Controversy continues over the government’s plan to provide subsidies to purchasers of low-emission passenger cars while collecting levies from buyers of high-emission vehicles.
The Ministry of Environment plans to introduce the bonus-malus plan starting in 2015 as part of its efforts to reduce greenhouse gas emissions in the transportation sector. A national climate change plan calls for a 34 percent cut in greenhouse emissions in this sector by 2020 from a business-as-usual projection made in 2007.
The ministry’s draft plan unveiled last year divides passenger cars into three groups. It proposes to offer subsidies of up to 3 million won per unit for low-emission vehicles, while imposing a carbon tax of 500,000 won to 7 million won on high-emission models. Compact cars in between the two categories would be neither subsidized nor penalized.
The plan, however, faces opposition from domestic and foreign car producers. Domestic auto companies are opposed as it would subsidize hybrid cars from European and Japanese producers while penalizing their mid-sized and large vehicles.
Under the program, Toyota’s hybrid car, the Prius, would receive the largest subsidy, as it emits only 77 grams of carbon dioxide per kilometer. BMW’s 520d, which was the best-selling foreign model in Korea last year, would also be eligible for bonus payments, along with Volkswagen’s Golf.
In contrast, Hyundai Motor’s Sonata 2.0, which emits 147 grams of carbon dioxide per kilometer, would be subject to about 1.5 million won in carbon tax. The company’s Grandeur and Equus models, which produce more emissions, would face even higher levies, while the Avante would be assigned to the neutral group.
Domestic car producers have recently begun to express their concerns more openly as the Environment Ministry is set to finalize the incentive-penalty program next month.
Complaints are also coming from the American auto industry. In a recent report, the American Chamber of Commerce and Industry noted that the program would force Korean consumers buying American cars to pay an average of more than 5 million won per unit in carbon tax.
The report estimated that the program would levy an average of 1.08 million won on Korean cars, 1.47 million won on Japanese vehicles and 1.76 million won on European models.
The chamber argues that the plan not only nullifies the tariff reduction benefits that the Korea-U.S. Free Trade Agreement provides to Korean buyers of American cars, but also violates the ban on taxation based on engine displacement.
Amid the continuing controversy, Yoon Sang-jick, minister of trade, industry and energy, said last week that the Environment Ministry would revise its original plan to avoid putting local car producers at a serious disadvantage. He noted that his ministry has been consulting with the Environment Ministry about the matter.
In finalizing its scheme, the ministry will have to strike a balance between two conflicting goals. It needs to curb demand for large, gas-guzzling cars to cut carbon emissions in the transportation sector.
Encouraging a shift toward smaller and more fuel-efficient vehicles is also highly desirable in light of Korea’s heavy reliance on expensive fuel imports.
Yet it also needs to ensure that its program does not seriously hurt the domestic auto industry. It is undeniable that the bonus-malus system will spur local car producers’ efforts to develop more fuel-efficient models. Yet it appears that the incentives and penalties need to be adjusted.
Before finalizing the plan, the ministry also needs to examine U.S. claims that it violates the Korea-U.S. FTA.