• CSE sends missive to the Union Finance Minister P Chidambaram urging him to take urgent action in the forthcoming Union budget to remove tax incentives for diesel cars and stop the move to give excise cuts from 24% to 16% to bigger cars. Pollution and energy impact of such a move will be severe in polluted cities of India.
   

• New CSE estimates show that the current fuel tax policies that are encouraging diesel cars will force the government to absorb colossal revenue losses on account of the ‘luxury’ consumption of diesel. With diesel cars expected to be nearly 50 per cent of the new car sales by 2010, the government is in danger of progressively losing revenue from this segment due to tax difference on diesel and petrol fuels. Currently, its cumulative effect on a nation-wide scale is staggering – more than Rs 300 crore.
   

• While diesel car owners recover their premium for a diesel car within four years (given lower diesel fuel prices), the government shoulders the massive losses as a subsidy to the rich, in perpetuity. Public health costs have not even been accounted for.
   

• The current tax concession for small cars is a loophole for increasing diesel car sales. The tax incentives granted to the small cars and special allowance made for the compact diesel cars under the last Union budget will progressively expand the share of the diesel segment. The more relaxed limit for defining a small diesel car has brought within net a large number of diesel cars to qualify for the tax cut. This has resulted in price cuts for diesel cars by about Rs 12,000 to Rs 25,000 fanning its growth.
   

• CSE demands urgent intervention to levy special environment cess on diesel cars and SUVs to nullify the price advantage of running cars on cheap and poor quality diesel and restrain their growth to check growing emissions of toxic diesel particles that have been branded as human carcinogens by the WHO, and key regulatory authorities around the world.

New Delhi December 19, 2006: Centre for Science and Environment has sent a missive to the Union Finance Minister P Chidambaram drawing his attention to the recent CSE review of the impact of the current tax policies aggravating the trend towards diesel cars and bigger cars. Both are detrimental to air quality and energy consumption. Fiscal policy is distorting the car market in ways that the mitigation of its economic and health impacts will be well beyond the government’s own capacity for managing, and reducing, the economic and health risks.

Click to read the letter to Finance Minister

Industry estimates show that the market share of diesel cars have already increased to over 30 per cent in the last 18 months and the share is expected to be 50 per cent of the total car sales by 2010. In Delhi, diesel cars have increased by 425 per cent between 1996 and 2006. This overwhelming growth can be devastating in cities desperate for solutions to smoke, particles and NOx.

CSE has highlighted the following key concerns for immediate policy action:

1. Union government is incurring huge revenue losses due to rising numbers of diesel cars:
CSE study shows that in economic terms, the current fuel tax policies that are encouraging diesel cars will force the government to absorb gigantic revenue losses on account of the ‘luxury’ consumption of diesel. With diesel cars expected to be nearly 50 per cent of the new car sales by 2010, the government is in danger of progressively losing revenue from this segment. While the Union government earns about Rs 14.74 from every litre of petrol used by a petrol car as excise, it earns a mere Rs 4.93 from a litre of diesel used by a diesel car. If we add both central and state fuel taxes, then with every new diesel car the government loses as much as Rs 12,000 annually, in relation to a petrol car. Its cumulative effect on a nation-wide scale is staggering -- enough to fund substantial refinery upgrades to produce clean diesel.

“It is worrying that while diesel car owners recover their premium for a diesel car within four years (given lower diesel fuel prices), the government shoulders the massive losses as a subsidy to the rich, in perpetuity,” states the missive. Keeping in view the fact, as SIAM has recently divulged that out of all cars sold only in the month of October, 25,000 are diesel variants, then the Union government has lost as much as 30 crores in excise and if averaged for the whole year the losses can be more than a whooping Rs 300 crore on a nation-wide scale! This will only grow bigger with time.

2. Tax concession for small cars is a loophole for increasing diesel car sales:
The revenue losses will continue to mount as the further incentives granted to the small cars and special allowance made for the compact diesel cars under the last Union budget will progressively expand the share of the diesel segment. The Union Budget of 2006 has allowed reduction in the excise duty to 16 per cent from 24 per cent for small cars. But this segment has been defined as a car of length not exceeding 4,000 mm and with an engine capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars. The more relaxed limit for diesel cars has brought within net a large number of diesel cars to qualify for the tax cut. SIAM has released an indicative list of car models, which will enjoy excise duty cut. These include five models of Maruti Udyog, -- 800, Alto, Wagon R, Zen and Omni, one model of Tata Motors - Indica (diesel) and Hyundai Motor India’s Santro model. The small car concession has resulted in price cuts for diesel cars by about Rs 12,000 to Rs 25,000.

According to CSE more diesel cars without a strict clean up target means more severe pollution; more diesel cars without a tax correction means more revenue losses; more diesel cars and cheap diesel under the garb of fuel efficiency means more induced driving, more oil guzzling; and more diesel cars and cheaper rides delay the entry of the ultra fuel-efficient and low emissions vehicles, like hybrids, battery operated vehicles and other alternative fuelled vehicles. Fiscal policies should help to speed up the transition to cleaner vehicles and fuels.

3. The recent reports on possible excise cuts on big cars will further worsen energy security:
Such a fiscal move will be detrimental to the fuel economy advantages of the small cars that are currently 80 pre cent of the total sale volumes. Worldwide governments are increasing taxes on bigger cars especially the SUVs to minimise the energy and pollution impacts of the bigger vehicles.

4. Fiscal incentives cannot be granted for fuel efficiency unless specific fuel economy standards have been set for different vehicle segments:
Any fiscal policy to promote small cars for their fuel efficiency must not by default encourage diesel cars. Other governments (European Union, Japan, China and the US) have taken steps to enforce fuel economy or CO2 emissions regulations to improve the fuel efficiency of the vehicular fleet and at the same time tightened emissions standards. But India while low on technology ladder has not set fuel economy regulations and is losing out on all fronts -- Indian small diesel cars are more than 20 per cent less fuel-efficient and 50 per cent more polluting than their counterparts in Europe.

It is very worrying that while there is still no roadmap to get clean diesel fuel that can enable use of advanced emissions control devices to clean up diesel emissions and reduce its toxicity, the official policies are encouraging massive dieselisation of the car fleet. The policies of the Union government to encourage car production, and sales are in conflict with the city-based action to control vehicular pollution. Massive investments planned under the 10-year Automotive Mission Plan designed to make India an auto manufacturing and export hub, while ebullient on fiscal benefits, has not considered pushing investments towards clean technology. But the government will forego public revenue through tax incentives to produce polluting technologies. This, together with the delays on enforcing Euro IV emissions standards, will only postpone the entry of cleaner technology in our polluted cities.

In Asia, the major fuel markets including Hong Kong, China, Singapore, and Thailand have begun to tighten emissions and fuel quality regulations for diesel. China, the US and United Kingdom keep the gap between diesel and petrol prices narrow or equal that prevents the growth of diesel car numbers. CSE has emphasised that the growing Indian car market cannot be held captive to polluting diesel technology. Need urgent decisions to reduce the toxic impact of diesel:

i) Levy a special environment cess on diesel cars and SUVs to nullify the price advantage of running diesel cars on cheaper and toxic fuels and restrain their growth. Revenue from this can help in refinery upgrades to produce clean diesel.

ii) Enforce mandatory fuel economy standards for all categories of vehicles and fuel economy labelling of cars. Fiscal measures may be linked with them.

iii) Give tax concessions for introduction of more advanced vehicle technologies like hybrids, battery operated, alternative fuel technologies etc and those that meet more stringent emissions standards before due date of implementation.

Click to read the letter to Finance Minister>>