Niti Aayog, Ministry differ over levy on 2-wheelers to subsidise EVs

Niti Aayog, Ministry differ over levy on 2-wheelers to subsidise EVs

News:

Differences have arisen between the Heavy Industry Ministry and the NITI Aayog over a latter’s proposal to levy a “Feebate” on two-wheelers to subsidise electric vehicles for promoting green mobility.

Important Facts:

What is a Feebate?

1. A feebate is a market-based policy combining fees with rebates to reward energy-efficient or environmentally friendly investments or practices and penalize inefficient and environmentally harmful ones.
2. In the case of vehicles, a feebate works by levying fees on relatively high-emitting new vehicles while remitting rebates to relatively low-emitting ones. This simultaneously incentivizes clean vehicles and disincentives polluting ones.

Benefits of Feebate Policy:

1. Feebates are market-based: They provide a clear price signal to consumers to buy more efficient vehicles
2. A feebate can be revenue neutral. Unlike a subsidy program, a feebate need not require the use of public funds. Its adoption thus does not risk disturbing government budgeting
3. An optimized feebate drives continuous improvement by creating continuous incentives.
4. By addressing consumers’ high discount rates, Feebates reduce the upfront purchase price of an efficient vehicle thus incentivizing widespread adoption.
5.  A report titled “Goods On the Move” highlights that applying a feebate concept to urban access would charge trucks to enter the city during congested periods while incentivising them enter during night-time hours. This would help reduce congestion in cities and reduce the cost of goods delivery made off hours.

Challenges of Feebate Policy:

1. The policy will adversely affect the auto industry by increasing administrative burden and requiring manufacturers to make huge capital investments.
2. Feebates can be misinterpreted or criticized as a new tax
3. There is an issue of who will collect the Feebates as all cesses have been subsumed under the GST