No agreement on carbon tax plan

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No agreement on carbon tax plan


The Ministry of Environment (MoE) and the Ministry of Trade, Industry and Energy (MoTIE) failed to come to a consensus over the past three months regarding the implementation of a carbon tax that they originally planned for January 2015.

The carbon tax would be levied on carbon-emitting vehicles proportionate to the amount of carbon that the automobile emits. Under the plan, an owner of an automobile with a low fuel efficiency will pay the tax, but someone who owns a car with a high fuel efficiency will be either not taxed or will receive a subsidy.

The MoE decided in 2013 that it would phase in a carbon tax to reduce greenhouse gases and encourage the use of eco-friendly cars. The ministry analyzed taxation models applied in countries such as France, Australia and Belgium and concluded that carbon tax does reduce CO2 emissions.

But when the MoE released its original tax plan, it was disputed because it seemed to favor fancy imported cars and discriminate against domestic makes. According to the plan, most domestic car owners would have to pay between 250,000 won ($246) and 7 million won, whereas owners of luxury imported vehicles were either not taxed or were subsidized.

As backlash from domestic automobile manufacturers has grown, the ministries of environment and trade held a public hearing yesterday to explain their position. Since March, the two have tried to negotiate with the help of the Ministry of Strategy and Finance as a mediator and with research from three organizations that are affiliated with the ministries. But they failed to come to an agreement.

In the meeting, the MoE proposed a revised plan that would reduce the number of automobiles that would be taxed and also lower the amount that would be taxed. The revised plan will only tax vehicles that emit 151 grams of carbon per kilometer instead of the original 126 gram per kilometer, and also reduces the maximum tax amount to 4 million won from 7 million won. The proposal excludes small-and-medium sized cars such as Hyundai’s Accent 1.4, 1.6 and i30 from taxes. Under the 2013 plan, the cars were subject to taxes between 250,000 won and 500,000 won.

The revision also exempts domestic-made 2,000cc automobiles from taxation, such as the Hyundai Sonata, Tucson and Kia’s K5. Full size cars like Ssangyong’s Chairman and Hyundai’s Equus will be taxed 4 million won instead of 7 million won, in the new plan.

“After its introduction in 2015, we are planning to gradually expand the number of cars targeted and raise the tax so that the automobile industry and owners of domestic cars feel less pressure,” said Park Yeon-jae, director of the MoE’s environmental and transportation division.

But MoTIE is questioning the validity of the carbon tax itself.

According to research done by the Korea Institute for Industrial Economics and Trade, the carbon reduction that the tax would affect is small, whereas the burden on domestic automobile companies and car owners is substantial.

The expected carbon reduction in the five years after the tax is introduced, 1.6 million tons, is 9 percent of the MoE’s goal of 17.8 million tons. The small carbon emission drop could be achieved through other policies such as improving the country’s smart transportation or increasing the number of electric cars, MoTIE argues.

MoTIE also opposes the tax because Hyundai and Ssangyong motor companies could lose sales of a few thousand mid-sized cars annually.

“The policy itself may sound good logically, but its side effects can be considerable once implemented. France’s case shows that the carbon tax policy failed to succeed,” said an industry source.

The arbiter, the Ministry of Strategy and Finance, has said that it is determined to reach a compromise, but is also skeptical about the carbon tax.

“We don’t think the carbon reduction will be significant,” one Finance Ministry source said. “We will suggest the final agenda at a public hearing after gathering opinions in various fields such as related industries, civic groups and experts.”


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