UPDATE: India Lifts Diesel Ban

India’s Supreme Court has lifted its ban on the registration of vehicles powered by diesel engines displacing more than 2.0 liters—as long each sale includes a 1% surcharge that goes into a government environmental fund.

The ban, which was imposed by the National Green Tribunal in December and upheld by the Supreme Court in January, targeted diesels sold in the metropolitan Delhi region. The ruling was soon extended to the southern state of Kerala. 

Carmakers have invested more than $860 million in new diesel capacity in India in the past few years. Many promptly suspended plans to introduce new diesel models when the ban began. Analysts say the market share for diesel-powered vehicles in India has dropped below 30% from a peak of 49%.

Daimler AG petitioned the court earlier this month to remove the ban and impose a 1% environmental fee instead. Toyota Motor Corp. concurred with the suggestion.

Opponents, which included India’s auto industry and the central government, argued the sanction ignored emissions from all other sources, including older and dirtier diesels already on the road. The court says it will decide later whether to impose an environmental tax on the sale of diesels displacing 2 liters or less.

The Indian government is developing more strict emission limits for all diesel-powered vehicles, which would lower allowable emissions 95% by 2019.