Friday Climate Focus: When Elon Musk Said 'Challenges' and 'Government' in a Tweet, Scientists vs Marketers ca. 2022, & more
Edition #15
Hello there!
Welcome to another edition of Climate Focus. A warm(er) welcome to my new subscribers over this past week =)
Thank you to every one who shared my newsletter with friends the past week. In case you hadn’t, you can do so by clicking the button below:
This week’s edition is also about Electric Vehicles. If you managed to read my last newsletter, I wrote about how ‘pulling the plug’ on EV subsidies is inevitable.
It is based on a very simple premise — governments do not have endless fiscal room to use taxpayer money to reduce the costs of electric vehicles.
I have also been thinking about something else since I published last week’s post. Granted there has been significant progress made in developed markets (and China). But what about emerging markets?
Sidebar: This was Elon Musk’s response to a tweet that asked when Teslas will be launched in India —
A few public officials and representatives from different parts of India used it to plug-in opportunities for them to partner together with Tesla. 😂
The sidebar aside, which was low-key funny, let us take a step back and ask a bigger question.
Are EVs that critical or a priority in emerging markets?
India has 22 cars on the road per 1000 people compared to 980 cars per 1000 in the US.
Okay, any statistic on India gets skewed dramatically by a denominator of 1.39 billion people, but the trend does not change when you consider other emerging markets like Vietnam at ~25 per 1000 people or Bangladesh at ~2.5 per 1000 people.
That isn’t to say emissions from transportation in these countries is any less worrisome.
Urbanisation is causing all sorts of problems with data that is a stark contrast to country-level numbers.
During year 2016, transport sector contributed to 270.6 MT CO2e of GHG emission, third highest, only after power industry and industrial combustion. Within transportation, road transport has been the highest contributor to the GHG emission.
[…]
With 510 cars per km, the car density in [Mumbai] is almost five times that of Delhi, which has 108 cars per km.
The other cities that followed suit are Pune at the second spot with 359 cars per km, Kolkata at third position with 319 cars per km, Chennai with 297 cars per km and Bengaluru […] with 149 cars per km […]
India is the 4th largest automobile market in the world and accounts for nearly 16% of all new automobiles produced globally.
From 2011 to 2020, India’s domestic vehicle sale (2W, 3W, Passenger Vehicle, Commercial Vehicle) has grown at ~4% CAGR. With rising income and rapid urbanisation, the Indian mobility market is expected to expand rapidly.
Okay, I know I am comparing oranges with tangerines here with cars per 1000 people and cars per km, but the problem is pretty evident either way. (I couldn’t find a comparable city-level statistic here: or as we social scientists like to say - paucity of data is pretty rife once we step outside the developed world).
If we take into account the
— the absence of mass mobility solutions,
— unplanned urban development, and
— an increasing influx of people who migrate from other parts of the country seeking upward social mobility,
we can convincingly say that clean mobility transition a critical policy priority in emerging markets like India. (If it wasn’t evident already, India = Emerging Markets for the purpose of this post)
How is India doing when it comes to the EV transition?
(That headline insert was just for effect. To be fair, it’s not so bad. But there are things to be fixed)
FAME-II is the 2nd version of the Indian government’s policy to promote Faster Adoption and Manufacturing of hybrid and Electric Vehicles.
The policy approved a purchase subsidy of nearly $1.35 billion over a 3-year period ending March 2022 for electric two-, three-, four-wheelers and buses.
As the headline suggests, disbursement as of late 2021 was only 10% of this figure. The government has since extended the policy to 2024.
One of the reasons cited by domestic EV manufacturers for the low disbursement rates is the provision for prioritising local components in EVs over imports.
According to FAME-II guidelines, companies need to ensure that locally manufactured components account for a minimum of 40 per cent of the price of an EV bus and 50 per cent for all other categories, if they want to avail benefits under the scheme. However, estimates peg the current level of localisation in the EV sector at approximately 20 per cent, owing to the lack of critical raw materials and the relatively lower costs of imported components.
The impetus to build a domestic EV supply chain that is cost-competitive has never been higher.
Five main components are required to manufacture an electric vehicle – chassis and body, battery and thermal dynamics management systems, battery packs, electric motors and power electronics. Since the first two are also manufactured for conventional and hybrid Internal Combustion Engine (ICE) vehicles, they cost less than EV-specific components and can be locally sourced. However, the last three items are unique to EVs and contribute a little more than 60 per cent of an EV’s total cost.
The Indian government has a target of achieving at least 30% electric vehicle sales by 2030. Are they likely to succeed in meeting the targets?
It is hard to say if it will based on current sales numbers (Total EVs plying on the roads in India: < 1 million)
The opportunity is evident and with the existing favourable policy environment, the segment is ripe for capital influx. India is kinda all-in when it comes to EV investments.
The EV segment in India is estimated to see approximately $12.6 billion in investments in the coming 5 years. This is going to be across the automotive value chain. This is of course helped thanks to
demand side incentives through purchase subsidies for end-users, and
supply side incentives through production subsidies for manufacturers,
by different states in India (In case you are interested, read: Federalism in India).
The Road Ahead
Blanket policies don’t help anybody. There are considerations for a more thoughtful allocation to purchase subsidies based on the number of people likely to benefit from it.
For instance, the Delhi government, considered one of the leaders in proactive policymaking for Electric Vehicles within the country, pulled the plug on 4-wheeler subsidies once it hit a cap. The focus is now towards subsidising 2-wheelers, freight and public transportation vehicles.
Of the 10 million registered vehicles in Delhi, about 7.3 million are two-wheelers.
This is likely sound policy advice for all emerging markets. Here is an excellent article that talks about why it makes sense for South Asian countries to shift its attention away from 4-wheeler EV subsidies.
Although the Delhi government is on a bit of a roll here. Just this last week, it published a draft policy requiring certain percentage of the fleets of cab-aggregators plying within the city to go fully electric by next year.
Aggregators and delivery services would need to ensure 10 percent of all new two-wheelers and 5 percent of all new four-wheelers are electric in the next three months while 50 percent of all new two-wheelers and 25 percent of all new four-wheelers are electric by March 2023
The draft policy is open for public opinion for the next 60 days before it gets ratified.
Electric Vehicles are a logical next step in the evolution of mobility solutions away from conventional combustion engines. Governments across the world are trying to ensure that we can transition to low-carbon solutions as quickly as possible. And it is evident that emerging markets aren’t laggards when it comes to moving forward with the clean mobility agenda.
Toss in the narrative around securing domestic supply chains, improving hi-tech capability and capacity within national borders, and reducing the reliance on China - you have a perfect mix of policy impetus, (populistic pandering,) and geopolitical signalling.
The stage is set. All we can do is wait to see what show is on.
Bonus
When Anti-Trust Plays the Climate Villain
I had written previously about how insurance companies are uniquely placed to stifle the flow of capital towards fossil fuels. (I cleverly called it bubble-wrap money. I am still proud of that). I had written alongside that about a group of insurers, including whales like the French Insurer AXA, had signed a pledge to phase out underwriting coal projects.
Well, that ain’t happening.
The Net-Zero Insurance Alliance, which counts AXA SA, Allianz SE and Swiss Re AG among its members, has purposely limited the scope of its collaboration to avoid potential violations of antitrust rules, said people familiar with the matter, who asked not to be identified discussing non-public information. A proposal to include a commitment to exit coal insurance as part of the terms of group membership was scrapped following advice from attorneys at Norton Rose Fulbright, one of the people said.
Scientists vs Marketers on Climate (ca. 2022)
Banter
So am I, Emily. So am I.
Hard to Argue With Your Logic, Canada OilSands
(P.S. I ain’t reading between the lines. You shouldn’t too.)