Executive summary
Road transport will play a key role in India’s clean energy transition India is among the fastest growing economies globally and will soon become the world’s most populous country. While road transport expansion and improvement typically serve as a catalyst for socio-economic development, as has happened in many countries, it has unleashed several negative environmental problems in India, namely, burgeoning emissions of CO2 as well as air pollutants such as nitrogen oxides (NOX) and fine particulate matter (PM2.5). Road transport presently accounts for 12% of India’s energy-related CO2 emissions and is a key contributor to urban air pollution. As India seeks to meet the increasing demand for private mobility and the transport of goods, energy use and CO2 emissions from road transport could double by 2050. The IEA’s Stated Policy Scenario (STEPS), which reflects the trajectory implied by today’s policy ramework, projects that both energy demand and CO2 emissions will peak in the 2040s and decline only marginally afterwards. The steadily increasing use of private cars and the expanding truck fleet, with continued reliance on gasoline and diesel, drive the rise. Two-wheelers continue to dominate India’s vehicle fleet, but due to fast electrification, their energy needs and emissions start to decline in the mid-2020s.

Introduction India faces the dual challenge of accelerating its transition to a low-emissions road transport sector, while meeting the surge in private mobility demand and steady increase in freight activity linked to a growing, urbanising and rapidly developing population. Road transport currently accounts for only 12% of India’s energyrelated CO2 emissions, but the sector’s emissions are projected to more than double by 2050 under current policies. In 2021, India’s Prime Minister announced the ambitious goal to achieve net zero carbon emissions by 2070. To bring the sector in line with this goal, the IEA estimates that road transport emissions need to peak in the mid-2030s and fall below today’s levels by 2050. Such a scenario would also deliver benefits in terms of air pollution – one of India’s most pressing environmental challenges.

India’s road network extends to more than 6.3 million kilometres, making it one of the most extensive in the world (MoRTH, 2022a). Road density (the length of the road network relative to land area) is higher than that of most IEA member countries (ITF, 2022a), but it varies considerably across states. About 70% of the total road length is rural roads. Road quality can be poor, especially in rural areas, while urban road networks can suffer from high levels of traffic congestion. Public transport systems vary in quality and inter-modal integration can be limited. Active mobility modes (such as walking and cycling) play an important role, despite limited infrastructure.

Road transport activity by vehicle category and powertrain technology, 2000-2021

Selected key institutions involved in road transport policy making

Historically, transport planning was conducted by sub-sector (NTDPC, 2014). Key documents relevant to urban road transport include the National Urban Transport Policy, first launched in 2006 and updated in 2014, and the National Transit Oriented Development Policy of 2017. The Automotive Mission Plan 2006-2016, primarily aimed at strengthening India’s automotive industry, also included guidance on environmental dimensions (e.g., future directions for emission standards) and announced support for R&D in fuel-efficient and lower-emission vehicles (MHI, 2006). The revised draft plan to 2026 was prepared in 2016 (MHI, 2016), along with another draft policy called the National Auto Policy 2018, which calls for the adoption of a long-term roadmap for the sector that would, for example, set a pathway for future emissions standards in line with international developments, roll out corporate average fuel economy standards, and revise taxation to better account for the sector’s environmental footprint (MHI, 2018). However, both documents are yet to be adopted. Once the policies therein are adopted, sufficient financial resources and institutional co-ordination and capacity will also be required to ensure that these objectives are realised and translated into better environmental outcomes.

On average, the excise duty contributes about one-third of the retail fuel price for both diesel and gasoline, while the VAT contributes about 15-20%; state surcharges and cess generally contribute a small share. Depending on the state, taxes can make up for more than half of the retail price, which is high by international comparison and partly explains why fuel prices in India are comparatively high when expressed in purchasing power parity terms (Figure 2.2). As discussed in Chapter 4, fuel taxes and duties yield considerable revenue to both the central and state governments.

Gasoline and diesel prices in India and selected jurisdictions, 2010-2021

Electricity tariffs for EV public charging vary considerably across states and consumer categories, reflecting differences in base tariffs, taxes and charges. Several states levy additional charges; for example, Delhi levies a 3.8% pension trust surcharge on all electricity end consumers while, until 2020, Karnataka charged industrial and commercial consumers a “green energy cess” per unit of electricity consumed. Data on the end-user charges applying in each consumer category is not readily available. The MoP’s 2022 Guidelines and Standards for Charging Infrastructure for Electric Vehicles state that until March 2025 electricity tariffs should be a single part tariff (meaning that tariffs are not differentiated with the amount of electricity consumed) and not exceed the average cost of supply. The guidelines note that charging is a service; therefore, state governments can fix a ceiling service charge for electricity. Residential tariff rates will be applied for domestic charging (MoP, 2022d).

The fuel efficiency of the heavy trucks fleet is projected to improve by nearly 25% up to 2050 in the STEPS, driven by fuel economy improvements in diesel powertrains. In the APS, diesel powertrains become even more efficient, and switching powertrain technologies to zero-emission technologies (i.e. electric or hydrogen-fuelled models) brings additional fuel efficiency enhancements, particularly after 2040. The fuel efficiency of the bus fleet is expected to improve by about 30% in the STEPS up to 2050, achieved through both technology switching and powertrain efficiency improvements. In the APS, an additional enhancement of 20% is realised through a stronger shift from diesel-fuelled buses to electric buses.

Drivers of additional fuel economy improvements in the APS relative to the STEPS, 2025-2050

Revising flexibility mechanisms India’s current CAFE regulation allows for so-called “super credits”, meaning that the fuel economy of certain ZLEVs is weighted more in a manufacturer’s calculated CAFE relative to a conventional ICE (MoRTH, 2018a). An EV is triple counted, a plug-in hybrid counts 2.5 times and a hybrid twice. In addition, “ecoinnovations” including regenerative braking, a start-stop system or a tyre pressure monitoring function are rewarded by being counted as extra credit points. As these technologies are nowadays extensively used by manufacturers, such credits make it significantly easier to meet individual corporate targets (ICCT, 2021a). Furthermore, while super credits can help ZLEVs enter the market in the early stages of development, they risk undermining the standard’s potential to drive vehicle efficiency improvements, if not regularly adjusted to technology innovation and market developments (GFEI, 2017).

Cost comparison between a gasoline scooter and an equivalent electric scooter for total cost of ownership (left panel) and purchase cost (right panel), 2022 and 2030

The TCO analysis reveals that electric two-wheelers are 40-50% cheaper than their gasoline-powered equivalent over their lifetime. Fuel cost savings pay back higher upfront costs within five years. In fleet applications (e.g., last-mile delivery services), electric models are more than 50% cheaper on a TCO basis; and the payback period would be under two years, reflecting the larger distances that commercially used two-wheelers drive every day. Current demand incentives considerably reduce upfront costs: In 2022, the sales price for electric scooters was about 3 times that of a comparable gasoline scooter. The FAME subsidy reduces this difference to 2.2 times more expensive, and favourable taxation to 2 times more expensive. Continuing a purchase subsidy scheme for two-wheelers beyond 2024 will therefore be important if price parity is to be achieved earlier than 2030 to accelerate adoption. In 2030, electric two-wheelers could approach purchase price parity even without the FAME subsidy, assuming that favourable taxation remains in place.

Instruments to improve EV financing in India

First, India could include certain EV categories in the priority sector lending guidelines of the Reserve Bank of India (RBI). These guidelines mandate scheduled commercial banks16 to allocate 40% of net bank credit to priority sectors with high employment and poverty alleviation potential but low bankability. In addition to signalling the government’s commitment to vehicle electrification, this could institutionalise EVs as an asset class in India’s financial system, incentivise banks to expand EV lending, and allow NBFCs to access lower-cost capital and create co-lending models with banks (NITI Aayog, RMI and RMI India, 2022).

India has joined and benefitted from a number of initiatives such as the Clean Energy Ministerial’s Electric Vehicle Initiative, the Climate Group (EV100), Zero Emission Vehicle Transition Council (ZEVTC) International Assistance Taskforce and the First Movers Coalition. International collaboration is needed in a number of areas if the world is to speed up the energy transition in the road transport sector while at the same time reducing costs. Governments could, for example, cooperate on the development of a timeline by which all new road vehicle sales should be zero emission or agree a common understanding of the technologies that are consistent with the goal of zero-emissions road transport. Governments should work together and with industry to avoid further divergence of standards for charging infrastructure. As both a producer and importer of EVs and with an industry at a nicest stage in terms of development of infrastructure to support EVs, India has much to gain and share from a higher level of international collaboration. The is a large opportunity is for India, its businesses, communities and citizens to work together with global partners to accelerate the growth of markets for clean technologies and sustainable solutions while continuing to compete to supply them.

Source:http://IEA