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Are Electric Vehicles Viable in Kathmandu - A Cost-Benefit Perspective


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A number of studies have shown that the poor air quality of Kathmandu is a matter of serious public health concern for Nepal. As the most important contributor to Kathmandu's air pollution is vehicular emissions, one way of tackling the pollution problem is through the promotion of zero emission electric vehicles (EVs) and other forms of clean transport. The biggest supporters of EVs in Kathmandu are, therefore, groups and individuals concerned about the deteriorating air quality of Kathmandu.

Environmentalists and other EV advocates generally focus on health and economic benefits when arguing for EV-friendly government policies. Recognizing these potential benefits of EVs, the government has already granted some tax and electricity tariff concessions to certain types of electric vehicles. But unless the degree of government support is increased, EVs will not be able to effectively compete with internal combustion engine vehicles (ICEVs) in the market. In order to increase government support to EVs, however, arguments based on the recognition of EV benefits alone will not be adequate. But if it can be shown that the benefits of electric vehicles to society outweigh the social costs associated with replacing their internal combustion engine (ICE) counterparts, then the government would be in a position to justify the enactment of new policy measures that will help increase the competitiveness of EVs.

This study performs a benefit-cost analysis of four types of electric vehicles that could potentially replace many of the existing ICEVs currently operating in Kathmandu, and identifies the cases where the government would be justified in further supporting EVs. It also briefly analyzes the impacts of potential EV-support measures on the cost competitiveness of EVs in the market. The analysis is performed by comparing the benefits
and costs of the following pairs of vehicles: (i) diesel-fueled microbuses and battery powered three wheelers (Safa Tempos), (ii) diesel-fueled microbuses and battery powered microbuses, (iii) diesel-fueled microbuses and trolley buses in the Tripureshwor to Suryabinayak route,
and (iv) gasoline-fueled Maruti cars and battery operated REVA cars. It is expected that the results of the study will aid both the government and EV advocates in making informed decisions regarding the types of EVs that ought to be supported through government policies.

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As EVs are zero emission vehicles, the reduction in health damages arising from improved air quality is the most significant social benefit of replacing ICEVs with EVs. Among the pollutants emitted by ICEVs, particulate matter (PM10) is the most potent in terms of impact on human health. Other pollutants that are damaging to health include sulphur dioxide (SO2), nitrogen dioxide (NO2), carbon monoxide (CO), and air toxics like benzene and formaldehyde. In addition, ICEVs also emit greenhouse gases that have an impact on the global environment.

A distinction must be made between existing or "old" ICEVs and future or "new" vehicles in terms of pollution potential. Older ICEVs emit higher levels of PM10, SO2, and NO2 than new vehicles not only because of the difference in vehicle age but also because the latter have to meet the relatively stringent Euro 1 emission standards. Hence the health benefits of replacing old diesel vehicles by EVs are higher than the benefits of replacing new ones.

The social cost of an EV is the extra lifecycle cost associated with replacing an ICEV by an equivalent EV plus the health costs associated with the lead discharged from EV batteries. The lifecycle cost includes the extra production and operations cost as well as the cost of any additional infrastructure needed to operate the EV. Since the opportunity cost of old vehicles is zero, the extra cost of replacing old ICEVs by EVs is higher than the cost of replacing a new ICEV. Except in the case of trolley buses, the lifecycle costs of EVs are greater than the lifecycle costs of their ICEV counterparts, especially because of the high cost of EV batteries. Although the costs of battery lead discharge are not available in the literature, they are incorporated in this analysis by appropriately manipulating the benefit-cost equations. In this study, relatively conservative estimates of benefits and liberal estimates of costs are used in order to minimize the chance of falsely concluding that the benefits of EVs outweigh their
costs.

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The net social benefit of replacing a diesel microbus by an equivalent Safa Tempo is between Rs. 9642/year and Rs. 62181/year, if the cost of battery lead discharge is assumed to be zero. Because of lack of data on the impacts of battery lead discharge, the true cost of lead discharge cannot be incorporated in the net-benefit computation. But the analysis reveals that the net benefit would remain positive so long as the cost of lead discharge is not unrealistically high. Hence, it is clear that the government would be justified in giving further support to Safa Tempos.

The comparison of diesel microbuses and battery-powered electric buses shows that the costs of replacing the former by the latter are higher than the benefits even when the cost of battery lead discharge is not taken into account. Hence, unless technological improvements make BPEBs more cost-effective, it does not seem worthwhile for the government to support this category of EVs.

In the case of trolley buses, the net benefit of replacing old microbuses by equivalent trolley buses is between Rs. 7529/year and Rs. 45,136/year per vehicle. The net benefit of replacing a new microbus by trolley buses is negative if a low value is attached to the lives saved from pollution reduction. But since the benefits of replacing new microbuses outweighs the cost for reasonably high values for human life, there are sufficient grounds to argue for government support in reviving and expanding the trolley bus system.

Interestingly, however, the comparison of gasoline-fueled Maruti cars and battery-powered REVA cars shows a negative net benefit associated with replacing old Marutis with REVAs. The main reason for this is the substantially higher lifecycle cost of the REVA car. Hence, the replacement of existing Marutis by REVAs is not a desirable social objective. But the social benefit of replacing a new Maruti by an equivalent REVA is higher than the associated cost, with the net benefit ranging from Rs. 11,272/year to Rs. 12,224/year.

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Currently the private lifecycle costs, i.e. the actual lifecycle costs seen by vehicle owners, of Safa Tempos and REVA cars are higher than the private costs of microbuses and Maruti cars, respectively. Trolley buses, on the other hand, have a lower lifecycle cost than new microbuses. But when compared with old microbuses, they too have a cost disadvantage. Hence, in general, these EVs cannot compete with their ICE counterparts in the market.

Making EVs competitive entails eliminating the private lifecycle cost gap between EVs and ICEVs. Given that EVs are so much more costly than old ICEVs, they cannot be made competitive with old ICEVs through changes in tax and tariff policies alone. If society is to enjoy the net benefits of replacing old ICEVs by EVs, then the government should consider banning the use of old microbuses in specific routes or enact regulations to gradually phase out the use of older ICEVs. In cases where it is desirable to replace new ICEVs by EVs, however, the government can enhance the competitiveness of the latter by manipulating policy variables such as the tax and tariff rates to either reduce the lifecycle cost of EVs or increase the lifecycle cost of ICEVs. The policy variables considered in this study include the average import tax + VAT rate for EVs, the interest rate for EV financing, the electricity tariff rate and a pollution tax on ICEVs.

Reducing the average tax rate or interest rate on EV financing cannot substantially lower the lifecycle costs of Safa Tempos. Allowing these EVs to purchase electricity directly at NEAs time of day (TOD) tariff rates will, however, give them a competitive edge over new microbuses. Similarly, raising the price of diesel to Rs. 49/liter via a pollution tax would also close the lifecycle cost gap in favor of Safa Tempos.

The lifecycle cost of a trolley bus is already less than the lifecycle cost of an equivalent new diesel microbus in spite of the large infrastructure cost needed to run the trolley buses. Hence, trolley buses should be able to compete effectively with microbuses once the Trolley Bus System is revived even if there is no additional government support. Enabling new REVA cars to compete with Marutis, on the other hand, would require the government to take concrete measures to reduce the purchase price of REVAs. For example, if the average import tax + VAT rate for electric cars were reduced from 160.4% to 70%, the lifecycle cost of the REVA would fall below the lifecycle cost of the Maruti 800. Although reducing the interest rate on EV financing could also achieve this result, the required rate reduction is too high to be implementable.

A quick exploration of the competitiveness of locally manufactured Kulayan flat-plate EVbatteries revealed that substantial cuts in the average tax rate (from 29% to around 10%) are necessary to help them compete with imported TROZEN batteries. But Kulayan is currently in the process of switching to tubular lead-acid battery production. And it is not clear whether the new batteries would need any support from the government to gain a competitive edge over imports. Furthermore, before provide support to the battery industry, the government would also have to ask whether the economic benefits from supporting this industry justifies the extra pollution associated with the battery manufacturing process.

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As maximizing social welfare is an overarching goal of the government, it should seriously consider providing additional support to EV in cases whether the social benefits of replacing ICEVs with EVs outweigh the social costs. Based on the benefit-cost analyses performed in this study, the EVs deserving government support include Safa Tempos, trolley buses and REVA cars. Although one approach to supporting EVs is by banning the use of ICEVs along certain routes or gradually phasing out the use of EVs altogether, this study focuses on using tax breaks and other policy measures to give a competitive edge to EVs so that they can replace new ICEVs through the market mechanism. In particular it suggests using a combination of the following policy measures to support EVs: reducing the average import tax + VAT for EVs, reducing the electricity tariff rate, reducing the interest rate for EV financing, and imposing a pollution tax on fossil fuels. In order to minimize the financial burden on the government of EV support measures, it recommends making the pollution tax an essential component of any policy combination. The extra revenue generated from the pollution tax will easily compensate for the losses the government would experience as a result of tax or tariff cuts. The study also strongly recommends that the NEA allow individual EV owners to charge batteries using NEA's TOD tariff rates. This step would significantly reduce the operating cost of EVs without requiring NEA to provide subsidized tariff rates.

Go to the BAQ 2004 website
Country / City
Kathmandu
Topics
Vehicular air pollution > Cleaner vehicles
Authors
Joshi, Dilliraj
Bhatta, Saurav Dev
Kathmandu Electric Vehicle Alliance (KEVA)

Secretariat: The World Bank & Asian Development Bank