Critics wary of program to levy new carbon tax

A plan to levy a carbon tax to encourage the purchase of fuel-efficient cars is being criticized by industry insiders, with some experts arguing that the amount is too high.

The government on Monday decided on a subsidy program for low-carbon vehicles, slated to take effect in 2015. Under the plan, consumers will be required to pay a carbon tax if they buy a car that emits high fuel emissions, and buyers of eco-friendly cars will receive subsidies.

The government said those penalties will gradually increase in 2016 and 2017. The program, initiated by the Ministry of Environment, will levy between 500,000 won ($475) and 7 million won of carbon tax on some large vehicles.

Currently, 83.8 percent of the vehicles registered in Korea are larger than midsize. The government hopes a carbon tax will encourage consumers to buy more fuel-efficient compact vehicles.

If the plan goes into effect as it stands, then based on the average sale of 1.2 million cars per year, the government will receive about 480 billion won of carbon tax revenue in 2015 alone. Of that, 261 billion won is expected to be spent on subsidies for eco-friendly cars.

“We expect to see more purchases of eco-friendly vehicles in the future,” said Park Yeon-jae, head of the Transportation Environment Division at the Ministry of Environment, “so we need to accumulate some extra money in that initial stage.”

However, some critics argue that the 480 billion won is too high a price for the potential reduction in emissions and that the penalty for buying a high-emission vehicle is unreasonable.

“If the government plans to raise nearly 500 billion won of extra money annually, it must have a more in-depth consultation with the public,” said Cho Dong-keun, a professor of economics at Myongji University. “The idea of directly influencing market price to change consumers’ choices is the most vulgar kind of regulation.”

Some buyers also begrudged the plan.

“The system forces the consumers to pay for the Korean carmakers’ poor technology in fuel efficiency,” said Lee Jeong-yeon, 38.

Right now the program is designed to lower 158,000 tons of annual emissions, which is worth 1.2 billion won of carbon credit under European Union standards.

Under those standards, the amount of emissions from driving a Hyundai Equus luxury sedan 20,000 kilometers (12,427 miles) per year for 10 years can be converted into 240,000 won of carbon credit. Under the Korean government’s plan, those who operate similar large-size vehicles will have to pay approximately 7 million won in carbon tax in 2015.

Industry insiders claim that there are enough regulations to encourage eco-friendly car sales. The government already requires auto companies to improve the average fuel efficiency to 17 kilometers per liter by 2015, they say, and all domestic manufacturers have satisfied that standard.

“We are already facing a situation that we cannot survive without increasing sales of eco-friendly cars,” said an auto industry executive, “but the government is now employing drastic measures.”

Others worry that the current plan could discourage sales in the domestic auto market and encourage the consumption of imported vehicles. Currently, about 12 percent of the cars sold in Korea are imported vehicles.

The buyer of a Hyundai Sonata 2.0, for example, which emits 147 grams of carbon dioxide per kilometer, would be required to pay 1.5 million won of carbon tax in 2017, increasing the total costs to as much as 29.4 million won.

By comparison, the owner of a Toyota Prius would receive 2 million won worth of subsidies, as the vehicle only emits 77 grams of carbon dioxide per kilometer. With the subsidy, the price for the purchase could be as low as 29.3 million won. However, because Toyota often gives discounts worth up to 3 million won to new buyers, the cost could be even lower.

Some critics have argued that U.S. automakers will benefit from the current plan.

Under the Korea-U.S. Free Trade Agreement, greenhouse emission regulations will be eased for car companies that sell less than 4,500 vehicles a year. If the United States cites that clause and requests an exception from the carbon tax system, large-size vehicles manufactured by American automakers could be sold with a lower carbon tax in Korea.

While the Ministry of Trade, Industry and Energy expressed concern over potential discrimination against Korean automakers, the Ministry of Environment insisted it was a moot point, as the carbon tax would be levied toward consumers, not manufacturers.

BY KIM YOUNG-HOON, SER MYO-JA [myoja@joongang.co.kr]