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Korea reconsiders carbon tax plans

The government has recently decided to reconsider its original plan to implement a carbon tax on motorists starting in 2015 in the face of strong backlash from local carmakers such as Hyundai Motor and Kia Motors.

Trade, Industry and Energy Minister Yoon Sang-jick was quoted by a news provider as saying, “We are reviewing the carbon tax with the Environment Ministry, considering that it could hamper local carmakers.”

Yoon clarified his position that it would be unfair if only import brand cars with better fuel ratings benefited from the new scheme.

The government plans to directly tax motorists for their CO2 emissions from January 2015, while offering cash benefits for those with lower greenhouse gas emissions.

But the plan faced strong resistance from Korean carmakers that have yet to come up with competitive environment-friendly technologies compared to their German and Japanese rivals.

Under the planned regulations, most flagship models of Hyundai Motor and other Korea-made vehicles could be hit hard by increased costs depending on their emissions amount.

In the meantime, diesel or hybrid models of German or Japanese vehicles, which have had soaring sales recently, are expected to be the key beneficiaries of the stricter regulations.

“It would be difficult for us to charge customers more. We have no other choice but to shoulder the added costs for ourselves or develop a new model to meet the regulations,” said an official from a local carmaker.

Due to the tricky situation, France, which is strong in smaller-engine cars, is so far the only car-producing country that has adopted the carbon tax system. Australia also recently withdrew its plan due to opposition from the local automotive industry.

“It is very rare for a car-producing country to adopt the carbon tax. We will ease related regulations compared to the original proposal made by the Environment Ministry,” said Yoon.

But foreign-brand carmakers argued that the possible policy change was another example of still-prevalent protectionism in the Korean market.

“It is crucial that companies enjoy policy consistency and reliability,” said an executive from a German carmaker’s Korean unit.

Regardless of the government policy direction, he predicted the nation’s import car market would continue to grow in the coming years.

In Korea, Hyundai and affiliate Kia Motors dominate almost 80 percent of the total 15 million car market, while foreign-brand cars, led by German luxury brands, claim a more than 10 percent market share.

By Lee Ji-yoon (