The FAME policy is pumping Rs 10,000 crore of taxpayer money into an industry which is strategically counter-productive. It needs a broader definition of e-mobility and innovations in sustainable storage
The Delhi Government recently announced its electric vehicle (EV) policy aimed at faster adoption of cleaner vehicles in the national Capital. This policy is on the same lines as the Centre’s Faster Adoption and Manufacturing of Electric Vehicles or FAME-II scheme, 2019. Under Delhi’s EV policy, purchase incentives will be given worth Rs 30,000 for e-autos, e-rickshaws, goods carriers and up to Rs 30,000 and Rs 1.5 lakh for e-two-wheelers and e-cars respectively, depending on their battery capacity. This will be in addition to the existing incentives provided by the Centre.
The good thing about Delhi’s EV policy is its detailing but it falls apart when it comes to fund allocation. FAME-II offers an incentive of Rs 1.5 lakh to electric four-wheelers with an ex-factory price cap of Rs 15 lakh and it also has a provision for an incentive of Rs 50,000 for three-wheelers, including e-rickshaws and Rs 20,000 for e-two-wheelers. E-buses can claim subsidy up to Rs 50 lakh at a rate of Rs 20,000 KWH battery capacity.
Given the incentives being offered, two questions should be considered. First, are EVs environmentally sustainable? Second, are they viable options for the Indian economy in the long-run? The answers to both these questions are debatable.
To produce an Internal Combustion Engine (ICE) vehicle, 10 metric tonnes of CO2 are released in the atmosphere and it is the same for an EV without the battery. Manufacturing of a 30 KWH battery releases 5.3 metric tonnes of CO2 while manufacturing a 100 KWH battery releases 17.5 metric tonnes of CO2. A petrol/diesel car emits an average of 5.2 metric tonnes of CO2 in a year whereas the average usage emission from EV is 2.02 metric tonnes per year. EVs are non-polluting (at the level of the vehicle), and by design, if and only if, renewables are used as the power source. This is an unlikely phenomenon in the near future as a wide spectrum of allied infrastructure needs to be built around EVs to ensure renewable use for charging.
More than 90 per cent incentives (especially for two-wheelers and three-wheelers) are availed by lead-acid type batteries and they are environmentally hazardous. These batteries were already in high demand and competitive against the fossil fuel at least for slow vehicles. Even e-rickshaws were a hit much before the FAME scheme was announced. Over-incentivising lead acid batteries can significantly harm the environment.
Coming back to the economics of EVs, FAME correctly identified that the cost of batteries is a major price differential but failed to investigate intricate details behind such a difference. It is a common mistake often made while evaluating eco-friendly solutions. EVs should not be compared with ICEVs or regular car engines in totality. EVs are a combination of an engine and life-time fuel whereas ICEVs are valued only for the engine. Anyone buying an EV is essentially pre-owning fuel for a lifetime. Both EV and ICEV engines are comparable and cost the same. Providing an incentive to EVs is against fair competition norms and gives an undue advantage to the EV producer, which ultimately is going to hurt the technological advancement of the automobile industry as a whole.
Plus, about 40-50 per cent of the cost of manufacturing an EV accounts for reliable fuel storage i.e. the Li-ion batteries. These are the best storage options available but highly unsustainable. The raw material required for manufacturing is limited and concentrated in a very few countries. Not only that, a significant tendency is observed to capture such reserves through mergers and acquisitions. The raw material comprises approximately 60 per cent of the total cost of manufacturing Li-ion batteries. So, the price is not likely to decline if we use more of these batteries, unlike what we had observed for other electronic items like computers, solar panels and LEDs. The price of these batteries will increase in future if demand exceeds a certain limit as the price of raw materials will rise. For instance, the price of lithium increased from $8,500 per tonne in 2015 to $17,000 per tonne in 2018. Similarly, the price of cobalt rose from $30,000 per tonne to $95,000 per tonne between 2015 and 2018. These increases were in anticipation of a growing EV market but later their price dropped on its dismal performance. India does not have any lithium reserves, supply chain or an ecosystem to manufacture Li-ion batteries in order to ensure a steady supply. So EVs are not an economically-viable option for the country.
Both FAME and the Delhi EV policy talk about setting up public EV charging stations around Delhi’s congested roads. This would require vast swathes of public land to serve a handful of wealthy owners and violates the basic principles of public good. Plus, parking is a major issue in Delhi, so allowing public charging is only going to legitimise capture of sidewalks. Also, charging an EV in the blazing summer sun in Delhi is neither advisable nor safe.
The China factor: Li-ion batteries account for almost 50 per cent of the cost of an EV. While China has a thriving lithium chemical, battery cathode, battery cell and EV supply chain, India has none. China dominates the battery supply chain and around three-quarters of the global battery cell manufacturing capacity is in our neighbouring country. On top of that, Chinese companies have unparallel control over battery raw materials and processing facilities. At present, almost all Li-ion batteries used for EVs are imported from China. This means incentives aimed at Indian manufacturers are directly going to Chinese battery producers. For example, buying a Rs 15 lakh EV (with Li-ion batteries) in India means a transfer of Rs 7.5 lakh to China, including Rs 3 lakh of the taxpayers’ money. The amount could go up to Rs 1 crore for an e-bus. Strategically, too, over-dependence on China is dangerous and given the current geo-political scenario, it is not advisable to take such risky steps.
The way forward: FAME or other State Government clean vehicle schemes are an excellent platform to promote indigenous production of EVs. They should stick to the principles of Atmanirbhar (self-reliant) Bharat to promote localised production at global standards and stop incentivising unsustainable means of storage technologies.
Unbundling of EVs: Separating the vehicle from its fuel, i.e. batteries, is a necessary condition for the development of the EV market in India. At present, EVs have a low-capacity engine with super-expensive fuel options. This is an absurd arrangement and makes a mockery of fair competition. It is like British Petroleum selling cars for their oil or Ford digging oil wells for their car, leading to inefficiency in both the segments.
Make it consumer-centric: At present, EVs are policy-centric. They hardly consider consumers as end-users and rather aim to cater to the needs of development activists. Consumers need flexibility in choosing a fuel source, mileage, durability and so on. Their mobility requirement also varies from a few kilometres to hundreds of kilometres in one run. They possess varied tastes, concerns and limitations. Unless consumers are given such flexibility and choices, EV sales in India won’t pick up. For a typical middle class/upper middle class family, a car is an aspiration and an investment with reasonable resale value. At present EVs have no resale value, hence, it is unjustified to expect a customer to invest hard-earned money in an untested, risky technology in the name of pollution control while there is no definite proof that it is a cleaner energy option.
Competing alternatives: The FAME policy is biased towards EVs, which might be discriminatory against other environment-friendly mobility options like hydrogen fuel cell buses. We already have experience in running CNG buses and we can run hydrogen cell variants, too. These buses can be manufactured in India without any fuel constraint as hydrogen is the most abundant element in the universe and multiple renewable sources can easily be used to generate it. Apart from being zero-emission, it does not have to face logistical challenges like EVs. In a nutshell, FAME is pumping Rs 10,000 crore of the taxpayers’ money into an industry which is strategically counterproductive and not even environment-friendly. This policy should immediately be replaced with a guideline which uses a broader definition of e-mobility, encourages innovations in sustainable storage that rely on the Atmanirbhar Bharat ethos.
The worst is the increasing tendency to use public money for the elite. If pollution is a concern, then why not give induction cookers to the poor or ban diesel generators? Automobiles do not require State backing, consumers will automatically adapt to EVs if they fit in with their requirements.
(The writer is Fellow, India Development Foundation. Views expressed are personal)
