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The Hidden Costs of diesel Subsidies and the automobile sector

“Fuel Subsidies: Getting to Grips with the Pros and Cons of Higher Prices ”

Anumita Roychowdhury

Centre for Science and Environment

Media WorkshopIISD, TERI, NIPFP and the Forum of Environmental Journalists of India New Delhi, August 28, 2012

2Source; Based on PPAC data

Yawning gap between petrol and diesel prices

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Diesel cost is not fully recovered

Source: based on PPAC data

Differences in taxes and dealers’ commission on petrol and diesel: Wide gap

Under taxed and under priced diesel

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Oil marketing companies reported Rs 64,900 Crore under recovery from diesel, kerosene and LPG during the 1st half of the year (April-Sept 2011).

Diesel accounted for the highest losses: 58%

Source: Anon 2011, Industry Sales Review Report October 2011, PPAC, MOPNG, India

Diesel is responsible for maximum under recovery

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Distortions…….

More diesel cars

Freight traffic shifting from railways to trucks

Proliferation of diesel gen sets…… and so on

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Case study of diesel cars…….

Diesel car sales hit all time high

So have diesel cars: 4% to 49%.....(Now touching 60%)

Overall car sales have galloped…

Explosive: In popular car models the share of diesel car is 70-75%“In 2010-11 diesel cars were 34% higher than pervious year. Even at a moderate and flat growth rate of 20 per cent a year, the total diesel cars in 2020 will be

double the size of the total car sales today.

Source: Based on market dataSource: Based on SIAM data

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Sales of diesel Cars, MUVs, MPVs

2009-10 to 2010-11:Car engines below 1400 cc – 45% growthMore than 2000 cc – 41% growth

Recession? Where?Even SUV segment shows high growth rate. Naturally. It is so cheap to run diesel cars!

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With each litre of petrol replaced by diesel to run a car the excise earning of the government from a car drops seven times

Use of diesel in cars has increased so much that the excise earnings from petrol and diesel has equaled.

This will only get worse as diesel cars continue to explode. Within 2009-10 and 2010-11 diesel cars have increased by 34%.

Enormous revenue losses from personal vehicle usage…….

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Therefore………………

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Demand for higher tax on diesel cars get louder

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But…………..

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New number game in town – diesel cars use less than 1% of diesel … so why tax the car!

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SIAM released this on 1st Feb 2011

Reality says SIAM-

Says SIAM:Perception – Diesel vehicles are polluting

Automobile industry -- SIAM released this -- “Diesel: Some Perceptions - Some Realities……”

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PPAC Sector-wise diesel consumption

Working Group on Petroleum (WGP)/ SIAM Sector-wise diesel consumption

The new number game…..

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Strange puzzle……Overall diesel use increase .. But road transport sector use remains the same

Total diesel consumption in the country:PPAC: 51,700 TMT (2008)SIAM/WGP: 63,001 TMT (2011)-- 20% increase

Total road transport diesel consumption: -- PPAC: 33,088 TMT-- SIAM/WGP: 33,254 TMTAlmost same….

-- There is variance in relative share of vehicle segments

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WPG/SIAM: Cars and SUVs use 5.2% of total diesel consumption in the country = 3276 TMT

If petrol cars use a third of total petrol which is 4272 TMT (the rest is used by two/three-wheelers)

Then,

As much as 40% of total fuel used in car segment is diesel!

It is still not possible to hide dieselisation of car and SUV segment!

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We cannot afford dieselisation …………..Why?

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PM10 levels Delhi NO2 levels Delhi

Source :CSE analysis of CPCB air quality data

Diesel related air pollution is high in Indian cities…….

Increase of only 10 microgramme/cu m of PM2.5 leads to significant increases in health risks. High exposure increase hospitalisation for asthma, lung diseases, chronic bronchitis, heart damage and lung cancer. NOx leads to ozone.

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Post 2005 Models NOx emissions

0

0.05

0.1

0.15

0.2

0.25

0.3

Petrol cars (> 1400cc) Diesel cars (< 1600cc)

0

0.005

0.01

0.015

0.02

Petrol cars (> 1400cc) Diesel cars (< 1600cc)

PM (g

m/km

)

Understand the toxic risk

NOxNOxPMPM

Source ARAISource ARAI

Diesel cars are legally allowed to emit three time more NOx and several times more particulates than petrol cars…….

Comparison of petrol and diesel norms under Euro III and Euro IVComparison of petrol and diesel norms under Euro III and Euro IV

High exposure to vehicular fume need special attention

Vehicular emissions contribute to significant human exposure. Pollution concentration in our breathe is 3-4 times higher than the ambient air concentration.

In densely-populated cities more than 50 – 60% of the population lives or works near roadside where levels are much higher. This is very serious in low income neighborhoods located close to roads.

Poor have a higher prevalence of some underlying diseases related to air pollution and proximity to roadways increases the potential health effects.

In three cities World Bank review found vehicles contributing an average 50% of the direct PM emissions and 70% of PM exposure.

The WHO report of 2005: Epidemiological evidences for the adverse health effects of exposure to transport related air pollution is increasing.

Some of the deadliest air toxics, also carcinogens, are related to vehicular emissions. Blamed even for killing foetus.

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People living close to road side are most exposed to vehicular fume

Evidence from Delhi….

Given the large number of peopleliving within 300- 500 meters of a major road,the Panel concluded that exposures to primarytraffic generated pollutants are likely to be ofpublic health concern and deserve attention.

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• In June this year the International Agency for Research on Cancer of the World Health organisation (WHO) has reclassified diesel exhaust as Group 1 list of carcinogen that have definite links to cancer.

•Diesel exhaust is now in the same class of deadly carcinogens as asbestos, arsenic or tobacco among others.

•The IARC-WHO has urged worldwide efforts to reduce exposure to diesel fumes as much as possible.

The shocker…….

Other governments consider toxic Air contaminant Unit Risk Factors to prioritise action

Toxic Air Contaminant Unit Risk/Million People

Detection limit (ppb)

Acetaldehyde 2.7 0.10

Benzene 29 0.05

1,3-Butadiene 170 0.04

Carbon Tetrachloride 42 0.02

Chromium, Hexavalent 150,000 0.06 (in nanogram)

Para-Dichlorobenzene 11 0.30

Formaldehyde 6 0.10

Methylene Chloride 1 0.10

Perchloroethylene 5.9 0.01

Diesel particulate matter

300 N/A

Note: Unit Risk represents the number of excess cancer cases per million people per micrgramme per cubic meter TAC concentration over a 70 year lifetime exposureA diesel particulate matter unit risk value of 300 is used as a reasonable estimate in the “Risk Reduction Plan to reduce Particulae Matter Emissions from Diesel Fuelled Engines an vehicles (ARB, October 2000) Source: California Air Resource Board

How safe it is to have diesel particles in our air?

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High contribution of diesel combustion to PM2.5 in Indian cities

DIESELISED AIRDiesel’s contribution to ambient PM2.5

levels

Reduce factors that contribute towards toxic risks: About 26% of Delhiites have undergone chromosomal damage due to air pollution that can be precursor to cancer (CNCI study 2004-05)

The National Cancer Institute study released in March 2012: Occupationally exposed miners has five times the risk than the lowest exposure group.The findings suggest that the risks may extend to other workers exposed to diesel exhaust, and to people living in urban areas where diesel exhaust levels are elevated.

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Energy insecure?Cheap diesel is pushing market towards bigger cars that guzzle more fuel…………

Source: Based on market data

Petrol car sales higher in small car segment -- 87% of petrol cars are below 1200 cc. More than 40% of the diesel cars are above 1500 cc

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Increased mass and more energy guzzling

Most diesel models are in the heavier weight classes. Cheaper diesel will aid in shift towards heavier models.

A 10% increase in large vehicle sales can create additional demand for more than 17,500 barrels of oil annually. (ICCT) Can we afford this?

Growing numbers, weight and increased dieselisation can lead to a cumulative loss of 6.5 mtoe of energy between 2010 and 2020. This equals the fuel use of all four-wheeled passenger vehicles in 2006 -- around 6.6 mtoe (ICCT). This defeats the objective of improving India’s energy security.

Also India does not have fuel economy standards

More diesel car models in the larger and heavier classes

Rebound Effect: Diesel fuel has higher carbon content than petrol. If more diesel is burnt encouraged by its cheaper prices and more driving, more heat-trapping CO2 will escape.

Black carbon emissions from diesel vehicles are several times more heat trapping than CO2

CO2 emissions from the upstream diesel refining process will increase:European Commission has found lifetime pollution costs of Euro IV compliant diesel car is much higher than petrol cars.

This nullifies the marginal greenhouse gas reduction benefit of diesel car and costs higher to the society.

Why climate insecure?

135

140

145

150155

160

165

170

175

Petrol cars (> 1400cc) Diesel cars (< 1600cc)

CO

2 (g

m/k

m)

Less CO2: yet a climate rogueLess CO2: yet a climate rogue

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Learn from Europe’s mistake

European industry relied heavily on expanding the diesel car fleet to reduce CO2 emissions and meet the CO2 target of 140g/km in 2008 and 120g/km in 2012.

But Europe is neither close to meeting their target for CO2 emissions, nor their local air quality targets of NOx and PM reduction.

With dieselisation the average power of the car fleet in Europe has increased by 30% since 1990

European Commission has calculated the difference in lifetime pollution costs of Euro IV diesel car and petrol car:

-- Total pollution cost of a Euro IV diesel car is 1195 Euros vis a vis 846 Euros for a petrol car. This negates the marginal greenhouse gas reduction benefit of diesel car and it costs higher to the society.

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Cheaper fuel leads to more oil guzzling: Global evidence

A World Bank study (2010) has found six countries (the U.S, Russia, China, Brazil, Mexico and Canada), that under tax fuels, responsible for more than 40% of transport oil GHG emissions. But a much larger number of countries that overtax transport fuels together account for 28% of transport fuel GHG world emissions.

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We still need clean diesel for all users……..

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Unacceptable time lag-- Bharat Stage III 12 years behind Europe-- Bharat stage IV seven years behind

Source: based on European Commission, MORTH, India, Diesel Net

Diesel car emission norm trajectory and India’s position

During 12th plan refinery capacity will expand 1.6 times.

But this is not linked with stringent emissions standards roadmap.

There is no fiscal strategy

We need clean diesel not just for cars but for all……..We need clean diesel not just for cars but for all……..It is possible to reduce harmful diesel emissions drastically.It is possible to reduce harmful diesel emissions drastically.

But India is diselising without clean dieselBut India is diselising without clean diesel

Source: ICCT

We need clean diesel (10 ppm sulphur) along with advanced after treatment system.

Need a fiscal strategy to meet the cost of makeover

Investment for refinery expansion not linked with improved emissions standards.

Reduce toxic riskReduce toxic risk

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Cost benefit analysis convince other governments to take hard action…..

USEPA calculates cost benefit of clean air regulations to justify aggressive action

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Other governments are taking active fiscal measures to discourage intermediate diesel

technology and undertaxed diesel….

-- Brazil: Diesel cars are banned because of the policy to keep taxes lower on diesel.

– Denmark: Diesel cars are taxed higher to offset the

lower prices of diesel fuel.

– China: taxes do not differentiate between petrol and diesel.

– Sri Lanka: While total tax burden on petrol car is 244% on diesel car it is 436.90%. This has reversed the diesel trend.

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Time to take decision….

-- Eliminate fuel subsidies that distort market and create public health and environmental risks. -- Get the prices right to minimise incorrect pricing signals.

-- Tax according to externality level – fuel consumption, air pollution, congestion impacts, fuel adulteration etc

-- Need tax disincentive for diesel cars if clean diesel is not available and diesel remains undertaxed

-- Need clean diesel nation-wide: Introduce 10 ppm sulphur diesel to enable advanced diesel technologies

-- Need fiscal strategy for refinery upgrades to produce clean diesel. -- Tax on diesel cars to create a fund? Capital subsidy for refineries? Surcharge on fuel to create funds to clean up fuels? Need solution.

-- Consider health costs and benefits in taxation policy

We know enough to act. Need policy action.

36 Thank You