Monday, May 27, 2024

Realigning the existing EV policies of Bangladesh in line with the industry’s needs

Originally posted in The Business Standard on 23 December 2022

In recent years, we have seen a significant boost in the importance given to fuel conservation and environmental protection due to global climate change and the energy crisis. Due to this, Research and Development in the alternative energy sector have also gained momentum.

The transportation sector is one of the primary users of fossil fuels in Bangladesh. Given that the unwelcome emissions of greenhouse gases from burning fossil fuels have now reached an alarming level. Bangladesh must invest in and promote sustainable transportation and adopt fuel/gasoline alternative vehicles as the main mode of transportation.

Robert Anderson first invented the concept of electric vehicles (EV) between 1832-1839, which has been further restructured gradually. Unlike internal combustion engine (ICE) cars, which are powered by fossil fuels like gasoline to heat their internal combustion engines, EVs are powered entirely or in part by electricity, for instance, three-wheeler easy bikes in the context of Bangladesh. The most popular vehicle is the hybrid one that uses both gasoline and electricity as a form of propulsion for four-wheeler private transportation.

In order to hasten the adoption of EVs and hybrid cars in Bangladesh, the government developed an automobile policy in 2020. A provision in the proposed policy would reduce import tariffs and indirect taxes like value-added tax and advance income tax, as well as provide tax exemptions to promote local assembly and manufacturing of electric vehicles.

The Automobile Industry Development Policy 2021 of Bangladesh promises policy assistance, such as tax holidays and financial incentives, for local manufacturing of electric cars as well as the expansion of technology and infrastructures for vehicles that need less fuel. However, the policy has to be promptly implemented in order for the industry to profit.

Our neighbouring country India developed the National Electric Mobility Mission Plan (NEMMP) in 2013 to provide a pathway for the country’s rapid adoption of electric automobiles. The NEMMP’s policy tools include supply-side incentives, promotion of R&D in areas like battery technology, power electronics, motors, systems integration, battery management systems, testing infrastructure, and charging infrastructure. Demand-side incentives are also used to encourage the purchase of hybrid and electric vehicles.

Obstacles like high taxes and a shortage of charging stations stand in the way of the nation’s transition to an electricity-driven public transportation system.

Government taxes are the primary tool used to significantly influence the vehicle market in Bangladesh. EVs with a capacity greater than 175kw will be regarded as a car possessing a capacity of more than 3,500cc. Hence, the tax paid if the motor capacity exceeds 175Kw will be Tk200,000.

In addition to high taxes, subsidies for electric vehicle manufacturing are currently unavailable in Bangladesh. Four-wheeled electric vehicles are overpriced for the Bangladesh market due to excessive import taxes and customs.The Indian government appears to have done all possible to persuade individuals to switch to electric cars that are better for the environment. With effect from the Assessment Year 2020–2021, a new section, 80EEB, has been added that permits a deduction for interest paid on loans obtained for the purchase of electric cars. If an electric vehicle is purchased with the help of an auto loan, the buyer may be entitled to yearly deductions of up to Rs 1.5 lakh from the interest paid on the loan throughout the fiscal year.

This provision applies to both 2-wheelers and 4-wheelers. Nothing of the type is relevant when buying a traditional ICE (internal combustion engine) car, making the entire EV purchasing process an even more profitable bargain. The government had previously reduced the goods and services tax (GST) portion on electric cars to 5%.

Under the Faster Adoption and Manufacturing of Electric Vehicles -II (FAME-II) scheme, four-wheel EVs can receive up to Rs 1.5 lakh in subsidies, compared to up to 40% of the purchase price for two-wheelers. These sorts of initiatives are still unavailable in Bangladesh.

The underdeveloped infrastructure of Bangladesh acts as a significant barrier to the country’s adoption of electric vehicles. With a combined capacity of 282 kW, there are currently just 14 solar-powered EV charging stations. Because these stations run on solar power and need a longer charging time, they are not practical for high-load commercial operations.

To encourage the use of EVs, Bangladesh should have a large number of charging stations. The Indian government realises that rolling out the infrastructure for EV charging is a crucial step in accomplishing an ambitious transformation. In India, more than 1,640 public EV charging stations are already accessible to everyone. Most of Bangladesh’s charging stations are privately owned and therefore cost a high fee to charge EVs.

The adoption of EVs is influenced by two critical factors: cost and charging time. To fully charge an electric auto rickshaw or simple bike in Bangladesh, 120 to 150 BDT is needed daily.

Additionally, there are several EV charging tariffs, which are rising yearly.

Furthermore, this charging demands 6 to 8 hours every day. Accessible and reliable charging infrastructure is a requirement to promote the use of greener and more affordable EVs in Bangladesh. Infrastructure impedes Bangladesh’s efforts to draw EV producers to the nation. To encourage manufacturers to invest in Bangladesh, a substantial local EV market must be there.

Bangladesh is focused on three-wheeler EVs primarily operating in suburban and rural areas. At the same time, we believe the target should be diverted towards two-wheeler bikes and four-wheeler automobiles due to the emergence of the gig economy in metropolitan cities. The balance between the demand and supply side should incorporate this for a better, economically efficient and environmentally safe outcome.

We believe that the mass usage of EVs depends on several economic clauses that need to be revised from a macro perspective. The recent upsurge in the price of fuel has also positively mobilised consumers to move towards EVs. This demand-side change needs to be acknowledged like India and should propel the policies inspired by India.

Moumita A Mallick is a Research Intern, CPD (Power and Energy Study).

MD Shiyan Sadik is Research Associate, CPD (Power and Energy Study).