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India Leaps Ahead: Feebates—An Important Policy Lever for India’s Future Mobility System

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Feebates—market-based, revenue-neutral, and size-neutral—can act as an important policy lever in support of India’s “leapfrog” vision of an electric, shared, and connected mobility system by incentivizing the production and use of clean vehicles, according to a new report. 

A feebate is a mechanism by which inefficient or polluting vehicles incur a surcharge (fee-) while efficient ones receive a rebate (bate-). By offering a steady price signal, feebates can encourage and accelerate the growth of a new mobility system by encouraging Indian consumers to purchase clean vehicles and for Indian manufacturers to produce them, while speeding the retirement of inefficient vehicles. Because it is technology-neutral, feebates also can be applied to two-, three-, and four-wheeled vehicles.

Illustration of balance between utility functions and competitive functions

The scope of utility functions can be either expansive or limited. Meanwhile, the total size of economic activity in the electricity sector may be larger in the future, providing growth opportunities even where proportional market share is less.

Countless individual decisions and compromises will ultimately determine the course of the utility. At every turn, utility program designers and regulators can evaluate proposals against key variables.

Key decision variables for evaluating utility proposals and market reforms

Based on the path being pursued and market conditions for specific programs, the best design can move left or right for each variable. Experience shows that the utility business cannot be remade overnight. But this is no excuse to not get started. Delaying action is to accept path dependency on the legacy business and regulatory model, which was built for different infrastructure investments and operating structures than where the grid needs to go today.

Why This Matters

India is at a critical juncture in its infrastructure, energy, and mobility development. The nation has seen a 10 percent annual increase in vehicles registrations over the last decade and is set to surpass Germany as the world’s fourth-largest car market by domestic sales by the end of 2017. If current mobility trends continue, the number of personal vehicles in India could increase three- to four-fold by 2030, at significant direct and indirect costs to India’s citizens, economy, and environment. Now, India has set ambitious targets of installing 175 gigawatts of renewable energy generation by 2022, and a draft government target aims to generate 57 percent of India’s electricity from non-fossil sources by 2027. These targets, coupled with India’s electric mobility vision, can create more value and be more readily achieved when pursued together, rather than separately. And as mobility costs impact low- and moderate-income citizens the most, this transformation could provide important economic and social benefits to this population segment.