nullifies the marginal greenhouse gas reduction benefits of diesel car and costs higher to the society.

• Government is shouldering the burden of subsidy to the rich car owners: CSE had warned earlier that as the Union government earns much less from excise on a litre of diesel used by cars, as opposed to petrol; revenue losses per litre of diesel will be compounded with increase in diesel car sales. But diesel car owners recover their premium within a few years, given lower diesel prices. This perverse subsidy to the rich comes at an enormous cost to public health. In countries like Brazil, diesel cars are actively discouraged because of the policy to keep taxes lower on diesel. In Denmark, diesel cars are taxed higher to offset the lower prices of diesel fuel. In China, taxes do not differentiate between petrol and diesel.

• Even low carbon emissions and greater fuel efficiency advantages of diesel cars are shrouded in doubt. Diesel cars are popular for their greater fuel efficiency and lower heat-trapping carbon emissions. ARAI data shows Euro III Indian diesel cars emit 1.2 times less carbon dioxide compared to their petrol counterparts. But even this benefit is at risk of being negated as diesel fuel has more carbon content than petrol. If more diesel fuel is burnt, as is likely given its cheaper prices and rising number of cars and SUVs, the heat-trapping carbon emissions will increase. Moreover, even the carbon soot from diesel vehicles are now implicated for global warming.

• Diesel-related emissions are already very high in the air of Delhi and other cities. It is significant that the environment minister has raised the concern over use of cheap diesel in big cars and SUVs now when the air quality data from the Central Pollution Control Board shows that the average levels of tiny particulates, smaller than 2.5-micron size (PM2.5), that go deep inside lungs, have hit a dizzying height in Delhi. The WHO has said that there is no safe level for PM. Studies in the US show that even at very low concentrations and with an increase of only 10 microgram per cubic metre, PM2.5 is associated with significant increases in health risks like asthma, lung diseases, chronic bronchitis and heart damage. Long-term exposure can cause lung cancer. What’s worse, in Delhi, levels of nitrogen dioxides (NO2) are also spiraling adding to the problem of ozone. Both PM and NOx dominate diesel exhaust emissions.

It is time to act.
It is a myth that the diesel car technology that is available currently in India is clean and meets the public health objective. Immediate policy intervention is needed.

CSE proposes the following action plan:
• Discourage big cars and SUVs by linking taxation to the actual fuel consumption of the vehicles. More fuel a vehicle consumes, the more tax should it pay.
• Remove price incentive for diesel cars. Either equalise fuel taxes and prices or impose effectively high additional taxes on diesel cars to neutralize the current fuel price advantage that the cars enjoy.
• Introduce ‘clean’ diesel technology that runs on diesel fuel with sulphur content less than 10 ppm and is fitted with advanced emissions control devices like particulate traps. Otherwise, get off the diesel route.
• Fuel economy standards must not worsen the trade-off between fuel efficiency of diesel cars and their toxic emissions. Fuel economy standards currently in the making must have built-in safeguards against dieselization of car fleet.

life in general & financial markets: (part 1) india's obsession with diesel cars

(part 2 dated 14 november 2010 is here)

In India, ugly corruption among many politicians and bureaucrats and bribing by powerful lobbying car manufacturers, particularly the ones who also manufacture trucks and buses, has led to a dangerous obsession with diesel, a fuel that pollutes much more than any other fuel. Diesel fuel is priced artificially by government-controlled oil companies at a level much lower than petrol due to the dirty lobbying by diesel car manufactuers.

Looking at the pampering being given by India's government to diesel fuel, even supposedly-respected international car companies are joining the nefarious diesel bandwagon. Toyota's Indian subsidiary launched a diesel version of its Corolla Altis sedan pricing it at between Rs 11 lakh (Rs 1.1 million) and Rs 14 lakh (Rs 1.4 million). 

The Indian government is ugly and bad, but what about the affluent consumers of India? Should they be buying diesel cars, and particularly expensive diesel sedans?

Diesel vehicles pollute the environment, primarily through higher emissions of nitrogen oxides and particulate matter, more than petrol vehicles and definitely far higher than CNG vehicles. In India, diesel prices are around 25 per cent cheaper than petrol and their mileage about 90-100 per cent more than petrol. Should this be the motivation for someone having Rs 14 lakh to shell out to buy a car, any car? Corolla Altis claims to give a mileage of about 21 kms a litre. The petrol Altis gives about 11 kms a litre mileage.

Most of those who can afford a Rs 14 lakh car will be staying in up-market city areas, where homes are far more expensive and very near to their workplaces. Let's assume a two-way distance of maximum 40 kms on workdays for such car commuters. To factor in long-distance weekend travel, let's assume a 40 kms per day travel for all days  of a year. That works out to 14,600 kms in a year. Covering this distance at 21 kms mileage, the diesel Altis will burn 695 litres of diesel and if you are in Bombay it will cost you Rs 29,200 at Rs 42 a litre for diesel. Similarly, at 11 kms mileage, the petrol Altis will burn 1,216 litres of petrol and cost a Bombayite Rs 68,100 at Rs 56 a litre of petrol.

The savings for the diesel car owner: Rs 38,900 a year. How much great this annual savings really is for someone who pays Rs 14 lakh to buy a car? Just 2.78 per cent. The question still remains whether 695 litres of diesel or 1,216 litres of petrol pollutes the environment more. Environmentalists express more concern at the damaging properties of nitrogen oxides emissions of diesel vehicles than they do for the CO2 emissions of petrol vehicles. Diesel prices are still kept subsidised as compared to petrol, otherwise the savings in a diesel car will be much lower and less litres of diesel consumed adding to less pollution in the air. In fact, CNG cars works out as the best alternative, both in terms of cost of running and harmful emissions released.