The government is proposing to impose fuel efficiency norms for vehicles in a bid to limit the consumption of petroleum products, which could trigger higher research and development (R&D) costs for car manufacturers, making vehicles more expensive for consumers.

“The fuel economy norms could either be based on the category of weights or engine displacement," says a top-level government official who is involved in the process, but did not wish to be identified because of the sensitive nature of the proposals.

The Petroleum Conservation Research Association (PCRA), an autonomous research body under the Union ministry of petroleum and natural gas, responsible for the fuel conservation measures in different sectors, and the Bureau of Energy Efficiency (BEE), recently signed a memorandum of understanding that appoints the former as the technical advisory for setting these standards. BEE is the statutory authority that will implement the norms and notify them under the Energy Conservation Act, 2001. The automobile industry was guarded when Mint sought reactions to the proposals, with firms calling for a phase-wise imposition of fuel efficiency norms. They also want incentives for the increase in R&D expenses that will happen.

“We’ll work with the government to formulate a realistic roadmap" like the emission standards, said Dilip Chenoy, director-general of the Society of Indian Automobile Manufacturers, an automotive industry grouping. India, which imposed emission norms nearly a decade after Europe, now lags them by only five years. At the time, the transition to successive cleaner emission levels increased the R&D costs of the industry, which passed on the same to the consumers in the form of higher prices.

“Technology input is always expensive," said K.K. Swamy, deputy managing director of Toyota Motor Co.’s Indian unit. “While the issue is still premature, there are possibilities for some sort of incentivization in terms of more tax benefits for such vehicles" such as lower excise, sales tax, parking charges, etc.

Fuel efficiency norms exist in several countries in the European Union as well as the US, Japan and China, in an attempt to limit the consumption of fossil fuels and cap emissions of carbon dioxide. Some of these countries are also signatories to the Kyoto protocol, an international pact that seeks to limit greenhouse gasses and sets targets for reducing emissions.

Japan has the most stringent norms, targeting an average fuel economy of 13.6km per litre, going up to 16.8km per litre in 2015. China, which introduced such standards in 2004, has 16 different categories based on vehicle weight.

India’s consumption of petrol has risen 80% over the past 10 years to 9.1 million tonnes, and that of diesel by 18% to 42.9mt, driven by an increase in vehicle sales in Asia’s fourth largest auto market.

An economic expansion of more than 6% a year for the past decade has put more money in the hands of people and total vehicle sales in India top 10 million a year. By 2015, India is projected to have 121 million motorized vehicles on the road, according to a 2006 report by the Asian Development Bank, an international agency which funds economic and social development projects. More than 98% of petrol and 62% of diesel is used to fuel vehicles, according to ministry of petroleum data.

“The trend in demand for petroleum crude closely follows the economic growth curve everywhere," says Anumita Roy Choudhury, associate director, Centre for Science and Environment, an environmental-lobbying institution. PCRA will collect data on the transport sector and the norms, once notified, will be mandatory. The PCRA recommendations will be considered by BEE, which will then form a representative task force before final notification.

This is not the first time the government is proposing such standards as it tries to restrict the imports of petroleum and related products, which have ballooned 7.5 times over the last decade to Rs2.6 trillion crore in 2006-07, according to the government’s petroleum planning and analysis cell. The Integrated Energy Policy announced by the Planning Commission in 2006 makes energy efficiency for the transport sector a top priority in the absence of substitutes, of similar availability and cost, at least till 2031-32.

Another plan panel task force has proposed that the current fuel economy levels be averaged for each category and then tightened by 8 percentage points annually during the Eleventh Five-Year Plan (2007-12) and 5 percentage points after 2012. BEE has almost finalized energy efficiency norms for other sectors, such as paper and pulp, and cement. PCRA will hold its first meeting on Thursday.