GS Paper III

News Excerpt:

NITI Aayog and the Embassy of the Kingdom of the Netherlands released a report titled ‘LNG as a Transportation Fuel in Medium and Heavy Commercial Vehicle’ at India Energy Week.

Objective of the report:

• The objective of this bilateral engagement is to promote effective, timely and coordinated policy development in areas of mutual interest, such as energy access, sustainability, ease of doing business, and improved energy infrastructure to enable an orderly transition.

Key highlights of the report:

• It focuses on leveraging LNG as a fuel source and customizing its use in the medium and commercial vehicle segment. 
• It examines the coordination issues faced by the various stakeholders and highlights the lessons that can be learnt from other countries in addressing these challenges.
• The report highlights strategies which will help in achieving a 15% gas share in primary energy supply and also the goal of Net Zero by 2070.
• This joint report highlights both nations’ commitment to transform their energy sector for sustainable development and a way forward to becoming climate-resilient economies.
• The report explores different challenges and barriers to LNG adoption in India and recommends a roadmap of actionable solutions. 
• The report further highlights the need for the development of a transparent implementation framework for these recommendations, driven by near-term goals of demand creation and market seeding.

Need of LNG as a transportation fuel in medium and heavy commercial vehicles:

• Indian cities need to act on reducing local air pollution, which is a big concern in many Indian cities today. 
• The levels of air pollutants in many cities, including particulate matter (PM), sulphur dioxide, nitrogen oxides, carbon monoxides and ozone today exceed the National Ambient Air Quality Standards (NAAQS) by a large margin. 
• According to the World Air Quality Report, 2021, several cities in India rank among the top 30 cities with the highest air pollution levels. 
• Transportation has been identified as a major contributor to PM2.5 emissions in cities like Delhi, accounting for almost 40% of the total emissions. 
• Studies have shown that the heavy-duty vehicle (HDV) segment is the most significant contributor to air pollution and the largest consumer of fossil fuels.
• lndia's rapidly expanding trucking market, which is expected to more than quadruple, from 4 million trucks in 2022 to roughly 17 million trucks by 2050, offers immense scope for lowering emissions. 
• The growing use of compressed natural gas (CNG) in urban transportation has helped in combating high levels of pollution in the last 10 years, based on the conversion of cars, buses, and auto rickshaws to CNG. 
• Converting heavy-duty vehicles (HDVs) to CNG is challenging, not the least due to the heavy payloads involved and the requirements of long travel time without having to stop for frequent refuelling. In this context, LNG can work as an alternative fuel for diesel for HDVs in India.

Challenges in adopting LNG:

• Availability of LNG vehicles: Availability of LNG vehicles is a crucial factor in adopting LNG as a transportation fuel. To bridge the gap between infrastructure development and vehicle scarcity, State Transport Undertakings (STUs) can play a significant role in ensuring the initial demand for alternative fuel vehicles, including LNG.   
• High Initial Cost: The high initial cost of LNG-based vehicles compared to traditional diesel trucks is a significant challenge for the adoption of LNG in the HDV segment. 
• Availability of LNG retail outlets: Establishing LNG refuelling infrastructure is crucial for successfully adopting LNG as a transportation fuel. 
• Retro-fitment of LNG trucks: There is limited interest in financing retro-fitment kits, as it can lead to multiple hypotheses of the truck and, thus, create legal issues. In addition, most HDVs stop playing on long-distance routes and go to the secondary market once they are over six years old. Thus, conversion/retro-fitment of trucks does not seem to be a long-term solution for this project.  
• Financing of LNG trucks and risks: The discussions with financing companies have revealed different risk perceptions regarding financing LNG-based HDVs.

Benefits of LNG HDV adoption:

• Environmental: LNG has a 24 per cent lower Emission Factor (gCO2/kg-fuel) than diesel.
• Economic: An import bill reduction of  $1.5 billion (nominal) can be achieved by the year 2032, even at a 10 percent penetration of LNG.
• Energy trilemma: LNG helps in dealing with the ‘energy trilemma’, which refers to finding a balance between three key requirements in energy choices: (i) Affordable energy, (ii) Secured energy supply, (iii) Reducing carbon emissions to net zero.
• Improved Air Quality: Natural gas is the cleanest-burning fossil fuel. Therefore, vehicles running on LNG produce lower toxic emissions and air pollution levels than equivalent diesel engines. 
• Nitrogen Oxide (NOx) emissions are reduced by 40-50%, and Particulate Matter (PM) emissions are reduced by approx 80%.
• Reduced Noise Pollution: Vehicles running on LNG are far less noisy than conventional diesel engines. The LNG reduces vehicle knock.
• Fewer CO2 Emissions: Depending on the type of engine, heavy-duty vehicles running on LNG produce up to 20-25% fewer greenhouse gas emissions than diesel-powered vehicles.

Way Forward:

• Road toll-fee exemption for LNG HDV: Fiscal incentive in the form of toll-fee exemption to LNG HDV will reduce the total cost of ownership and could incentivize adoption. The review of policies in China and Europe revealed that subsidies and reductions in taxes were the key enablers offered by the government to promote the adoption of LNG in HDVs. 
• Reduction of VAT on LNG sale to HDV and natural gas to be under GST - A reduction of VAT to 5 per cent on the sale of LNG to HDV will help in LNG price harmonisation across states and further bring down the LNG HDV operating costs. In addition, natural gas should come under GST to ensure the availability of input tax credits.  
• Demand aggregation model for LNG HDV adoption – Currently, the unavailability of LNG HDV models in the market is due to a lack of clear demand signals to the vehicle manufacturers. 
• Demand aggregation would help optimise the cost of LNG HDV and further improve its adoption. 
• Non-fiscal incentives for demand creation: A procurement policy could be formulated to adopt LNG HDVs in PSUs for transportation service contracts. 
• Non-fiscal incentives play a key role in signalling the government’s push for adopting a certain alternative fuel. 
• Such incentives for LNG could lead to the private sector getting involved in the market development for the alternative fuel.
• Regulatory interventions – Regulations for mobile refuelling of LNG HDV are to be approved to alleviate fuel availability concerns, which have been raised by fleet operators.  
• Signaling and outreach – A “Natural Gas Mobility Dashboard” must be created with information on LNG refuelling stations, locations, and retail prices for fleet operators to plan and deploy LNG HDVs accordingly.

Conclusion:

The Government of India has played a proactive role in the global conversation on sustainability and the energy transition. The forward-looking 'Panchamrit' commitments and the updated Nationally Determined Contributions (NDCs) underscore the fact that India is a critical part of the global solution. In this sense, LNG can be a clean fuel alternative to diesel for HDVs in India.