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This month's theme: India's Decarbonization Goals and the EV Conundrum

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Electric vehicles (EVs) have occupied a lot of media space of late and are widely regarded as the next big breakthrough technology in the automotive world. Although EVs are as old as motor vehicles themselves, they lost the race to internal combustion engine (ICE) vehicles, running on liquid fuel, by the early 20th century. But with the rising threats of global warming and air pollution, EVs are back on the discussion tables of policymakers. ICE-powered conventional vehicles emit several pollutants, among which carbon dioxide (CO₂) is considered the most concerning emissions from a climate change perspective.

India is the third-largest emitter of CO₂ in the world, behind mainland China (almost four times of India) and the United States (two times of India), with its annual CO₂ emission doubling in the last decade. Although India's contribution to the cumulative global CO₂ emission, since the industrial revolution of the mid-19th century, is insignificant, its current position as an emerging economy and hence a big CO₂ emitter comes under environmentalists' lenses. Ever since the formation of the United Nations Framework Conventions on Climate Change (UNFCCC), India's position has been to put its socio-economic development above the resultant CO₂ emissions and refrain from putting itself in the same carbon-reduction target brackets as the developed nations. Nonetheless, India has been an active and important party in all global climate action summits and conferences, negotiating for emerging economies who came late to the 'development' party.

This stance remained consistent until 2014 when a new government came to power that had intentions of not only being a mere party in global climate action strategies but of taking a leadership position. Eventually, India ratified the Paris Agreement during the COP21 held in 2015 and pledged to reduce the carbon intensity of its economy by 33- 35% by 2030 compared with 2005 levels and committed to achieving a non-fossil share of cumulative power generation of 40% by 2030. India also announced to install 2.5-3 billion tons of CO₂ equivalent carbon sink by 2030.

In 2013, under the National Electric Mobility Mission Plan (NEMMP), it was envisioned to transform the mobility landscape in India and make EVs an important part of it. As a result, a new EV promotion scheme was drafted by the Ministry of Road Transport and Highways (MoRTH). By the time it was rolled out in April 2015, it was named the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme and a new government was in power. The creation and expansion of the low-speed e-scooter segment aside, Phase 1 of FAME (April 2015 to March 2019) did not exactly produce the results as intended.

Considering India's Paris Agreement goals and COP21 commitments, the government redesigned Phase 2 of the FAME scheme—an outlay of INR10,000 crore (USD1.4 billion) over three years starting April 2019 and focusing on 2-wheelers (2W)/3-wheelers (3W)/bus segments that move about 85% of the people of India. Simultaneously, EVs were brought under the 5% bracket of GST to entice automakers into launching new EV offerings, and an additional income tax reduction clause was introduced as an additional incentive for prospective EV buyers. However, after two years of Phase II, about 2% of the total outlay for this phase got utilized. In this period, the sales figures tell a sorry tale—fewer than 10,000 electric passenger vehicles (PVs) and fewer than 300,000 electric 2Ws were sold.

In 2021, Primer Minister Narendra Modi announced at COP26 that India would achieve net-zero emissions by 2070. Road transport is expected to be a significant contributor to India's decarbonization plans. According to the International Energy Agency (IEA), transportation sector is the third-largest CO₂ emitter in India, following the energy sector (i.e., electricity and heat producers) and the industry sector. Road transport, estimated to account for about 270- 290 metric tons (Mt) CO₂ emissions and 18% of India's total CO₂ emissions in 2020, is the top contributor in the transportation sector carbon emissions and emits more than the energy-intensive industries such as steel (242 Mt CO₂ in 2020) and cement (143 Mt CO₂ in 2020) production. The business-as-usual development mode is expected to result in 1.2- 1.5 Gt CO₂ emissions from the transportation sector in 2050, according to multiple research sources.

India's light-duty vehicle fleet has advanced to fuel consumption reduction from 6.9 L/100 km in 2005 to 5.7 L/100 km in 2019, contributed by higher diesel vehicle share and overall lighter vehicle weight. However, increased personal vehicle ownership and use is foreseen with the economic and pollution growth combined, and will inevitably result in more annual CO₂ emissions in the short term. The transportation sector may have to lag the overall 33- 35% decarbonization goal from 2005 levels (i.e., 115 Mt CO₂ sector level) by 2030, thus needing significant innovative technologies, strategic planning, and effective regulatory leverages to keep the sector aligned with the net-zero climate ambition. Acceleration in further vehicle efficiency improvement, fleet electrification, alternative fuels, along with mobility mode innovations will be the key solutions.

India has required fuel efficiency labeling for new vehicles since 2011 and regulated PV fuel efficiency since 2014. The current target is 4.77 L/100 km (113 g/km CO₂ equivalent) for 2022 based on the New European Driving Cycle (NEDC). The FAME II scheme has been extended through 2024 to promote EV production and charging infrastructure deployment.

Overall, considering the level of visibility on the policy front, carmakers' product development strategies, oil price, and consumer evolution, we expect the share of EVs to reach about 9% by 2030 in a base case scenario. But if policy support in terms of the special tax on manufacturing and sales and direct subsidy continues, with stricter CO₂ regulations, the share of EVs could be higher ranging from 16% to as high as 21% by 2030.

Having said that, fiscal year (FY) 2021 (April 2020 to March 2021) had been a positive year as sales of electric PVs grew 110% owing to a low base; from about 2,850 units in FY 2020 to about 6,000 units in FY 2021 as reported by the Society of Electric Vehicle Manufacturers (SMEV) of India. And the electric PVs sales for the first half of the current FY 2022 have already crossed the FY 2021 annual sales. The main driver for this was the introduction of EV policies by several states of India led by Maharashtra, New Delhi, and Gujarat, which acted as an additional incentive over the FAME subsidies.

Interestingly, in the EV space, domestic carmakers have taken a lead as Tata Motors currently holds almost 60% of the market. IHS Markit's estimates show that Tata Motors will continue to maintain a leadership position even in the longer horizon. We do expect the current conventional vehicles market leaders such as Maruti Suzuki and Hyundai, and other carmakers like Mahindra and Kia to introduce serious EV products into this space in the next four to five years.

Overall, considering the level of visibility on the policy front, carmakers' product development strategies, oil price, and consumer evolution, we expect the share of EVs in Light Vehicles (LVs) up to 3.5 tons of Gross Vehicular Weight to reach about 9.3% in 2030 (as shown in the figure). Within LVs, we expect the Light Commercial Vehicles (LCV) category to achieve greater electrification of about 15% by 2030.

For the PV category, the share is expected to be about 8.3% in 2030 in a base case scenario. The B-segment SUV-bodystyle is expected to be the most popular segment for EV adoption. If policy support in terms of the special tax on manufacturing and sales and direct subsidy continues, with stricter CO₂ regulations, the share of EVs could be higher ranging from 16% to as high as 21% by 2030.

Notes:

1. The data and chart used in the article are based on the Production-based Powertrain dataset. Currently in India, almost 100% of EV production is for domestic sales and hence production can be used as a reliable proxy for sales.
2. EV in this article only represents pure Battery Electric Vehicles.

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