Should not EVs and Hybrids be treated Equally for Government Subsidies?

India’s road transport sector contributes about 12% to the country’s CO2 emissions, according to the International Energy Agency, making it the third most greenhouse gas emitting sector after energy and agriculture. 

EVs and Hybrids be treated Equally for Government Subsidies

The Union Government has been attempting to fast track decarbonizing transport for the past almost a decade with the introduction of the Faster Adoption and Manufacture of hybrid and Electric Vehicles, or FAME in 2015. 

• The third iteration of this policy is likely to be announced in this year’s Union Budget, with an expected outlay of Rs. 10,000 crore.
• FAME attempts to generate demand for EVs and hybrids by subsidizing retail sales, encouraging the manufacture of components and creating and nurturing an electric vehicle (EV) ecosystem nationwide. 
• But the policy has undergone changes from when it was introduced, with a steady removal of subsidies for hybrids – or vehicles that run on both battery and internal combustion engines (ICE).
• Some have welcomed this move arguing that this accelerates transport’s decarbonization, while others point to the lack of charging infrastructure, import dependence for advanced battery components and technology, and a grid still dominated by coalbased power, leading to an increase in EV’s overall carbon footprint from mining rare earth elements to charging. 

Enroll now for UPSC Online Classes

Professor Avinash Kumar Agarwal and Sharvari Patki discuss the question in a conversation moderated by Kunal Shankar. Edited excerpts:

• The government in 2017, withdrew the subsidy support for “mild hybrids” affecting popular car models like Maruti Suzuki’s Ciaz and Ertiga, and Mahindra and Mahindra’s Scorpio. Moreover, this segment took advantage of about 65% of the subsidy component at the time. How do you view this decision by the Centre?
• Sharvari Patki: About 90% of emissions in transport are from road transport and 20% of this from passenger cars. 
• Now put hybrids in perspective.
• Currently, two-wheelers constitute 75% of our vehicle sales and three-wheelers another 4%, so together they are almost 80% of vehicle sales. 
• The EV market has already solved major operational issues in these segments. 
• The majority of success in EV transition is seen in these two categories. 
• When we look at commercial vehicles —primarily freight vehicles — they are just 5% of the overall vehicle population, but they alone contribute 34% of emissions, yet we do not have the hybrid truck discussion on the table. 
• If we remove this major chunk and then we come to passenger cars, hybrids are a small portion of this.
• I am counting strong hybrids because they offer almost 25-30% fuel efficiency compared with internal combustion engines (ICE). But the models cost approximately ₹30 lakh apiece, making them fall under the luxury car segment. 
• We don’t need to provide incentives for people who are buying cars worth ₹30-40 lakh. If we go back to the genesis of FAME, it was to move towards emissions-free energy efficient India. 
• We understand that in the policy space, there is no silver bullet. 
• You have to keep evolving as the ecosystem evolves.
• If I go back to 2015 when early electric cars were launched in India, we had a range of around 120 kilometres, but in the past years, we have indigenous cars, offering 350 to 400 kilometers on a single charge and with zero emissions. 
• We don’t have an infinite amount of taxpayers’ money. 
• The limited pot has to be given to help transition towards energy-efficient and emissions-free India. 
• That means we have to understand where we are getting maximum value for our incentives. 
• I think the government is cognisant of this and has accordingly changed the incentive patterns.
• Avinash Kumar Agarwal: I think Sharvari has made very nice points. 
• I would slightly differ with her on certain aspects. 
• I would like to question the idea of a zero emissions vehicle anywhere in the world. 
• You need some primary source of energy and in India, more than 75% of electricity is produced from coal. 
• And if you look at the average per kWh that you are charging, there is a certain emission that you are emitting into the environment. 
• So when you evaluate and make policies on ICE versus hybrids versus electric, I must ask, am I getting the kind of emission reductions that I am looking for?
• To assess this, we looked at the car segment in a recently published report. 
• We had looked at two-wheelers earlier. 
• This report is available freely on the website of IIT Kanpur. 
• When you talk about the sustainability of any technology, you have three aspects — the life cycle emission analysis, or LCA, per kilometer usage of a vehicle right from production, mining and recycling and how much emission you are emitting into the environment, and finally, an important aspect especially in the Indian context is the total cost of ownership or TCO.
• This gives us total emissions, cost per kilometer nd then of course there is a social sustainability aspect, which is more of a qualitative number. 
• So let’s just focus on LCA and TCO. 
• When we did this analysis for many of the cars which are being sold in India, from the Indian players and players with foreign origin, our estimates suggest, in most cases, emissions from electric are higher than ICE vehicles, and certainly more than hybrid vehicles. 
• The tendency we have in India is to consider emissions and cost only from the charging phase.
• So we say ₹1 per kilometer and give these numbers only for the usage phase. But you don’t put the cost of, say, for example, battery change. 
• So we did this total cost of ownership for all these two power trains and then we figured in most cases, hybrids emerged to be best in terms of environmental impact, which means they were the least polluting of all the three power trains. 
• And EVs were actually in some cases, even more polluting than ICE vehicles. 
• This is a limited case that I’m making in the context of India, where 75% of the power is from carbon.
• So we find it difficult to digest when my EV enthusiast friends say that it is CO2 free, it is not. 
• We also don’t have the basic raw materials for making battery electric vehicles. You need large amounts of metals like cobalt, nickel and lithium. 
• And so in hybrids, the advantage is that you can manage with a very small battery pack and their total cost of ownership is slightly higher because of the differential tax rate. 
• Hybrids today are taxed even more than ICE vehicles.
• Although the GST on them has been proposed to be significantly reduced.
• Avinash Kumar Agarwal: Absolutely, but the government should look at the overall objective. 
• They should not get into the business of choosing technology. 
• You must specify life cycle emission and GHG norms, but when you start subsidising and start choosing, then technology development and progression actually stop. 
• For a country like India, the subsidy is not sustainable because of the sheer numbers.
• We must contextualise this conversation in the backdrop of the rapid deployment of renewables across India and the country’s COP26 commitment to generate half of our power from non-fossil based sources and ramping up renewables capacity to 500 GW by 2030. What do you think?
• Sharvari Patki: As the professor rightly pointed out, today we don’t have a completely clean grid, but this is going to change.
• We are striving to ensure our grid becomes greener and cleaner. 
• But if we wait for our grid to become green and then start our transport transition, it might be too late.
• So there would be some overlap where both sectors’ transition must go hand in hand. 
• We will keep electrifying our transport, while we green our grid. 
• And when we say zero emission, we completely understand we are talking about zero tail pipe emission. 
• So in the interim scenario, when we are charging everything with coal, we can say that hybrid makes better sense. 
• But again this depends on how many kilometers you are running, which is the use case, the vehicle class, etc.
• And when we consider energy efficiency, 100 units of energy in ICE versus 100 units of energy in EV, the majority of the energy we apply in ICE is not utilisedfor actual movement. 
• Whereas, in EVs, the majority of energy is used in traction, so by default, I think EVs are more efficient. 
• We must also understand when we do a TCO analysis, we don’t consider the cost before tax. 
• We consider what a user pays. 
• So again, TCO calculations have many assumptions. How much fuel is used? 
• How the charging is done and at what rate? For example, I come from Maharashtra.
• We have electric meters which offer us EV tariff at ₹5 and then the TCO changes drastically. 
• So these are multiple things at play and I understand that we must ensure to push technologies which are effective overall and not in silos.
• As the government frames FAME 3, should it consider hybrids on an equal footing for subsidies?
• Avinash Kumar Agarwal: I think they should be at an equal footing. 
• There should be no discrimination because both are supposedly environmentally cleaner technologies.
• Sharvari Patki: I think we must consider multiple calculations and factors. 
• Policies must evolve with the changing sectoral landscape. 
• We must aim towards zero-emissions vehicles because that will help us reach our climate and energy security goals

Check Out Previous Years Papers From PW Store

Conclusion

The FAME 3 policy should balance subsidies for hybrids and EVs, considering environmental impact, energy efficiency, and evolving renewable energy infrastructure to achieve climate goals.

DOWNLOAD PDF