Corrects to demand growth in paragraph 2
The Indian electric vehicle (EV) sector will contribute significantly to the country's plans for decarbonisation towards 2030, the Paris-based IEA said, emphasising it will eventually affect gasoline demand.
New EVs and energy efficiency improvements under India's energy transition plans will cut India's oil demand growth by 480,000 b/d during 2023-30, the IEA said in its Indian Oil Market — Outlook to 2030 report earlier this month. India's oil demand would have increased to 1.68mn b/d by 2030 without these steps, rather than the 1.2mn b/d growth that the IEA is forecasting, the report said.
The rise in EV use, energy efficiency improvements, as well as growth of biofuels will first affect oil demand in the transportation sector before its impacts are felt in other sectors, it added.
India will become the largest source of global oil demand growth between now and 2030 because of industrial growth, according to the IEA. But Indian gasoline demand will grow by only 0.7pc during this period, contrary to a rise of 40pc in India's car fleet because of increased consumption of EVs and biofuels.
Electrification of India's vehicle fleet will reduce oil product demand by 200,000 b/d by 2030, the report said, despite a rise in diesel consumption. This means electrification will weigh heavily on gasoline demand in the period up to 2030.
Around 6pc of new vehicles in India were EVs in 2023, a proportion far too low to affect gasoline demand. But this is likely to change in the coming years, as around half of the new two-and three-wheelers and an eighth of new passenger cars entering the Indian market by 2030 will be electric, the IEA said.
This compares favourably with the government's aim to electrify 30pc of new vehicles by 2030. Increasing cost competitiveness of EVs will push their total cost of ownership below that of internal combustion engine (ICE) vehicles, increasing consumption.
The lack of an announcement of the third phase of subsidies under India's Faster Adoption and Manufacturing of Electric Vehicles scheme will not immediately impact the EV sector, market participants told Argus.
The government has set the April 2024-March 2025 budget outlay for EVs at 26.71bn rupees ($320mn), nearly halving from over Rs48bn in the previous fiscal year. But this will not affect the market in the long term, with the government focusing on providing the subsidy directly to the consumer in the future, an official at a car manufacturer told Argus.
Several Indian states such as Tamil Nadu, Goa and Uttar Pradesh have provided additional incentives for EV manufacturers, which will weigh on gasoline demand in coming years.
But subsidies and incentives will not last forever, market participants predict. "When the customer becomes used to this [EV] market, they will bring this [the policy] back to what it is for ICE vehicles," the official told Argus, emphasising that subsidies will be withdrawn at some point in the future when the EV market is more mature.
Biofuels to trim product demand
A surge in the use of biofuels will also contribute to decarbonisation of the Indian transport sector, the IEA said.
Indian ethanol supplies are likely to rise to 200,000 b/d by 2030 from 90,000 b/d currently, while biodiesel supplies will rise to around 90,000 b/d by 2030, the IEA said. India, which is currently the third-largest global producer of ethanol, can treble its production and consumption by 2030, the report said.
The country targets 20pc ethanol blending in gasoline by 2025 and net zero emissions by 2070. The country has achieved 12pc ethanol blending in gasoline in 2023 and cut carbon emissions by around 42mn t so far, Indian prime minister Narendra Modi said at the India Energy Week earlier this month.
