'Craft taxes to improve fuel economy of cars'

New Delhi, Feb 15: Centre for Science and Environment today said the 2007-08 union budget must address the linkage between vehicles and energy insecurity.

Saying the country was in the grip of an impending energy crisis because it was consuming more oil than ever before and the growing transport sector was guzzling a lot of this oil, a new CSE study on fuel economy in the transport sector suggested a range of measures which the Union budget could introduce to tide over the crisis.

''State-sponsored car boom, without any efforts towards making cars more fuel-efficient, is inciting oil guzzling that the country cannot afford.'' Based on the findings of the study released here, CSE proposed a set of immediate tax correction to union Finance Minister P Chidambaram to deal with the challenges of motorisation, pollution and energy insecurity.

CSE's missive to Mr Chidambaram warned that India could see a worsening of the energy crisis if urgent tax corrections in the forthcoming union budget were not introduced to avert oil guzzling, dieselisation and more pollution ''It is unfortunate that the oil price shock of last year has receded so fast from public memory. There is no policy urgency to address deepening of energy insecurity due to rising number of cars supported by tax incentives,'' CSE Associate Director Anumita Roychoudhury and leader of the study team said.

Finance ministry should not buckle down under pressure from the car industry for more tax cuts or let them expand their polluting diesel car fleet, she opined.

''Union budget must address the linkage between vehicles and energy insecurity.'' The transport sector was the single biggest user of oil and oil products, using up around 30 per cent of the total consumption in the country, she added.

''Almost all the petrol used in the country is consumed by private vehicles, which also accounts for consumption of 62 per cent of the diesel in the transport sector. More and more vehicle manufacturers are introducing diesel variants.'' ''If the numbers and usage of cars grow unchecked and the government fails to introduce fuel economy standards to make them more fuel-efficient, India will hurtle towards a serious energy crisis.''

Since 2001, the union budget had lowered taxes on cars successively resulting in a phenomenal increase in car numbers. According to industry estimates, car sales crossed the one million mark in just 11 months in 2006, the research pointed out. Urban Indians were increasingly spending more on conveyance, and in the absence of organised mass transport, were relying heavily on personal vehicles. After food, transport accounted for the largest part of household budgets. Therefore, higher oil prices hurt, it said.

So far, given the relatively lower level of economic growth, the market has favoured small cars and two-wheelers. As small engines use less fuel, the average fleet-wide fuel consumption has remained low, it added.

''But unfortunately, as our new analysis shows, with economic growth there has been a steady shift towards bigger cars that guzzle more fuels. While the share of the smallest cars with 800 cc engine displacement size have dropped from 21 per cent in 2001 to 11 per cent in 2004, the sales of mid-size cars has grown from 12 percent in 2001-02 to 17 percent in 2004-05. The share of bigger cars is also increasing steadily.'' The union budget did not account for this shift towards larger engine variants, Ms Roychoudhury said.

CSE was concerned that the car industry, in the meantime, was taking advantage of the tax concession for small cars allowed in the last budget to sell more diesel cars. The more relaxed limit for defining a small diesel car had increased diesel car sales and toxic pollution phenomenally.

Carmakers make tall claims about the fuel efficiency of their products, but there was almost no official data or a certification system to back them. While a large number of countries had begun to enforce fuel economy standards for vehicles, India was shying away, it was stated.

Suggesting a roadmap to the finance minister, the study said to enforce mandatory fuel economy standards. Fiscal policies targeted at energy efficiency should be linked to fuel economy of vehicles and promotion of advanced technologies like hybrid electric vehicles. ''The budget must link the tax structure to the fuel economy standards of vehicles.'' Raise taxes on all cars but maintain a differential in favour of small cars and fuel-efficient vehicles. The Indian car industry was demanding more tax cuts -- this time on bigger cars. It was important to note that the carmakers operating in Indian market manufacture more fuel-efficient cars in the global market than they do in the Indian market. Regulations would have to push the industry to produce the most fuel and emissions-efficient vehicles and the tax policies would have to enable this, it said.

''Discourage diesel cars without efficiency and clean emissions standards. The car industry is pushing diesel cars in the name of fuel-efficiency but these cars are several times more polluting than petrol cars. India's most popular small diesel car is more than 20-30 per cent less fuel-efficient and 50 per cent more polluting than its counterparts in Europe.'' The price of diesel was also kept lower, which in turn led to cheaper motorisation of private transport. Diesel cars were already 30 per cent of the new car sales and expected to be 50 per cent of the new car sales by 2010. Strangely, the government was unconcerned about the loss of revenue because of the use of diesel in private automobiles, it said.

''Either stop the use of diesel in cars or equalise petrol and diesel fuel prices in cities: The lower price of diesel, along with tax sops provided by the government, is now leading to increasing use of this poor person's fuel by the richest car owners. It is ironical that cars from Mercedez Benz to Toyota are today driven on this fuel.''

Reports indicated that taxes on diesel would be further lowered as an anti-inflationary measure, which could be very detrimental if additional steps were not taken to either restrict the use of diesel fuel for personal vehicles -- cars and SUVs -- or reduce the difference between petrol and diesel prices substantially in cities, it said.

''Impose environment cess on diesel cars. This cess should be based on the externality associated with high emissions of PM and NOx, and also the potent carcinogenicity of diesel fumes that has been established by international health agencies and accepted as the basis of regulations.'' Give incentives for public transport buses that emited less and used less energy per passenger. Public transport could reduce both energy and pollution impacts of motorisation significantly. But there was very little policy recognition of this fact, the study said.

On the contrary, tax policies made public transport bear a higher tax burden. A World Bank estimate showed that the total tax burden per vehicle kilometre was 2.6 times higher for public transport buses than cars in India, it said.

''Even though a wide variety of state taxes affect the prices of buses, the union budget will have to give the right signal by removing the excise duty on buses. This will make the bus expansion programme under the Jawaharlal Nehru National Urban Renewal Mission more cost-effective.'' The answer to the formidable challenge that India faced today, Ms Roychoudhury said, ''does not lie in reducing or subsidising the cost of fuel. It will lie in reinventing our patterns of mobility and in ensuring fuel efficiency of our cars.'' We must introduce fuel economy standards and mandate a roadmap for the future. Many countries, including China, had introduced such standards, primarily for energy and environmental security, she added.

UNI