They are no longer allowed with cars older than 15 years! A mandatory test is introduced from June 1, 2024

In India, dozens of states have adopted incentive programs to encourage scrapping of old vehicles. These programs prohibit diesel and gasoline vehicles older than 10 or 15 years, depending on the region. Currently, 21 states in India offer incentives to encourage owners to ditch their old cars, with mandatory testing being introduced from June 1, 2024.

A mandatory test is introduced from June 1, 2024

The aim of these programs is to accelerate the adoption of electric vehicles and reduce carbon emissions, with a focus on relevant sectors. For example, the state governments of Uttar Pradesh and West Bengal have aimed to achieve a “100% electric vehicle rate” for all public transport vehicles by 2030. In this regard, steps are being taken to promote the use of electric vehicles and in other fields.

Around the world, countries have set ambitious goals to reduce carbon emissions to zero. The European Union recently introduced a carbon tax on energy-intensive imported goods using the Carbon Border Adjustment Mechanism (CBAM) in an effort to achieve these goals.

The Carbon Border Adjustment Mechanism (CBAM) is a unique non-tariff measure (NTM) that can be quantified similarly to traditional tariffs. Other countries are expected to soon follow suit. In the context of international trade, there are usually two possible equilibria: either no nation applies trade measures, or every nation adopts them.

One of the sectors poised for a significant impact is the Indian steel industry. Currently, this sector is the largest consumer of energy in the manufacturing sector in India. Carbon dioxide (CO2) emissions from steel production in India range between 2.5 and 2.85 tonnes per tonne of crude steel, in contrast to the global average carbon intensity of 1.4 tonnes per tonne of steel, according to the Agency International Energy Agency (IEA).

One possible approach is to use green hydrogen instead of coke or coking coal in blast furnaces (BF). However, the production cost of green hydrogen in India is around $4 to $5 per kilogram, significantly higher than the cost of coke or coking coal, which is between $0.1 and $0.2 per kilogram. Another potential solution is the implementation of carbon capture, use and storage (CCUS) technology. However, there are numerous challenges associated with widespread adoption of this technology. In addition, the increase in domestic steel scrap production could be achieved by increasing the production of scrap from vehicles.

The new scrapping policy will increase competitiveness in the market

Successful implementation of the new Vehicle Scrapping Policy (VSP), 2022 has the potential to significantly increase the availability of scrap steel in India. This could lead to a reduction in steel scrap prices, which would improve market competitiveness and boost the domestic steel industry. Earlier, the definition of end-of-life vehicles (ELVs) in India remained unclear and open to interpretation, leading to a lack of regulatory guidelines in the industry.

From 1 April 2024, mandatory tests for commercial vehicles are proposed to be conducted exclusively through Automated Test Stations (ATS), while passenger vehicles are scheduled to have mandatory tests at ATS from 1 June 2024. According to the new policy, commercial vehicles will undergo annual tests after 8 years of initial registration, while passenger vehicles must renew their tests after 15 years of their registration, valid for a period of 5 years. Any vehicle that fails the test will be designated as an “end-of-life vehicle” (ELV).

According to a report by the Center for Science and Environment (CSE), about 2.25 million vehicles, including two-wheelers and commercial vehicles, are expected to become obsolete by the year 2025. This will generate a significant amount of 9 million tonnes of steel, approximating annual steel scrap imports in 2022, contributing to substantial import substitution. The number of end-of-life vehicles is expected to continue to increase in the future, strengthening the availability of scrap steel in India. Thus, after the mandatory test is introduced from June 1, 2024, all cars that fail the test will be designated as an end-of-life vehicle.