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The Shift to BS-VI Emission Norms: Is it Economically Viable?*

CASE STUDY, STRATEGY
ET Cases - FLAME, 8 Pages
AUTHOR(S) : Prof C. Anirvinna, TAPMI School of Business, Manipal University, Jaipur and Prof Hoshiar Mal, FLAME University, Pune

Case Preview

The Shift to BS-VI Emission Norms: Is it Economically Viable?

The story of vehicle emission controls began in India when mass emission norms were enforced for the first time for petrol vehicles in 1991 and for diesel vehicles in 1992. Emission norms were further tightened in 1996 with the compulsory fitment of catalytic converters in petrol vehicles. Since harmful gases in the exhaust system pollute the atmosphere, the catalytic converters are fitted into the modern car exhaust to make the exhaust fumes safer. Bharat Stage emission norms (Exhibit I), which are equivalent to Euro norms for four-wheeled vehicles, were first introduced in the year 2000. These norms specify the maximum permissible emission limit for major pollutants such as carbon monoxide (CO), hydrocarbons (HC), nitrous oxides (NOx) and particulate matter (PM).

As of 2018, BS-IV norms are applicable in 13 major cities of the country, while BS-III norms are applicable elsewhere. As per an Expert Committee in 2013 to draft updated Automotive Fuel Policy 2025, which was published in May 2014, BS-IV roll-out was envisaged for the entire country by 2017, BS-V by 2021 and BS-VI by 2024. However, on January 6th 2016, the Union Government of India took the decision to skip the BS-V emission norms and progress directly to BS-VI norms by April 2020. The jump from BS-IV to BS-VI created challenges for the Oil and Automotive industries....................

The Decision to Jump from BS-IV to BS-VI

The global energy related carbon emissions rose to a staggering 32.5 gigatonnes in 2017 as 70% of the global energy demand is met by oil, natural gas, and coal, while renewable sources accounted for the remaining 30%3. Carbon dioxide emissions are the primary contributor to the rise in average global temperatures. This problem needs to be addressed to counter the devastating effects of climate change evident from recent trends such as Super Winter in Europe & North America.

Automotive vehicles emit several exhaust gases and pollutants. The largest part of these gases consists of nitrogen (N2), water vapor (H2O) and carbon dioxide (CO2), which are not toxic. Harmful gases i.e., carbon monoxide (CO) produced because of incomplete combustion, nitrogen oxides (NOx) generated at high temperatures, hydrocarbons (HC) obtained from unburnt fuel, particulate matter (PM, mostly soot) and oxides of sulphur (SOx) due to sulphur content in fuel, are referred to as pollutants................

Stakeholders

The issue is bound to affect a wide range of stakeholders, both directly and indirectly, but the impact and degree of the effect are yet to be seen. Perhaps, only time will tell how well, those involved can handle the consequences of this transition to BS-VI emission norms.

The primary stakeholders are: the central government and state governments, heavily polluted metro cities such as New Delhi, Mumbai and Kolkata; the automobile manufacturers; the automotive ancillary & OEM firms.......................

Technological Improvements for the Transition From BS-IV to BS-VI

In the case of diesel engines, three devices i.e., catalytic converter, Diesel Particulate Filter (DPF) and Selective Catalytic Reduction (SCR) device are required to be installed in series. For petrol engines, conversion from BS-IV to BS-VI engine requires the following modifications: Re-designing of ports and exhaust system improvements, adoption of higher compression ratios along with improved carburetion, combustion chamber re-design, sparkplug re-location and piston re-design. The two and three wheelers will also have to be fitted with Electronic Fuel Injection system in place of the old Carburetor system, to meet the BS-VI standards...........

The Electric Alternative

The concept of a fully electric vehicle seems a bit far fetched for a nation-wide rollout, but it can definitely be a possibility in future. The challenges associated with such vehicles range from charging point issues to speed and pick-up. The Nissan Leaf is an electric vehicle ideal for Indian roads, whereas the BMW-i8 and Tesla are rather expensive. The Mahindra E2O is the most popular electric car in India. The famous Tata Motors, has also unveiled plans to roll out a series of electric vehicles for the Indian car market. Another futuristic idea is a flexible-fuel vehicle that uses a mixture of input fuels mixed in one tank – typically gasoline and ethanol, methanol, or biobutanol. It is opined that a hybrid vehicle using alternative fuel for basic functions and BS-VI fuel otherwise is the best solution for emission minimization.The shift to electric vehicles will also be a boon to Indian passengers in view of rising crude oil prices globally..............

Challenges and Issues

The technological complications and challenges associated with the transition, have led to a variety of issues concerning the stakeholders. The issues related to the automotive manufacturers include: an increase in the vehicle dimension and corresponding taxation to accommodate emission controlling devices; increased cost for a Particulate Matter filter and Selective Catalytic Reduction device; time lag in production; and the economic viability of the companies making automobiles, since several Indian car manufacturers source engines from common engine manufacturers like Fiat.........

Is Sudden Shift to BS-VI Norms the Only Solution?

It is evident from our daily experiences on the road that it is the old vehicles, especially trucks and goods carriers, which are often the most polluting vehicles (Exhibit IV), rather than passenger vehicles. Experts opine that the National Green Tribunal must shift its focus towards the Vehicle Scrapping Policy of the government instead of focusing only on implementation of BS-VI norms. There are over 35 million trucks, buses and taxis manufactured before December 31st 2000 that contribute to three-fourths of vehicular pollution, according to a study by AT Kearney based on data from Central Pollution Control Board and Union road ministry’s emission norms.............

The Road Ahead

In order to skip the BS-V and shift directly to BS-VI, both the emission reducing technologies of Diesel Particulate Filter (DPF) and Selective Catalytic Reduction (SCR) need to be fitted in the four-wheelers simultaneously. Though this is a time and money consuming process, it has environmental benefits associated with it. However, shifting directly to BS-VI within the specified time limit is a great challenge for the automobile and oil industries in India. The BS-VI will help in reducing the emission of harmful contents to the atmosphere from automotive engines and control the air pollution levels. The alternate technologies such as Electric Vehicles and Hybrid vehicles can complement the BS-VI emission norms to reduce vehicular emissions further..............

Assignment Questions

I. Analyze the reasons for the sudden shift from BS-IV to BS-VI.
II. Trace the challenges involved for auto makers, oil marketing companies and customers in the sudden shift from BS-IV to BS-VI.
III.............

Exhibits

Exhibit I: Journey of Bharat Stage Emission Norms and Fuel Improvements

Exhibit II: Reduction in Nitrous Oxide and Particulate Matter Emissions as per BS-VI Norms

Exhibit III: Global Comparison of Fuel Sulphur Content (in parts per million)

Exhibit IV: Emission Levels across BS Normsber 20th 2017

Teaching Note Preview

The Shift to BS-VI Emission Norms: Is it Economically Viable?

Synopsis

This case highlights the decision of the Union Government of India to roll-out the toughest BS-VI emission norms by April 2020. As of 2018, cars and two wheelers are being launched with BS-IV norms but adopting BS-VI norms means auto makers have to skip one step to achieve the desired goal of the government. It is being argued that the European countries did not ask the companies to skip Euro-V, then why is it being forced in India. The objective of the Indian government is to curb emissions in a country that has a dubious distinction of being home to maximum number of polluted cities in the world. A staggering total of 30 cities in the country figure in the Top 100 most polluted cities in the world according to the WTO report released in May 2016. BS-VI norms are akin to Euro-VI. The European countries gave auto makers and industry concerned sufficient time to adopt the change. In India, the auto manufactures are not being given that much time to achieve the same. The lack of time to achieve BS-VI norms could lead to the entire industry staring at similar kind of problems that were seen after BS-III vehicles were banned in the country from April 2017. Automakers find it difficult to develop and implement proper and relevant technology without adequate time. For diesel engines, a diesel particulate filter for moving to BS-V and Selective Catalytic Reduction device for BS-VI, are necessary. For petrol engines, new technologies that are likely to be commercialized will help vehicles comply with BS-VI norms. The shift to BS-VI emission norms will surely make the cars expensive compared to BS-IV compliant vehicles. The two-wheeler market will also be affected as pricing of motorcycles and scooters will be much higher after the implementation of the new norm. The diesel cars will see a huge price hike in comparison with petrol ones as the development of diesel engines is much costlier than petrol motors thereby hurting the sales in India. There is a possibility of customers moving to petrol cars after BS-VI implementation, further fueling the demand for petrol cars. A significant number of buyers who opt for SUVs and large vehicles which run on diesel, will be hit hard to due to the higher prices.

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Abstract

This case critically evaluates the decision of the Union Government of India to skip the BS-V emission norms and progress directly to BS-VI norms by April 2020. The decision comes amidst the need for India to make sincere efforts to contain high air pollution levels in the country, especially high smog levels in New Delhi and NCR. This decision to leapfrog fuel standards from BS-IV to BS-VI norms has created a stir and disrupted the Oil and Automotive Industries.

For diesel engines, a diesel particulate filter for moving to BS-V and 'Selective Catalytic Reduction' for BS-VI, are necessary. For petrol engines, the new technologies that are likely to be commercialized will help vehicles to comply with BS-VI norms.

Technology implementation, its validation and assimilation by customers are some of the major issues faced by the automotive sector in jumping from BS-IV to BS-VI. Similarly, reduced timeline, selection of appropriate technology for refining, revamping of the existing units and simultaneous distribution of two types of oil are the major challenges faced by the oil refineries.


Pedagogical Objectives

The key objectives of the case are to:

  • Analyze the reasons for the sudden shift from BS-IV to BS-VI
  • Trace the challenges involved for the automobile manufactures, oil marketing companies and customers in the sudden shift from BS-IV to BS-VI
  • Analyze the value proposition for each of the stakeholders
  • Demonstrate how the shift from BS-IV to BS-VI norms will help the government in containing air pollution levels

Case Positioning and Setting

This case can be used in Business Strategy course in MBA or Executive MBA programs to understand how government policies can influence a firm’s strategy or an industry’s ecosystem.

* 4th FLAME International Conference on Research and Teaching Cases, June 21st 2018 & June 22nd 2018



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