The climate change negotiations at Copenhagen may result in increased costs for Indian business, as they adopt greener technology. But some of the results of the drive for lower emissions are already being seen in the auto industry. According to news reports, India’s refineries aren’t fully prepared to supply fuel that will meet the new emission standards applicable from 1 April, 2010. On that date, four-wheelers sold in 11 major Indian cities would have to comply with Bharat Stage IV (equivalent to Euro-4) norms. Besides, four-wheelers sold in the rest of the country would have to comply with Bharat Stage III norms.
In 2005, the 11 cities had transitioned to Stage III from Stage II and the rest of the country had started complying with Stage II norms. Even back then, refineries weren’t fully ready to cater to the transition on a country-wide basis, leading to requests for an extension in the deadline from 1 April, 2005. The story is being repeated with analysts and auto industry executives pointing out that there is intense lobbying with the government to extend the deadline this time around as well.
It’s only a few refining plants that won’t be fully prepared in supplying cleaner fuel by the April deadline, but this could derail a nation-wide implementation. Of course, there’s always the option of importing cleaner fuels, but since India is a large consumer of auto fuels, prices could rise as a result. In any case, it is not only about readiness of refineries, but the entire distribution chain including pipelines and storage tanks, that need to be ready for implementation.
Auto manufacturers, meanwhile, are on track to make the transition to produce more fuel efficient vehicles. The Bharat Stage-IV compliant models will entail higher manufacturing costs, most of which are likely to be passed on to consumers. According to an analyst with a domestic institutional broker, sales of four-wheelers should rise in the January to March period to take advantage of lower prices before the new models are introduced.
The catch, however, is that if that there is an extension in the eleventh hour, it would result in unnecessary costs, as a readjustment would have to be made in the production process. It’s bad enough that the lesson on timely availability of cleaner fuels hasn’t been learnt from the experience five years ago. It will be worse still if this results in uncertainty for the auto industry. At a time when auto manufacturers are also dealing with an increase in the cost of raw materials, this is a cost that is best avoided.
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