#In-Depth: Vehicle Scrappage- Key to India’s Clean Mobility Ambitions

By Snehil Singh

According to the ICCT, about 50% of India’s vehicular emissions come from vehicles that are more than 10 years old. A 2015 survey by GIZ and Central Pollution Control Board estimated that 87 lakh vehicles reached End-of-Life (ELV) status by 2015. The ELV projection for 2025 is estimated to be nearly 2.18 crore. Currently, BS III and BS IV vehicles largely dominate the vehicle fleet across India with BS I and BS II vehicles continuing in varied proportions.

To contain vehicular pollution, the government plans to ensure; 1) newer vehicles on the road are cleaner (India recently leapfrogged from BS IV to BS VI emission standards), 2) older vehicles, especially heavy commercial vehicles, are taken off the road by scrapping.

This is in addition to the various policy initiatives to accelerate the adoption of clean mobility such as Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME), Phased Manufacturing Program (PMP), and various tax exemptions for EVs.

What is Vehicle Scrappage Policy?

A vehicle scrappage policy is a government policy that promotes the replacement of polluting or older vehicles with cleaner or less polluting vehicles. Scrapping policies aim to stimulate the automobile industry and remove older, more polluting vehicles from the road. Globally, governments have periodically implemented scrappage policies to economically stimulate the automobile industry or as part of efforts to combat air pollution.

India’s Vehicle Scrapping Landscape

The soon-to-be-released India’s draft vehicle scrappage policy, aims to focus on eliminating the fleet of old polluting commercial and private vehicles plying on the country’s roads by providing incentives to vehicle owners. The policy aims to cover all vehicle segments, including cars and two-wheelers and not just commercial vehicles. The intent is to integrate all these policies with an the aim to reduce vehicular emissions and mandate transition to cleaner vehicles with the objective to meet India’s target of 30–40% EVs by 2030. Currently, the draft policy awaits its final clearance from the Union Cabinet.

The vehicle scrappage policy was originally conceived in 2016 as the Voluntary Vehicle Fleet Modernisation Programme, mainly for trucks, older than 10 years or those below BS IV emission standards. However in the draft policy, the age of vehicles to be scrapped was increased to 20 years. Further, the draft guidelines for setting up authorised scrapping centres were published by the government in 2019.

The draft Vehicle Scrapping Facility guidelines by the Ministry of Road, Transport and Highways (MoRTH) released in 2019 defines end-of-life vehicles as those vehicles which are no longer validly registered, or whose registrations have been cancelled under chapter IV of the Motor Vehicles Act, 1988, or due to an order of a court of law, or which are self declared by the legitimate registered owner as a waste vehicle due to fire, damage, natural disaster, riots, accidents, etc.

Today, the financial imperative of having a scrapping program has become significant once again as the economy remains badly hit from the ongoing COVID-19 pandemic and the automobile sector requires fiscal stimulus support. With the aim to provide fiscal stimulus and ensure environmental protection, MoRTH is expected to release the scrappage policy soon. In our previous article, we briefly touched on the key benefits of the policy, which are expanded below:

  1. Promote Automobile Sector; Reduce Import Bill

Estimates show that a well-defined vehicle scrappage policy in India can help create a scrapping industry of its own with a business opportunity of $6 billion (Rs 43,000 crore) a year.

According to the Federation of Indian Chambers of Commerce (FICCI) report, ELVs have the potential to generate over 8 million tonnes of steel that can be extracted in India by 2025 through scrapping of olds vehicles, an opportunity to create USD 2.7 billion (approx.).

Additionally, studies show that if half of the BS II and BS III vehicles are scrapped, India can save on the oil import bill by reducing oil consumption by up to 2.7% i.e. approximately 8 million tons of oil in a year.

Source: FICCI Report

2. Create Livelihood Opportunities by integrating the informal sector

Currently, scrappage is largely undertaken by the unorganised sector in India with an extensive network of informal recyclers carrying out dismantling and material recovery. While these are efficient systems for recovery of spare parts and materials, there are concerns that these are not well-equipped to minimise environmental and occupational hazards. Through the government’s well-informed scrappage policy, there lies an opportunity to formalise this sector and minimize risk to the environment.

“Vehicle scrappage if implemented has the potential for 28 million vehicles to go off the road by 2025, mostly comprising two-wheelers. This will reduce carbon dioxide emission by 17% and cut particulate matter in the air by 24%”- HDFC Bank Study

3. Promote Sustainable Economic Growth by plugging into Circular Economy

Countries are increasingly focussing on principles of circularity to recover material from the used vehicles for reuse and recycling. As the policies on circular economy take shape, explicit rules are being laid out on end-of-life regulations including manufacturer responsibility for the entire life cycle of the products. Vehicle Scrappage is a subset of these strategies.

While this shift from a linear economy to a circular economy is a challenge, it also has a tremendous economic opportunity. By moving the vehicle back to its maker, manufacturers employ a cradle-to-cradle strategy, a cornerstone of the circular economy. Manufacturers could then harvest usable parts or retrofit the vehicle, saving much in money and energy required for moving and recycling. This would create capacity and efficiency in the primary market itself. An initiative in this direction is seen in the subscription-based vehicle possession already launched in India by Mahindra & Mahindra and Hyundai.

But what’s the roadblock?

A major point of contestation and lack of clarity remains on fiscal incentives and who bears the costs associated with scrapping a vehicle. The scrapping of old vehicles would require thousands of heavy and old vehicles to be scrapped and large investment on the part of transport businesses to replace them.

Globally, scrapping has been promoted by incentivising and disincentivizing businesses and consumers through fiscal tools such as vehicle replacement incentives, high road tax for old vehicles or introduction of low-emission zones in cities where old and polluting vehicles are barred from entering.

In India too, for example, the Government of National Capital Territory of Delhi’s EV policy provides a purchase incentive when a customer scraps an old ICE vehicle and buys a new EV. For procurement of electric commercial vehicles, the Delhi government has also announced an interest waiver on loans to buy EVs along with the waiver of registration fee (road tax) on any EV being registered in the city for the period of next three years. This is a unique approach towards removing old-polluting vehicles along with making the purchase of cleaner vehicles such as EVs more affordable and reliable.

Therefore, as the final approval on the scrappage policy is awaited, key questions to be answered will be on the incentives and who — among the central/ state government, OEMs, etc. — will bear the cost of compensation for the vehicles.

Global Vehicle Scrapping Landscape

Globally, governments all over the world have set up economic stimulus and recovery packages and pumped public money to support their economies.

E.g.,. Russia provides subsidised loans for the purchase of domestically-produced cars, while South Korea stimulates the domestic demand for cars with considerable tax incentives. Countries such as Egypt which implemented scrapping programs such as Vehicle Scrapping and Recycling Program of Activities (PoA) limited to taxi vehicles saw equivalent to over 130,000 tons of carbon dioxide avoided between 2013 and 2014. In the US and Germany, scrappage programs have been successful in putting old, polluting vehicles off the road.

United States

The US implemented Consumer Assistance to Recycle and Save (CARS) Act of 2009, popularly referred to as Cash for Clunkers program. The aim was to improve fuel efficiency of the existing passenger fleet and provide a fiscal stimulus to the economy. Under the programme, a total of 680,000 vehicles were scrapped and replaced, resulting in a significant reduction in GHG emissions.

Germany

Germany’s Umweltprämie a.k.a Scrappage Bonus program was implemented in 2009. The primary aim of the program was to provide economic stimulus for the auto industry and the second goal was to reduce emissions of all air pollutants. Under the program, light-duty vehicle owners were eligible for a one-time bonus of $3,500 for the purchase of a new vehicle to replace an old vehicle (no more than 9 years old from the date of first registration of the vehicle). While the economic gains from the program remain under question as it exhausted budget within months of its release, on the environmental side, there were definite air quality benefits along with improvements to fuel efficiency, with the replacement vehicles being 20% more fuel-efficient.

Moving Ahead

With a robust scrappage policy, India can accelerate its transition to cleaner vehicles and apply principles of circular economy by recycling scrap from old vehicles. It provides impetus to reduce emissions based on BS VI standards and can restore green economic recovery from the ongoing pandemic. This can be done through (i) speedy implementation of the policy, (ii) ensuring regulatory compliance, and (iii) providing timely incentives, compensation and infrastructure to meet both economic and environmental objectives of the policy.

In-Depth is a fortnightly blog series by OMI on the latest mobility-related developments. Follow us on Twitter and Medium for regular updates.

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