Fuel efficiency norms may increase car prices

Govt’s plan to enforce stricter fuel efficiency norms likely to increase cost of cars by 15%

Amrit Raj & Neha Sethi 

First Published: Tue, Sep 18 2012. 08 05 PM IST

Car makers that fail to meet the carbon emission norms will be fined `10 lakh initially and will be asked to pay a penalty of `10,000 a day till their car models meet the norms.

On the basis of their fuel efficiency, BEE, which comes under the power ministry, will give a one star rating for the least fuel efficient vehicles and five stars for the most efficient in their respective weight class, which is expected to be applicable from 1 April 2013. Car makers that fail to meet the carbon emission norms will be fined Rs.10 lakh initially and will be asked to pay a penalty of Rs.10,000 a day till their car models meet the norms.

BEE hopes to achieve the fuel efficiency targets in two phases by reducing the carbon dioxide emissions by a car to 129g of CO2/km by 2015 and to 113g of CO2/km by 2020. The deadline to reduce CO2 emissions by 2015 may be extended due to auto industry’s reluctance to adopt the standards at short notice.

“BEE has formed some stringent norms without even consulting the auto industry or the department of heavy industries,” said a secretary-level official in the department of heavy industries, requesting anonymity. “In order to meet such norms, the industry would have to invest heavily in upgrading its technology, components, engines and plants. This will eventually increase the cost of a car by at least 10-15%. This kind of a cost increase cannot be absorbed by the industry at a time when the car industry is already in a slump.”

Currently, out of the 80 car models plying on Indian roads, only 7-8 models adhere to these norms.

The car industry brought down CO2 emissions to 141g/km in 2009-10 from 153g/km in 2006-07, according to a presentation made by BEE. Mint has reviewed the presentation.

Lobby group Society of Indian Automobile Manufacturers (Siam) too said the new norms will increase vehicle prices significantly.

“We need to have norms which are very practical because we have to keep the affordability of Indian consumers in mind,” said Vishnu Mathur, director general of Siam. “Our economy is not like the US or the UK where per capita income is very high. The BEE norms would require a whole set of changes at the manufacturing end that will increase the cost of the vehicle tremendously.”

Mathur said that unlike developed markets, Indian manufacturers do not have the option of downsizing engines as they already use small engines. “Nor do they have option of making automatic cars manual as most of the cars are already manual. So where is the scope of downsizing the car?” Mathur said.

A senior official at BEE, who didn’t want to be named, said that after the norms are implemented, car prices are likely to rise by Rs.25,000-40,000.

Siam’s Mathur said the price increase calculation of BEE does not account for taxes. With taxes, the amount will rise to between Rs.80,000 and Rs.1 lakh, depending upon the models, Mathur said.

“BEE has bowed down to the pressure from some environmental groups and it has backtracked from a consensus arrived in January,” said a second official in the department of heavy industries. “The argument of such groups is that if the EU (European Union) and Japan can implement this norm, then why can’t India? But they do not understand that countries in the West have better fuel and road conditions. Due to our road conditions, car makers have to increase the height of the car for a better ground clearance. This, in turn, makes cars heavier and less fuel-efficient.”

According to this official, the auto industry, the department of heavy industries, BEE and the ministry of road transport and highways had agreed to adopt a relaxed set of norms. “Earlier, the targets were to reduce CO2 to 138g/km by 2015 and 128g/km by 2020,” he said.

Anumita Roychowdhury, executive director at the Centre for Science and Environment, said the fuel efficiency norms were revised by BEE based on consultations they had with various parties.

“They faced massive criticism on their emission target of 138g of CO2/km by 2015 as the emissions by the industry as of 2010-11 were already 139g of CO2/km in 2011, so they were suggesting basically no action on part of the auto industry,” she said.

Roychowdhury said that industry had improved emission norms by 2.8% from 2007 till 2010, so they had already proved that there was room for improvement. “We were telling them to improve only by 1% till 2015 which means that the regulations were asking them to do less than what they had done on their own,” she said.

Siam’s Mathur said that the fuel efficiency target should be company specific and not based on an industry average. Calculating fuel emissions based on industry average will favour companies that predominantly make lighter vehicles, he said.

“So, saying that these norms will lead to no action by the industry is totally false,” Mathur said.

Praful Patel, minister for department of heavy industries and public enterprises, is expected to write a letter to the power ministry to consult the auto industry and the heavy industries ministry before taking any decision that could hurt growth. Mint has reviewed a draft of the letter.

The BEE official cited above, however, said the power ministry is unlikely to review the plan. “We have no information on whether they are objecting to it or not. The draft notification (regarding standards and labelling of cars) was sent to the ministry of power on 6 August and the power ministry will now review it,” said the BEE official.

Another bone of contention for the auto industry is BEE’s plan to charge Rs.40 for labelling every car—a move the industry says is a “cash cow” for the agency.

“It is not about the money they are charging for labelling a car, it is more about the paperwork, which will make car buying a complex process,” said a third department of heavy industries official.

On the issue of car companies protesting over the Rs.40 being charged by BEE to label each car, the BEE official said, “The labelling programme is under the provision of the standards and labelling scheme under the Energy Conservation Act and that is how it has to be done.”

In August 2010, the Prime Minister’s Office had asked for fuel efficiency standards to be issued by the ministry of power under the Energy Conservation Act, 2001 and implemented by the ministry of road transport and highways.