Low, middle-income countries, turning dumping grounds for clunkers

EVERY year, out of the staggering global vehicle stock of two billion, more than 40 million vehicles approach end-of-life, become old and decrepit. But instead of being scrapped within domestic markets, a large number of these are sold in low and middle-income countries that do not have the capacity to manage their polluting emissions.

In a new global study titled ‘Clunkered: Combating Dumping of Used Vehicles — A roadmap for Africa and South Asia’, New Delhi (India)-based think tank, Centre for Science and Environment (CSE), has lifted the lid on the dark underbelly of a large-scale global trade in old and used vehicles from high income to low and middle-income countries of Africa and South Asia. The trade, says CSE, is causing massive environmental dumping and toxic pollution.

Cheaper price, weak environmental regulations in poorer economies, the lure of a rich variety of vehicle models and stronger emissions regulations in high income exporting countries are inciting this unregulated global trade in clunkers (as these old vehicles are called). In high income exporting countries it is more lucrative and cost-effective to export used vehicles than scrap them,” says Anumita Roychowdhury, executive director, Research and Advocacy, CSE.

If this continues unchecked, without the exporting countries sharing the responsibility of addressing this problem, the poorer countries will not be able to meet their clean air and climate mitigation goals,” she adds.

CSE researchers point out that the ‘State of Global Air, 2018’ report has shown that North Africa has the highest concentration of population-weighted annual average particulate matter: Nigeria is in the lead. Many cities in Africa are violating the World Health Organization (WHO) air quality guidelines by several times. South Asian cities are no better – they have some of the worst air pollution episodes. The burden of diseases triggered by air pollution like lung diseases, cancers, respiratory diseases, heart ailments and strokes are increasing rapidly. Vehicles are responsible for this exposure to toxic pollution. Says Roychowdhury, “The global community which has, time and again, expressed its deep concern about the deteriorating air quality in the southern world, cannot look away from this problem of dumping anymore.”

Key findings of CSE’s global assessment

Africa is motorising on used vehicle import

Nearly the entire motorisation in Africa is taking place based on imported vehicles. Data on international trade in new and old vehicles shows that Africa imports vehicles from nearly 17 countries, with Japan, Germany, the US and South Korea dominating the trade. While most cars come from these countries, two-wheelers are predominantly from India and China. Cars and commercial vehicles have a higher share of the used vehicle imports. According to the Deloitte Africa Automotive Report, 2016, about 85 per cent of the vehicles in Ethiopia, 80 per cent in Kenya and 90 per cent in Nigeria are second-hand. While the vehicle ownership rate in Africa is lower than the world average, the growth rate has increased.

Countries with lower per capita GDP have a higher average age of vehicles

Poorer the country, higher is the average age of vehicles due to the predominance of old vehicles on their roads. The average age of light-duty vehicles in the high income and high per capita gross domestic product (GDP) countries like the UK, Japan, Germany, and France, is less than eight years. But in countries of Africa and South Asia, with lower per capita GDP, the average age is 12-17 years or more. This is due to the high import dependence on old and used vehicles.

Weak environmental regulations in importing countries encourage dumping

Emissions regulations for vehicles and fuel quality in most vehicle-importing countries are very weak. Even though South and East African countries have adopted 50 ppm sulphur fuels, they have not yet opted for commensurate Euro-IV emissions standards for vehicles due to consumer pressure for cheaper used vehicles. The rest of Africa uses very high sulphur diesel (in the range of 1,000-10,000 ppm): this does not allow the use of advanced emissions control systems.

Stronger emissions regulations in high-income countries speedup replacement, creating a redundant, used fleet for dumping

To combat pollution and climate change, high-income countries have adopted expensive vehicle inspection, scrappage and end-of-life regulations, phase-out plans for diesel cars, and low emissions zone programmes to discourage old and polluting vehicles in cities. This has created a large pool of used vehicles in these countries, which are conveniently imported to poorer markets. Even though all used vehicles from high-income countries are not old and still have some economic life remaining in them, there is no global mechanism for screening to ascertain the minimum useful economic life of vehicles that can be allowed to be traded.

What is needed for a future roadmap

Vehicle-importing countries, finds the CSE study, are enforcing age restrictions, higher taxes on imports of older vehicles, and linking import incentives with emissions levels and engine sizes. Egypt, Morocco, South Africa and Sudan in Africa, and Bhutan and Nepal in South Asia have completely banned the import of used vehicles. But there are lessons from these initiatives that must shape the future roadmap, says Roychowdhury.

Must combine tighter age restrictions with fiscal measures, improved fuel quality and emissions standards to discourage dumping: Given the affordability levels, an outright ban on used vehicle import may not be immediately possible in many importing countries. Putting an age restriction along with higher taxes on older vehicles is needed to eliminate the dirty stream. Currently, age caps vary between 15 to three years. In Kenya, a combination of age restriction of eight years and incremental tax has increased the prices of imported vehicles and reduced the demand. But the age cap needs to be more stringent – not more than four-five years. If simultaneously, Euro-IV emissions standards (at the least) for vehicles are adopted across countries, they can take advantage of the improved technologies from exporting countries.

Fiscal measures need to be more effective and used with age cap: Though several countries have increased taxes on older vehicles, these are seen more as a revenue source than a deterrent for imports. Despite higher taxes, the cost of old and used vehicles remains comparatively cheap and lucrative. For instance, in Uganda, an environment levy favours import of less than five-year-old vehicles; taxes are higher on older vehicles. But this has not discouraged old and used vehicle imports. In South Asia, Sri Lanka has used import taxes more effectively discourage diesel cars and move the market towards cleaner options like gasoline and hybrids.

Importing countries have little capability to take steps like emissions-based taxation in the absence of harmonised global emissions regulations and authentic emissions records of vehicles: Mauritius had taken the lead to levy a CO2 emissions-based rebate system for vehicle imports and fixed the age for import at four years. But the move could not be sustained as there was a technical difficulty in comparing international CO2 emissions standards. In fact, the scheme ended up encouraging more used vehicle imports over new vehicles (even though the new vehicles got a higher tax rebate), as old vehicles came with certificates making dubious claims of low CO2 emissions that could not be verified! The scheme had to be replaced with more transparent engine size-based taxes in 2017– bigger engines attract higher taxes to reduce oil consumption and CO2 emissions.

Importing countries planning their own vehicle manufacturing and assembly industry are adopting tighter import measures: Nigeria has developed its own industrial policy to build vehicle manufacturing and assembly industry to improve energy security. It has raised import duties on vehicles substantially and is giving tax incentives to fully and semi-knocked down kits for vehicle assembly. As a result, over the last three years, car imports have reduced: the drop has been especially significant between 2015 and 2016. Nigeria has also banned two-stroke engines and is in the process of notifying 50 ppm sulphur fuel. Ethiopia is also framing its import policy and establishing its own assembly and manufacturing. In South Asia India, which is a vehicle producing country,, does not allow import of used vehicles or any vehicle that does not meet its emissions standards.

Some countries are establishing explicit sustainability principles for vehicle import: Ethiopia’s import policy prioritises public transport vehicles over personal transport– therefore, taxes on cars are higher. Several countries have increased taxes on bigger engine capacity to discourage fuel-guzzling engines and reduce CO2 emissions. Côte d’Ivoire has introduced a contributory fee for road safety and pollution and congestion.

Plug loopholes to stop the grey market: Most countries have porous borders leading to a grey market that undercuts efforts to control used vehicle imports. Often, rules related to transit vehicles become the loopholes that this grey market uses. For instance, Ghana is facing the problem of a grey market due to the special provision of the Economic Community of East African States (ECOWAS), which allows imported used vehicles to operate for 90 days after which they are either returned to the country of origin or have to pay a customs duty to stay on.

Vehicle market of South Asia more geographically confined, which is helping the region to take quicker action: The vehicle trade in South Asia is largely dominated by India and Japan. Quicker upward harmonisation of emissions regulations is possible in this region with vehicle-producing countries advancing their standards. Also, more strident steps are being taken by importing countries. Bhutan and Nepal have banned the import of used vehicles and have imposed taxes according to the engine size; Nepal has adopted Euro-III emissions standards. Bangladesh has restricted age to five years and has adopted Euro-II emissions standards. Pakistan has gone for an age cap of three to five years. Sri Lanka has used stratified import taxes and an age cap of five years to successfully discourage old and polluting vehicles and diesel vehicles; it has also promoted hybrids, electric and gasoline vehicles, and banned two-stroke engines.

The risk of being dieselised: The WHO has branded diesel emissions as class one carcinogen for their strong links with lung cancer. As European countries phase out diesel cars, there are serious fears about their dumping in Africa which neither has clean diesel nor the capacity to monitor emissions from vehicles. Nigeria has been able to stop dieselisation because of its good practice of pricing diesel fuel higher than gasoline. Mauritius has also succeeded as its fuel price gap is very narrow and the tax on bigger engines is high — but other countries are vulnerable.

Need harmonised emissions regulations and in-use emissions management and compliance: Full benefits of newer vehicles from high-income countries are possible only if improved emissions standards and fuel quality are adopted across Africa and South Asia. Three to five-year-old vehicles from advanced markets can be much cleaner, but their emissions control systems are stripped off as they cannot work with high sulphur fuels in the importing regions. Countries like Uganda, Mauritius etc have introduced pre-export verification of conformity, standards for safety and performance characteristics of vehicles and inspection testing and roadworthiness. This strategy will have to be strengthened.

Vehicle exporting countries must share responsibility: High-income vehicle exporting countries do not have a full-proof formal mechanism to screen and filter vehicles that have nearly exhausted useful economic life, or vehicles that are damaged in accidents or have been recalled for manufacturing defects. They need to ensure that their end-of-life and recycling policies effectively destroy all clunkers within the domestic market. This will also require multilateral and bilateral policies for oversight, guidance, and monitoring of the global supply chain to establish accountability and responsibility of the exporting countries and companies.

Enable scrappage and end-of-life regulations in importing countries: As a substantial part of the life of vehicles produced and used in high-income countries is spent later in poorer countries, contributing to the emissions load, a global mechanism is needed to reinvent the concept of ‘Extended Producer Responsibility’. This concept requires manufacturers to take responsibility for take-back, recycling and final disposal of their vehicles within the domestic economy, for the global supply chain. Vehicles in developing countries will require infrastructure for the final burial and recycling of material. Trade forums like the World Trade Organisation, regional trade blocks, multilateral forums like the UNFCCC, and country blocks for international cooperation including G8, G20, BASIC etc need to develop a common framework for disposal of used vehicles.

THE AGENDA FOR ACTION

  • Urgent action needed in vehicle-importing countries
  • Harmonise stringent age caps, minimum Euro-IV emissions and fuel standards, effective import tax measures, and emission-based import criteria across all vehicle importing regions.
  • Implement effective vehicle inspection, road-worthiness and safety tests for vehicles.
  • Implement end-of-life regulations and infrastructure for scrappage.
  • Put in place transparent consumer information systems on imported vehicles to help consumers choose safe and low-emitting vehicles.
  • Leverage import policy to zero emissions, promote electric mobility and leapfrog.
  • Build public and consumer awareness about highly toxic and health-damaging emissions from old and polluting vehicles — cheap cars come at very high health costs.
  • Even developing countries that produce vehicles (like India) and use them more intensely and longer, need to adopt end-of-life regulations to scrap and recover precious material. In India, about 20 million vehicles have accumulated by 2015 that require scrapping.
  • Urgent action needed in vehicle-exporting countries
  • Enforce stringent measures to stop end-of-life, unsafe, damaged, and recalled vehicles from entering the market – the world needs a well-governed circular economy around vehicles to stop the environmental dumping of what is technically a ‘hazardous waste’.
  • Stop diesel cars that are being phased out in Europe from entering markets of Africa and Asia.
  • Reinvent ‘Extended Producer Responsibility’ for the global supply chain so that producers, dealers, and recyclers are made responsible for final disposal and recycling.
  • Establish a multilateral framework for shared responsibilities and monitoring of used vehicle trade to stop the environmental dumping of clunkers in low and middle-income countries.

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