A scrappage policy five years in the making
- Finding the sweet spot of incentives will be crucial to the success of the policy but concrete plans will still be needed for climate change mitigation.
The ministry of road transport and highways will soon be notifying the details of the Voluntary Vehicle Fleet Modernization Program (VVMP), followed by a 30-day period during which all stakeholders will be given another opportunity to submit their views. Its minister, Nitin Gadkari, shared the contours of the proposed VVMP last week. Much groundwork has already been undertaken with regard to the new VVMP framework and the first concept note was circulated by the ministry way back in March 2016. Before getting to the specifics, let’s recall from a macro-perspective that the VVMP is one of the mechanisms through which India is trying to lower both its air pollution levels as well as its climate change contributing emissions as part of the Paris Agreement commitments. Such a scrapping policy of end-of-life vehicles is a well-established practice in many other countries, including in the European Union, US, Canada, Australia, China, Korea and Japan, to name a few.
Domestic data indicates two relevant trends. One, medium and heavy commercial vehicles— trucks and buses—while constituting just 2.5% of India’s domestic fleet, contribute about 60% of the air pollution. Second, older vehicles (over 15 years old) and typically pre-Bharat III, represent just 15% of the total fleet but pollute 10-12 times more than new or fit vehicles. These two factors underpin the VVMP. The Central Pollution Control Board (CPCB) estimates that by 2025 the number of vehicles reaching ELV status will be about 21.8 million, out of which 80% will be two-wheelers.
TRENDING STORIESSee All
The VVMP proposes that commercial vehicles be de-registered after 15 years if they fail to obtain a fitness certificate; for private vehicles this would be after 20 years. In both cases, the disincentive used would be to increase fitness and registration fees starting 15 years after the initial registration. Importantly, the criteria to determine vehicle fitness will be based on emission tests, braking and safety tests as per the Central Motor Vehicles Rules, 1989, and not merely on the age of the vehicle.
The brief VVMP outline also suggests four specific incentives to owners of old vehicles to scrap old and unfit vehicles through registered scrapping centers. Firstly, the scrap value of the old vehicle to be given by the scrapping center would be 4-6% of the ex-showroom price of a new vehicle. Secondly, the vehicle manufacturers are asked to provide a discount of 5% on the purchase of a new vehicle upon submission of the certificate of scrapping as proof. Thirdly, the registration fees could be waived when purchasing a new vehicle. Fourthly, state governments are encouraged to offer a road tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles. Sufficient phase-in time is provided given that the rules for fitness and scrapping centers are planned to be notified in October 2021; for the scrapping of government-owned vehicles, that would be in April 2022; for heavy commercial vehicles by April 2023; and only starting April 2024 would the mandatory fitness testing for other categories be introduced.
Finding the sweet spot of these incentives will be critical for the VVMP to become a success and these will need to be benchmarked against the resale value in the second-hand market regularly. Sources indicate that the resale value of some of the more popular models may range between 8-15% in the second-hand market. In such cases, the lower incentives offered under the scrap policy of the VVMP may not be a match and fail to attract the targeted vehicle owners. On the other hand, the market value of older diesel vehicles has fallen and in that segment taxi, bus and truck owners may find the scrap policy rates offered under the VVMP an attractive proposition.
From a public policy perspective, the need to reduce emissions is undisputable and the government needs to adopt multi-pronged and meaningful measures to protect citizens from the harmful health effects of air pollutants. Moreover, new vehicles are more fuel efficient and would reduce India’s oil import bill. Similarly, the steel scrap generated under a successful VVMP model would reduce India’s steel import requirements. The VVMP also foresees the creation of Registered Vehicle Scrapping Facilities across India based on the public-private partnership model. The automotive industry supports the VVMP given its direct correlation with anticipated purchases of new vehicles; which is why the government in return also expects the industry to offer attractive discounts to new customers who can submit a scrapping certificate.
Importantly, such a vehicle scrappage policy could be the first stepping stone towards the setting up of a more robust mechanism that is based on the Extended Producer Responsibility of vehicle manufacturers. It may also ultimately force a rethink within the industry from a circular economy perspective, which is based on the principles of eliminating waste and pollution while keeping components and materials in use. Indeed, as the CPCB has underlined, vehicle manufacturers can play a key role in this new paradigm given that their decisions directly influence the recyclability and reusability of their products through the choice of materials and car design. Air pollution reduction and climate change mitigation will not be achieved at an abstract level. It needs concrete yet feasible action plans.
Els Reynaers Kini is partner at law firm M.V. Kini and heads its environmental law practice.
Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.