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12 Apr 2019


Euro 5 diesel presents an option to boost efficiency for logistic businesses (Current Issue No.2980)

        In February 2019, the Energy Ministry announced measures to tackle PM 2.5 dust by upgrading the diesel standard to Euro 5, which limits the emission of sulfur compounds to under 10 parts per million (PPM) from 50 PPM under Euro 4. KResearch views that if business operators switch to premium grade diesel (Euro 5 standard) from ordinary diesel (Euro 4 standard) under the current oil subsidy schemes, it will boost transportation efficiency. The petrol and maintenance costs (including expenses associated with vehicle modification and opportunity cost from having vehicles fixed) will be lower.  This cost calculation is based on the present retail price of premium grade diesel at THB30.89 per liter (April 12, 2019).

        The estimates show that if the vehicles are modified between the 5th and 8th year, it will make the present value of oil and maintenance costs (including the cost of vehicle modification) lower than the costs incurred from using the trucks with Euro 4 standard without modification. However, if the government wants to encourage business operators to speed up the modification of their vehicles, the government may have to add incentives such as providing compensation for the expense incurred from the installation of the Diesel Particulate Filter (DPF), worth around THB15,000 each, to make owners think it is worthwhile to modify their vehicles in the 4th year of lifespan. The government may specify that the target group consisting of owners of trucks with the average lifespan between 4-6 years will receive the compensation for expenses associated with engine modification. The budget for this purpose is calculated at THB1,859 million. However, if the government wants to encourage business operators to modify both new and old cars, the government may have to further subsidize the Euro 5 premium diesel price to make it cheaper than the current rate by THB0.50 per liter.  This will require an additional subsidy to the tune of THB12,800/vehicle/year, translating into an annual budget totaling Bt3,291 million. KResearch views that in spite of the additional budgetary burden incurred from the aforesaid subsidy and compensation, the measures will help reduce air pollution, which has become a social cost affecting health and quality of life, by encouraging truck owners to modify their vehicles to become more environmentally-friendly and adopt the Euro 5 standards. Whatever transpires, the success of the measures depends on the availability of gas stations to cater to the rising demand of Euro 5 diesel.