core sector communique

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

Keep the taxes on big cars effectively high and not give in to industry pressure. Link up taxes with the actual fuel use of the car to prevent fuel guzzling

• Centre for Science and Environment in its missive to the Finance Minister Pranab Mukherjee has demanded decision in this years’ budget to halt misuse of under-taxed diesel by rich car owners. Government cannot bear the burden of this subsidy and continue to suffer revenue losses on account of this luxury consumption

• Enforce additional, substantial and effective increase in excise duty on all diesel cars and SUVs if the taxes on fuels cannot be equalized immediately. Neutralise the price advantage of cheaper diesel fuel effectively.

• CSE demands restoration of 24 per cent excise and increase in special duty on all big cars. Taxes must also reflect actual fuel consumption of cars

• Remove the distorted and lenient definition of small diesel cars and align with the current definition of small petrol cars

• Car industry is still trying hard to seek tax concession for bigger cars that use more fuel and deflect attention from diesel cars. Bending to such demand can have disastrous impacts.

• Cheaper diesel fuel will encourage more cars, bigger engines and more driving and more fuel guzzling in the rebound.

• The yawning gap between petrol and diesel has continued to incite deadly trend in diesalisation of cars and shift towards bigger cars. This will increase public health risks from toxic emissions and undermine energy security.

New Delhi, February 28, 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.