Dhaka - Delhi: Greasy tale of fuel pricing

It was a proud moment and a powerful statement when Dhaka rolled out a bedecked iconic cycle rickshaw on the opening day of the World Cup cricket. This is perhaps the only capital city in our region that can boast of zero emission areas with majority walking or on cycle rickshaws. Yet cars, only 10 per cent of all wheeled trips, bring this city to a grinding halt daily – traffic jams are as bad as we see in the worst of times in Delhi. Jam-struck on Dhaka’s roads, I understood, what warped fuel pricing can do to our cities of South Asia, and, wondered why our finance minister has not figured that out yet?

Let us understand this story first. Fuel pricing in Bangladesh is actually environmentalists’ dream -- natural gas is several times cheaper than the dirty fuels. With preferential pricing and easy availability natural gas is more than half of the primary energy mix in Bangladesh; coal just 2% – puts the Kyoto rogues to shame. CNG use in the transport sector, just 5% of the natural gas in the country, has cleaned up the air and saved lives. In Dhaka alone 83% of cars, 91% of mini buses, all three wheelers, and half of all buses are on CNG. This has helped Dhaka to avoid 4260 premature deaths a year, save health costs close to 1% of the GDP and also reap climate benefits worth USD 1.2 million.

Yet the gridlocked roads tell us that something is still going awfully wrong. Cheap CNG is baiting the wannabes to buy not only more cars but big powerful cars. The country does not produce cars, imports almost all of it. But cheap fuel fans aspiration for glitzy SUVs and big glam luxury cars thrown out from the markets of the rich especially Japan. Bangladesh is a key destination point of the thriving global used-car trade. Globally, 5.5 million used cars are traded annually. Used cars are more than 90% of the car market of Bangladesh. But cushioned by the cheap CNG prices the aspirants are increasingly eyeing larger more luxurious older used vehicles with bigger, more powerful engines that waste fuel.

Why not? Petrol prices in Bangladesh are five times higher than CNG – 90 Taka for a litre of petrol vs 16.25 Taka for CNG. Diesel is 45 Taka. Until 2008 CNG was as cheap as 8 Taka. This goes to show that a litre of fuel costs a lot more for a motor cycle owner than a SUV owner. The average engine size of cars in Bangladesh is in the range of 1500 cc to 2000 cc or bigger. That’s mimicking the rich markets of the west. Imported largely from Japan – Toyota being the favourite brand – these are converted to CNG to cut the running costs.

Even with much smaller number of cars than Delhi – about 0.36 million as opposed to 1.1 million in Delhi, the sheer size and weight of the car overwhelms Dhaka. A person per guzzler on road completely skews the transport economics. After-market CNG conversion might affect fuel efficiency and may not be directly comparable with the original petrol or diesel versions – but many of these used guzzlers are reporting fuel efficiency at a mere 7-8 km per litre equivalent of CNG in Dhaka. This is close to the average fuel economy of the heaviest weight class in Japan (about 2266kg) at about 7.4 km/l. Cheap fuel thus cuts out more fuel efficient smaller cars in Dhaka’s market. In India the relatively higher fuel prices so far has forced the market to remain small car focussed -- where 85% of the total car sales are still below 1200 cc with average fuel economy of 18 km/l.

It is a dilemma for Bangladesh. With locally produced natural gas they can secure their energy future, cut pollution and avoid toxic diesel emissions. But with no tax policy to discourage luxury use of fuels in cars, cheap gas is wasteful. But cheap gas could have helped them to build a good and affordable bus transport system instead of serving the rich car owners. Now with increased wasteful use in cars and slow down in gas exploration and production in the country, Dhaka is resorting to CNG rationing -- refuelling is suspended for hours in CNG stations.

Clearly, even vehicle importing countries need fuel saving regulations. As of now the talks are limited to only setting local emissions standards for used car trade so that the importing countries can benefit from the better and cleaner technology of the rich countries and not get saddled with high emitting old technologies. Dhaka has done that. It does not allow more than 5 years old cars to be imported. Also 2009 onwards supplementary duty on imported bigger cars have been hiked (20 per cent upto 1500 cc engines, 60 per cent upto 2350 cc and 100 per cent upto 3500 cc engines).

But without separate fuel economy targets for the vehicle fleet within the country cheap fuel skews the energy count as only big engines crowd these markets.

What about the exporting rich nations? Instead of scrapping their guzzlers they sell them to poorer markets that continue to lock up enormous amount of carbon. Shouldn’t that go into the carbon budget of the exporter? The game of the fuel economy averages in this climate constraint world cannot remain confined within the political boundaries of the nations. This underbelly market of used cars in developing countries must show up in their calculation of fleet-wide fuel economy averages.

So what is the story for India? Let’s accept, at least for some time, some fuels will be priced and taxed low to meet social and environmental obligations – CNG for environment, diesel for agriculture and freight. But this will need additional steps to prevent their wasteful uses and also as in the case of diesel curtail its toxic effect. We need sharp fiscal messages to influence consumer choices to prevent unintended consequences.

India is guilty of encouraging luxury consumption of subsidised diesel in personal cars. As a result, cars are already the second largest users of diesel. This is inciting bigger engines and more driving. Look at the difference. As petrol fuel is expensive 85% of petrol car sales are still small cars -- below 1200 cc. But with cheaper diesel fuel 64% of diesel cars are just below 1500 cc and mostly above. In fact, almost all petrol cars weigh less than 1250 kg, whereas a third of diesel cars sold weigh more than 1500 kg in India. With dieselisation the average weight of the car fleet and overall fuel use will steadily increase. This will also worsen the burden of revenue losses from under-taxed diesel. The ongoing India assessment of the International Council on Clean Transportation shows that growing car numbers, weight and dieselisation can lead to a cumulative loss of 6.5 mtoe of energy between 2010 and 2020. This equals the fuel use of all four-wheeled passenger vehicles in 2006 -- around 6.6 mtoe.

What a price to pay to pamper the rich cars owners! This obsession can soon destroy the carbon neutral trips that still dominate South Asian cities and make guzzlers the icon.