Carbon tax may raise vehicle prices by $2,000

The price of a car sold in Korea could rise by a maximum of 2.43 million won ($2,386) in 2020 if the new carbon tax on vehicles goes into effect next year, according to a report released by the Korea Economic Research Institute (KERI) yesterday.

The state-funded think tank said that the “low-carbon vehicle cooperation fund” should be reconsidered because it could be too much of a burden on consumers and Korean automakers. The carbon tax system is designed to subsidize consumers who buy a car with low carbon emissions and tax those who purchase a car with high emissions in a bid for a cleaner environment. Details of the system are still being discussed between the Ministry of Environment and the Ministry of Trade, Industry and Energy.

In its study, KERI said it applied the carbon tax plan and subsidy range proposed by the Korea Environment Institute, which is under the Environment Ministry, to last year’s domestic auto market data. According to its research, if the new system is implemented next year, the price of cars in Korea could increase between 520,000 won and 2.43 million won on average before 2020. The average price hike for Korean cars would be between 450,000 won and 2.41 million won, while imports would see prices rise between 710,000 won and 2.53 million won.

“Compared to domestic car buyers, those who buy imported cars will be less burdened considering the price difference between domestic cars and imports,” KERI said.

The group said that the taxes imposed on vehicles would total 2.4 trillion won in 2020, 83 percent of which would come from domestic car sales.

After analyzing a similar tax system started in 2008 in France, KERI said it is likely that five Korean automakers’ profits will drop. The institute said that to install engines that reduced carbon dioxide emissions by 5 grams per kilometer, local automakers will see a drop of 55.6 billion won in profit annually.

In addition, KERI pointed out that the carbon tax system will not achieve “financial neutrality” as planned. Under the original scheme, subsidies for low-emission cars would be funded by the tax collected on high carbon dioxide emission cars.

But since the subsidy set for electric cars will be higher than the maximum fine for high-emission vehicles, extra government spending would be inevitable, KERI said.

The report also questioned whether the carbon tax system will improve the environment.

“To have an effect on improving the environment, the focus should be placed not on the purchase of vehicles, but on the use of the vehicles,” said KERI researcher Yoon Sang-ho.

BY JOO KYUNG-DON [kjoo@joongang.co.kr]