Distributional Effects of Air Quality Legislation in India

Mandated fuel regulation for public vehicles has been a leading instrument used in many south Asian cities to reduce pollution and improve urban air quality. In India, the trend was set in 2001 when the Supreme Court ruled that all buses, taxis and auto-rickshaws in the capital New Delhi must run on compressed natural gas (CNG). Under the court’s directive, similar regulatory initiatives were set in motion in several other medium and large Indian cities. However, attempts to implement fuel use regulation have been met with stiff resistance from vehicle owners and operators in most places, often leading to administrative paralysis and costly delays. Environmental impact studies, especially from Delhi, show that the switch to natural gas from petroleum based fuels can create significant reduction in the atmospheric concentration of harmful gases and respirable particulate matter. It is therefore a matter of utmost urgency to understand how the regulatory framework can be designed so as to reduce resistance and induce faster adoption of cleaner technologies. Our study of Kolkata’s clean air regulations, introduced by court mandate in 2009 after years of political quagmire, throws up interesting lessons for future policy. Unlike most previous studies, we focus not only on the environmental impact of the regulations but also on its distributive consequences, especially the cost and profit flows of the affected segments of the transport industry. Such regulations impose significant upfront investment in new capital on vehicle owners, but these may be partly or wholly recouped in the long run through reduced fuel costs (since natural gas based fuels are typically cheaper than petroleum based products). Estimates based on our survey of 100 auto rickshaw drivers show that the industry faced a net loss, even after future cost savings are factored out from the upfront capital costs at reasonable discount rates. The West Bengal government’s offer of a subsidy of Rs 10,000 for every new vehicle was inadequate to cover these losses, and the industry’s protests, litigation and various delay tactics can be understood purely in terms of economic self-interest rather than myopia, ignorance or political maneuvering. The policy implication is that smooth and quick transition to a greener fleet will typically require higher subsidy levels. An alternative to direct subsidies is to create price incentives by taxing dirtier fuels (petrol or diesel) or subsidizing cleaner ones (CNG or LPG). Our data indicates the need for a bigger “price gap” in order to generate the right incentives. Our study also uncovers indirect evidence of widespread use of adulterated fuel by Kolkata’s auto rickshaws, especially in the case of vehicles that were rented out rather than owner operated. This illegal practice both exacerbated the pollution problem and reduced the cost savings brought on by the fuel switch, increasing the incentive of operators to oppose change. Tough administrative measures against fuel adulteration are likely to subsequently reduce resistance to alternative fuels to a significant degree. We also found substantial supply bottlenecks in the initial phase of the transition, with long daily lines forming at the refueling stations and significant increase in work hours. Cities hoping to manage such transitions smoothly are well advised to spend more thought and resources into setting up the appropriate supply network. Finally, we underscore the need to develop integrated transport and environmental policies for major metros, instead of relying on a series of disconnected measures. As already indicated, reducing political opposition and delays would probably require a much greater subsidy burden, raising the question of how such initiatives may be financed. Policies that reduce road congestion through access fees, parking charges, vehicle registration fees and fuel taxes can help also help finance technological solutions that involve large abatement costs. We need to combine prevention and cure, revenue generating as well as costly measures, in a comprehensive plan of urban development.