Leverage scrappage investments for bigger gains

On the occasion of the Investor Summit in Gujarat August 13, 2021, Prime Minister Narendra Modi has launched the National Automobile Scrappage Policy, underscoring the importance of promoting circular economy and environmentally responsible action.

This policy is expected to modernise the vehicular fleet by removing old and unfit vehicles from the roads and also stimulate investment of more than Rs 10,000 crore in scrapping infrastructure and create jobs. This waste-to-wealth campaign has been linked with swachhata (cleanliness) and aatmnirbharta (self-reliance).

The Investor Summit has invited investments for setting up vehicle scrapping infrastructure under the voluntary vehicle-fleet modernisation programme. This is expected to expand the numbers of registered vehicle scrapping facilities across the country for material recovery and safe disposal of clunkers. This will also build synergies with the ship-breaking industry at Alang near Bhavnagar in Gujarat to develop an integrated scrapping hub for material recovery.

This announcement takes forward the promise of the Union budget of 2021-2022 that had proposed the phasing out of unfit and polluting vehicles. According to the Union Ministry of Road Transport and Highways (MoRTH), while several notifications have been issued recently outlining the scope of the programme, a comprehensive policy document is also on its way.

These notifications have already provided for scrappage centres for scientific dismantling of end-of-life vehicles and material recovery, incentive schemes that the state governments and industry can consider and criteria for defining the end-of-life vehicles. The infrastructure is also planned to combine mandatory fitness tests with scrapping centres, especially for heavy commercial vehicles.

The pollution potential and material lost from end-of-life vehicles is huge. On July 30, the Union Ministry of Environment and Forests and Climate Change had informed the Lok Sabha that there are 21.4 million vehicles that are older than 20 years in the country.

It is possible to recover low cost material for automotive, steel and electronics industry among others. The prime minister has lamented that India had to import Rs 23,000 crore worth of scrap steel during the last year as scrapping is not adequate to recover energy and rare earth metals.

The prime minister has stressed that under the new policy, vehicles will not be scrapped merely on the basis of age but after scientific testing through authorised, automated testing centres.

The MoRTH notifications have proposed that commercial vehicles will be de-registered after 15 years if they fail to get fitness certificates and fees for fitness certificates and tests will increase.

Private vehicles will be de-registered after 20 years if found unfit and re-registration fees will also increase. All government-owned vehicles will be de-registered for scrapping after 15 years.

Vehicle scrapping facilities, including integrated vehicle scrapping facilities under public-private participation, need to comply with the environmental regulations for safe disposal of waste.

Need certainty in incentive structure to maximise gains

While this initiative can minimise material wastage and reduce environmental damage from the clunkers, more refinement is possible to maximise emissions gains and green recovery for deeper air quality benefits.

At this moment, the notifications have only ‘advised’ the state governments and the automobile industry to provide voluntary incentives to the owners of the old vehicles. The scrapping centres can give scrap value for the old vehicle which can be four-six per cent of the ex-showroom price of a new vehicle.

State governments have been advised to offer a road-tax rebate of up to 25 per cent for personal vehicles and up to 15 per cent for commercial vehicles. The vehicle manufacturers have been advised to provide a discount of five per cent on purchase of a new vehicle against the scrapping certificate. Moreover, the registration fees may also be waived for the purchase of a new vehicle against the scrapping certificate.

Thus, the entire onus of incentivising fleet renewal depends on the discretion of the state governments. Given the fact these are important sources of state revenue, the extent to which the state governments will implement this is not yet known.

As the Union transport minister has sought suggestions for further improvement of the policy framework, it will be helpful for the central government to consider and add centrally-supported stimulus programmes for the post-pandemic green recovery.

The central government can allow Goods and Services Tax cuts for replacement vehicles and even consider direct incentives for targeted fleet renewal of most polluting old trucks and buses.

A rebate can be given to the owners of end-of-life vehicles who are interested in ‘only scrapping’ the vehicle without immediate replacement. Higher incentives can be given for ‘scrappage and replacement’ of old / end-of-life vehicles.

Old trucks with more economic life left can get comparatively higher incentive as that will give higher emissions benefits. An old Bharat Stage (BS) I truck was originally designed to emit 36 times higher particulates, compared to  a BS VI truck.

Incentive support for the personal vehicle segment on the other hand can be linked with voluntary electrification. This can be additional to the normal scrapping of end-of life vehicles as already proposed in the draft policy.

Incentive for electric replacement vehicles can maximise air quality gains. This is the global trend in which governments are giving conditional bailouts or tax support linked to emissions targets.

In fact, a study carried out by the International Council on Clean Transportation has shown that in Germany, replacing old cars with new cars powered with internal combustion engine does not provide as much effective emissions gains as replacing with electric vehicles.

Therefore, limiting the numbers of personal vehicles that can qualify for incentives and linking their voluntary replacement with electric vehicles can contribute towards accelerating the target of 30-40 per cent electrification by 2030.

Build in manufacturers’ responsibility for recyclability

This is also an opportunity to align the programme with the mandate for the manufacturers to meet the target for the recyclability of material to reduce the waste footprint and maximise material recovery. 

It is encouraging that the Automotive Industrial Standards – 129 (AIS 129) on reuse, recycling and material recovery from vehicles, has already been framed in 2015.

This requires 80-85 per cent of material used in vehicle manufacturing by mass to be recoverable / recyclable / reusable at the end of life. AIS-129 has also restricted the use of heavy metals including lead, mercury, cadmium, hexavalent chromium, etc and asked for coding of plastics to inform dismantlers. 

Strengthen this further to include goods vehicles, the N1 category, which is currently outside its scope. Also the requirement of recyclability be extended to 85-95 per cent to maximise material recovery as well as energy recovery from residual waste like used oil, non-recyclable rubber, etc.

It is also important to align the European regulation to include extended producer responsibility to make vehicle manufacturers responsible for their own waste. 

Make this a stronger green deal

This first-ever formal scrappage policy in India is an opportunity to build infrastructure for safe waste disposal and material recovery to minimise environmental hazards from junk vehicles and clunkers. But during these unprecedented pandemic times, it is possible to link targeted fleet renewal with a trajectory towards clean and zero emissions targets.

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