India’s automotive industry is a global powerhouse, standing as the third-largest automobile market and playing a critical role in the nation’s economic and technological progress. In FY 2023-24, the industry produced 28.43 million vehicles across diverse segments, including passenger cars, commercial vehicles, two-wheelers, three-wheelers, and quadricycles. On the global stage, India is the largest tractor manufacturer, second-largest bus manufacturer, and third-largest heavy truck manufacturer, reflecting its leadership in heavy vehicle production.

Despite its achievements, the industry faces challenges due to its significant carbon footprint, with India ranking as the third-largest global emitter of greenhouse gases. However, the sector is moving towards sustainability by adopting green technologies and transitioning to a low-carbon economy. With a focus on electric mobility and innovation, India’s automotive industry is evolving to drive economic growth while setting global standards for a sustainable future. The electric vehicle (EV) segment is emerging as a transformative force, with an anticipated compound annual growth rate (CAGR) of 49% between 2022 and 2030.

Climate Change and Automobile Sector

The impact of climate-related risks and opportunities on the automotive industry is complex and rarely direct. The sector faces challenges in identifying material issues due to emissions from both manufacturing processes and vehicle use. A robust climate risk assessment is crucial for understanding the likelihood and magnitude of these impacts on the environment and business performance. India, ranked among the top 10 most climate-vulnerable nations by the Global Climate Risk Index 2021, is witnessing a significant transition in its automotive industry. The introduction of stringent emission norms, such as BS VI CAFE 2.0, demands technological advancements and compliance efforts from manufacturers. Globally, the total risk from climate change for the automotive sector is projected to be approximately USD 400 billion.

Conventional Automobile Production Routes and Their Contribution to Pollutants

The conventional automobile production process has significant environmental impacts at every stage. Raw material extraction involves mining and processing, leading to high CO2 and greenhouse gas emissions. The manufacturing phase consumes large amounts of energy, generates waste, and further increases the carbon footprint through processes like metal stamping and painting. During distribution, transporting vehicles from factories to dealerships adds emissions from logistics. At the end of their lifecycle, improper vehicle disposal can cause pollution, while recycling may also produce emissions if not managed sustainably. Each stage presents environmental challenges that must be addressed to achieve a more sustainable future.

Emission Sources:

Emissions in the automotive sector primarily stem from:

• Tailpipe emissions: Direct emissions from vehicles powered by fossil fuels.
• Manufacturing processes: Emissions generated during vehicle production, including energy-intensive processes.
• Supply chain activities: Emissions associated with raw material extraction and component manufacturing.

Key Pollutants

• Carbon Dioxide (CO2): The primary greenhouse gas emitted from vehicles, significantly contributing to climate change.
• Nitrogen Oxides (NOx): Contribute to smog formation and respiratory problems in humans.
• Particulate Matter (PM): Includes PM2.5 and PM10, primarily from non-exhaust sources such as tire wear and road abrasion, as well as from combustion processes.

Regulations Around the Automobile Industry

The Ministry of Road Transport and Highways (MoRTH) is the primary authority responsible for regulating emission protocols in India’s automobile industry. It establishes vehicle emission standards and ensures nationwide compliance. Empowered by the Motor Vehicles Act, 1988, MoRTH formulates rules under the Act and the Central Motor Vehicles Rules, 1989, while the implementation of these rules is managed by State and Union Territory authorities. The MoRTH also oversees vehicle type approval and conformity of production testing through various designated agencies like the Automotive Research Association of India (ARAI) and the International Centre for Automotive Technology (ICAT). Conformity of Production (CoP) procedure,  as outlined in Automotive Industry Standards (AIS)-149, ensures that commercial vehicles in categories M2, M3, N2, and N3, with a gross vehicle weight (GVW) or gross combination weight (GCW) over 3.5 tonnes, meet the Constant Speed Fuel Consumption (CSFC) norms. These include various buses and trucks used for transporting passengers or goods. The guidelines explain the steps to carry out CoP tests and must be followed along with notifications from the Ministry of Power, Ministry of Petroleum and Natural Gas, and MoRTH to confirm compliance with fuel consumption standards.

The Bharat Stage Emission Standards (BSES), set by the Central Pollution Control Board (CPCB) under the Ministry of Environment, Forest and Climate Change (MoEFCC) regulate vehicle emissions by mandating cleaner fuel and advanced technologies to control pollution. The BS-VI emission norms, implemented on April 1, 2020, aim to significantly reduce vehicular pollution by mandating stricter limits on harmful emissions like particulate matter (PM) and nitrogen oxides (NOx). BS-VI fuel has a much lower sulfur content (10 ppm vs. 50 ppm in BS-IV), resulting in cleaner emissions. Now, the implementation of stringent BS-VI emission norms in 2020, has shifted the industry towards cleaner technologies. The BS-VI 2.0 standards introduced in 2023 demand real-world compliance, advanced diagnostics, and reduced pollutant emissions. While these regulations promote sustainability, they also impose higher compliance costs, particularly for diesel engines, prompting some manufacturers to innovate or phase out diesel-powered models in favor of petrol, CNG, and electric options.

Indian Automobile Sector

Historically, railways and two-wheelers have dominated passenger demand in India, but this trend is expected to shift in the future. Rising income levels and the increasing desire for personal mobility are projected to drive significant growth in the four-wheeler segment. Studies suggest that the share of four-wheelers in motorized passenger services could grow fivefold, driven by personal vehicle ownership and on-demand mobility services. This growth is likely to reduce the reliance on other modes of transport, such as two-wheelers and public transport, including railways and buses. As a result, public transport usage is expected to decline, which will have implications for energy consumption, emissions, congestion, and infrastructure development in India.

The passenger vehicle segment is also undergoing disruption due to the rising adoption of electric vehicles (EVs). However, the high upfront cost of EVs has slowed their momentum, posing a challenge to widespread adoption. To assess the efficiency and decarbonization of the automotive industry in India, several key metrics can be used:

• The ratio of Scope 3 (Indirect supply chain emissions) to Scope 1 (Direct company emissions) and Scope 2 (Indirect electricity emissions).
• The ratio of electric penetration in the transport sector to total fuel consumption.
• The share of public transport in relation to rising GDP per capita.

Decarbonization Efforts in the Automobile Industry

The automotive industry is adopting strategies like carbon pricing and science-based targets to reduce emissions and transition to a low-carbon economy.

Carbon Pricing:

Carbon pricing is a market-based approach to reduce greenhouse gas emissions by assigning a cost to carbon dioxide (CO2) emissions. It creates economic incentives for polluters to either reduce emissions by adopting sustainable practices or pay for the emissions they produce. There are two types of carbon pricing: external, imposed by governments or markets, and internal, set by companies for their operations.

• External Carbon Pricing: Includes Emissions Trading Schemes (ETS), which cap emissions and allow trading of allowances, and carbon taxes, such as India’s excise duty on fossil fuels.
• Internal Carbon Pricing (ICP): Companies set a voluntary cost for CO2 emissions to guide sustainable decision-making. By 2025, nearly 250 global automotive companies are expected to adopt ICP.

Science-Based Targets (SBTi):

The Science-Based Targets Initiative (SBTi) is a global organization that helps businesses set science-based targets for reducing emissions while transitioning to a low-carbon economy. The initiative is a collaboration between the Carbon Disclosure Project (CDP-Non Profit Organisation), the United Nations Global Compact (UNGC), the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF) and is part of the “We mean business coalition” commitments.

• The SBTi helps companies set emissions reduction goals aligned with climate science, aiming for net zero by 2050.
• Globally, 480 companies, including 22 from India, are part of this initiative, with significant growth potential for Indian participation.

These approaches drive sustainability while offering a competitive edge in the transition to a low-carbon future.

Sustainability Challenges in Automotive

The automotive industry faces challenges in integrating sustainability into its business goals, including unclear strategies, difficulty measuring progress, multiple reporting standards, and a shortage of skilled talent.

• Linking Sustainability to Business Value: Many companies fail to see sustainability as a business driver, despite its potential for growth, cost savings, and enhanced stakeholder relations.
• Lack of Clear Strategy: The dynamic nature of sustainability leaves companies without clear roadmaps, particularly for decarbonization efforts.
• Measurement and Reporting Issues: Multiple reporting standards create confusion, but emerging regulations promise more transparency and standardized frameworks.
• Talent Shortage: Companies struggle to find skilled professionals for sustainability initiatives, though academic-industry collaborations aim to fill this gap.

Conclusion

As we enter 2025, the automotive industry faces significant challenges and promising opportunities in its pursuit of decarbonization. Regulatory risks, including carbon taxation, emission pricing mechanisms, and new environmental mandates, are driving changes in the industry. These changes necessitate investments in research, development, and operational adaptation. However, they also present opportunities, such as the shift toward electric and hybrid vehicles, energy-efficient manufacturing, and sustainable practices. The Indian automotive industry must balance compliance with emerging norms while leveraging government support for renewable energy and decarbonization initiatives. This dual approach can help mitigate risks and unlock opportunities, ensuring a resilient and sustainable future for the industry.