The diesel disruption
The recent decision by Maruti Suzuki, which has a 51 per cent market share, to stop producing and selling diesel cars from April 2020 onwards represents a very significant inflexion point in an anotherwise hidebound industry.This decision is directly linked to the incremental cost implications of the introduction of BSVI fuel standards in April 2020. However, an important precondition has been the narrowing of the prices of diesel and petrol over the last five years once diesel prices were de-controlled in October 2014. Price decontrol was important not only to correct the distorted demand patterns that had emerged due to subsidized pricing but also from a fiscal perspective as the subsidy bill was huge. Subsequent attention to reducing the excise differential between the two fuel types resulted in further narrowing in prices to 10 per centcurrently. As a result, diesel car sales which had climbed to 47% of total car sales in 2012-13, dropped to 19% by 2018-19.
The car market in India is dominated by small cars where cost of purchase and running is the major consumer concern. Maruti’s portfolio is all in small cars, and the cost of complying with BS VI norms would increase the prices to a point where the diesel option would no longer be competitive with petrol. Tata Motors, another major car manufacturer, has shared comments about the non-viability of small capacity diesel. One can reasonably expect that most small car manufacturers will follow suit, and diesel will remain an option just for the less price sensitive large car and SUV buyer.
Experiences with European car manufacturers, particularly Volkswagen, have shown that“clean diesel” is difficult to achieve. The BS VI diesel scenario in India will be fraught given the need for catalytic converters to be properly charged to remain effective. So, a drastic reduction in the diesel car fleet will be a positive development. In Europe, post “Dieselgate”, manufacturers have increased their investment focus on electric vehicles. Advances in EV technology in Europe should also have a spin off effect in India as India moves towards adopting EV technology.
It must be noted that this change was years in the making, starting with pre-2014 work toget diesel prices deregulated, to subsequent efforts to move fuel standards first to BS IV and then to BS VI. All this was none too soon, as the pollutant levels in BS II (pre 2010) and BS III(pre 2017) were truly lethal. This work was initiated at a time when diesel as a fuel was ascendant, with new models being regularly introduced and steady increases in marketshare. Diesel was considered the “people’s fuel” as it was used by farmers and truckers. However, it also became the fuel of choice for urban car owners who were attracted by the price difference compared to petrol. To the Supreme Court’s credit, they realized many years ago that diesel was a dangerously polluting fuel and all public transport was asked toconvert from diesel to CNG in Delhi as far back as 1998. More recently the Court had banned the registration of diesel vehicles more than 10 years old in the NCR.
Diesel emissions contribute materially to climate change (carbon) and health (PM, SOx andNOx). This blow to diesel is important since a study by the International Council Clean Transport indicates that diesel exhaust is responsible for nearly two thirds of transportrelated deaths in India. The disruption to the car industry and the dislodgement of diesel asa major fuel category is a necessary step towards transforming the transport industry andreducing its emissions footprint. In an ideal world, the space vacated by diesel cars wouldhave been immediately occupied by affordable zero emission options like electric cars. However, India does not have the manufacturing capacity nor the charging infrastructure inplace for this to happen in short order. As a result, the space vacated by diesel will be takenup by BS VI petrol, CNG and battery hybrids. None of these are fossil fuel free solutions, but they are all better than diesel.
Hopefully, this disruption will help the industry better accommodate future changes that the transition to electric mobility will bring.
However, reducing small car diesel usage will be just a small step in trying to reduce total emissions from diesel. Given the existence of the current running stock of diesel cars, assuming an average life of 15 years, it will be years before there is material reduction of diesel cars on the road. Fleet turnovers take time. The transportation sector remains the largest consumer of diesel. Bus fleets, car fleets and three wheelers need to be encouraged to convert to CNG and electricity. The Railways will need to meet their objective of fully electrifying traction by 2022. While short haul and medium duty trucking can conceivably switch to electricity, it will be more challenging to find an effective substitute for diesel inlong-distance heavy-duty trucking. In addition, farmers will need to be encouraged tosolarize agricultural pumps. Industry, businesses and households can eliminate diesel generator use provided grid electricity reliability improves and by supplementing supply through open access to renewable energy, roof top solar and solar mini grids. We clearly have a long way to go before we can materially reduce the pernicious impact of diesel on the air we breathe and on global heating.