Assoc Prof Jamus Jerome Lim asked the Minister for Transport (a) in light of the imminent implementation of Electronic Road Pricing 2.0, whether there are any plans to revise the Vehicle Quota System for the total number of automobile COEs issued over the full 10 years; (b) whether the Ministry has conducted any study on what the anticipated impact on COE prices will be; (c) if so, whether the details of such study can be shared; and (d) if not, whether there are plans to conduct such a study.
Mr Chee Hong Tat: Thank you, Sir. Members have raised two broad categories of questions. The first is in relation to the Land Transport Authority’s (LTA’s) recent announcement that it will inject up to about 20,000 additional Certificates of Entitlement (COEs) from February 2025, across the different vehicle categories over the next few years. The second is about the impact of electric vehicle (EV) subsidies on COE prices. I will address these in turn.
On the injection of additional COEs, Ms He Ting Ru asked if this aligns with Singapore’s car-lite vision, while Mr Yip Hon Weng asked about the impact on traffic congestion. Mr Melvin Yong and Assoc Prof Jamus Lim asked if we could review the total size of our vehicle population, given the capabilities of Electronic Road Pricing (ERP) 2.0 to better manage congestion.
The Government remains committed to Singapore’s car-lite vision, where walk, cycle, ride, particularly the use of public transport, are the predominant travel modes. This is necessary given our land and carbon constraints. If we rely mainly on private vehicles to meet our mobility needs, we will face severe traffic congestion and gridlock, like what some overseas cities are experiencing. As roads already take up about 12% of our total land area, we cannot keep on building more and more roads, because that will take away land from other important needs such as housing, hospitals and schools.
Next, an accessible and affordable mass public transport network is the central pillar of our car-lite vision. Compared to other transport options, mass public transport enables the greatest number of people to get to their destinations with the least land take and carbon emissions. This is why we have and will continue to make significant investments in our public transport infrastructure through upgrading and expanding our rail and bus networks, and subsidising public transport journeys for commuters.
Roads and vehicles will complement our public transport infrastructure and offer additional transport options for Singaporeans. Having a car-lite vision does not mean that our total car population cannot increase. The key is to avoid road congestion through the use of both ownership controls and usage-based pricing, which is what we have been doing over the last few decades.
As LTA explained when it announced the move to inject up to about 20,000 COEs, travel patterns have evolved after the COVID-19 pandemic and total vehicle mileage decreased by around 6% from 2019 to 2023. We have also observed lower traffic demand in the central business district (CBD) and ERP gantries in the city cordon remain un-activated. The ERP gantries at arterial roads, including the one in my constituency at Toa Payoh Lorong 5, have also been switched off since the pandemic.
An increase in the vehicle population does not automatically lead to an increase in the total vehicular usage, as there are car owners who may choose to take public transport to work, as well as those who use their cars mostly on weekends or during off-peak hours. This is why it is useful to have both ownership controls and usage-based pricing, so that we can enable some families to own cars while keeping congestion in check, especially during peak periods.
With ERP 2.0, LTA will have more tools and better capabilities to manage traffic congestion. ERP 2.0 will provide more comprehensive aggregated traffic information. It will also enable LTA to more quickly introduce new “virtual gantries” where necessary, based on the latest traffic patterns. This allows for more flexible and responsive congestion management.
Given these considerations, LTA assessed that it will be able to inject up to about 20,000 additional COEs across the vehicle categories from February 2025 over the next few years, without the worries of causing traffic gridlock. Twenty thousand additional COEs are about 2% of our total vehicle population.
We had earlier said that the COE quota for Categories A, B and C will continue to increase every quarter before reaching the projected peak supply from 2026. The additional COEs will give us more flexibility to meet this commitment and further increase the COE supply in the next few quarters before we reach the peak supply from 2026. LTA will continue to closely monitor traffic conditions and, where necessary, adjust ERP charges to keep traffic congestion in check.
Sir, I want to be clear that this injection of up to 20,000 COEs is not linked to the implementation of distance-based charging. We have not made a decision on whether to implement distance-based charging, though ERP 2.0 gives us the option to do so. We will need to study this further, including with the data from ERP 2.0, as there are trade-offs we need to think through carefully. If we were to proceed with distance-based charging in future, this will give LTA an additional tool to manage congestion and there is scope to consider a further injection of additional COEs in tandem with the implementation of distance-based charging.
Mr Melvin Yong asked if the planned injection would help to stabilise COE prices. COE prices are a function of supply and demand. We have introduced measures to increase supply since last year, including “cut and fill” and now the additional injection. All else being equal, an increase in COE supply should help to moderate prices. However, we are not able to predict how prices will move as that would also depend on the demand from motorists.
If we look back at how prices and demand factors have changed since we increased COE supply from late last year, there are some observations which I would like to share with the House. With your permission, Mr Speaker, may I ask the Clerks to distribute a handout showing two tables?
Mr Speaker: Please go ahead. [A handout was distributed to hon Members. Please refer to Annex 1.]
Mr Chee Hong Tat: Thank you, Sir. Members may also access the handout through the MP@SGPARL App.
So, Mr Speaker, if we, first, refer to Table 1, the Prevailing Quota Premiums (PQP), which is the average COE price over the past three months and the price which vehicle owners pay to renew their COEs, have fallen across all vehicle categories, by about 4% to 21% over the past year.
If we, now, look at the breakdown of successful Cat A and B bids from 2022 to Oct 2024 in Table 2, Singapore Residents account for the large majority of successful bids, increasing from 66% in 2022 to 84% this year. The proportion of bids won by foreigners remains low and has decreased to about 2% this year. The proportion won by car leasing companies, which bid for vehicles that are then leased out as Private Hire Cars, or PHCs, has also decreased from 26% in 2022 when COE prices were relatively lower, to about 10% this year.
The data show that the main drivers for the increase in COE prices in recent quarters are likely due to strong demand from local individual buyers and not from foreigners or car leasing companies.
The decrease in the proportion of bids won by car leasing companies also illustrates why the suggestion of having a separate COE category for PHCs and moving existing quota from Cat A and B into this separate category, is not a straightforward exercise. Demand for COE from car leasing companies can vary quite a bit from quarter to quarter and from year to year. It is difficult to ascertain upfront the quota required to meet the needs of point-to-point drivers and commuters.
As I explained in this House previously, if we move too much of the existing quota from Cat A and B to this new category for PHCs, it would reduce the supply in Cat A and B vis-a-vis the demand from non-PHC buyers and could lead to an increase in COE prices in these categories. On the other hand, if we underestimated the quota to be moved to the separate category for PHCs, it would lead to insufficient PHC supply which would in turn cause an increase in PHC prices and reduce accessibility for point-to-point commuters. There are the difficult trade-offs and it is not a straightforward exercise. So, we are still carefully assessing this option.
Mr Speaker, let me now address the questions from Mr Saktiandi Supaat and Mr Yip Hon Weng on the impact of EV subsidies on COE prices. We currently provide up to $40,000 in tax rebates for electric cars. This amount is deducted off the Additional Registration Fee when registering a new electric car. The subsidies are intended to reduce the difference in the total cost of ownership between a mass market electric car and its internal combustion engine (ICE) and hybrid equivalents. In many instances, the upfront cost of an electric car remains slightly above an ICE or hybrid equivalent even after the EV subsidies.
With this context, please allow me to clarify a few points. First, the demand of COE is driven by how many people want to buy cars. It does not matter whether the buyer is buying an electric, ICE or hybrid car. But when someone decides to buy a car, the EV subsidies serve to nudge him or her towards considering an electric car, instead of an ICE car. This is because without such subsidies, the electric car will be more expensive than its ICE equivalent at this time. The price difference may narrow and even disappear in future, when technology evolves and EV prices decrease further. EV subsidies on their own do not induce new demand for cars. They are intended to encourage a car buyer to consider buying an electric car instead of an ICE or hybrid car, by reducing the upfront costs of an electric car.
Second, it is a business decision for motor dealers when they decide how to price their vehicles, electric or otherwise. The COE is an input cost to the dealers. If they submit higher COE bids than what they had included in their pricing, it will eat into their profit margins. Hence, there is no commercial incentive for electric car dealers to excessively mark up their prices or bid for higher COE just because of the EV subsidies. Marking up their prices by too much will affect their competitiveness versus other car brands, while bidding for higher COE will erode their profit margins.
Finally, we introduced the power rating criterion for COE categories A and B in 2013, so that car COE categories were no longer differentiated only by engine capacity. In 2022, we increased the power rating threshold for Cat A cars, to right-site mass-market electric car models. We acknowledge the concerns about how some higher-end cars have lowered their engine capacity and power ratings to come under Cat A instead of Cat B. Members including Mr Ang Wei Neng, Assoc Prof Jamus Lim and Mr Leong Mun Wai had previously asked if we could determine the COE category using the vehicle’s Open Market Value. We understand the rationale of this suggestion and will continue to review our criteria as technology and market trends evolve.
Assoc Prof Jamus Jerome Lim (Sengkang): Sir, two supplementary questions from me. First, I note that the recent announcement of the 20,000 additional COEs appear to be somewhat more aggressive than the hitherto more tentative “cut and fill” approach. I wonder if this move represents a more firm commitment by MOT to equalise over time, the annual COE supply, especially with regard to reducing the number of COEs available at decade-end, to eliminate the “feast and famine” volatility of COE prices.
My second supplementary question requires just a little bit of context, so, if you provide me a little indulgence on preamble. The introduction of ERP 2.0 will presumably reduce the intensity of car usage. The estimates published by MOT suggest something in the order of 6%. So, this will certainly open the scope for increasing the total vehicle quotas without necessarily increasing congestion, as Minister Chee has mentioned, which in turn would potentially allow for a greater number of COEs with less impact on prices. Alternatively, this could mean lower COE prices if we choose not to increase the quota.
Hence, I think it is very valuable for this House to know what MOT’s position is on the total number, or at least if the direction, an increase or decrease in the carrying capacity of cars, if a specific number is not forthcoming.
Mr Chee Hong Tat: Mr Speaker, could I seek your permission to request Assoc Prof Lim to clarify the last part of his second question? The Member mentioned about carrying capacity. Maybe I could just hear from Assoc Prof Lim what he meant.
Assoc Prof Jamus Jerome Lim: So, very quickly, my understanding is that the total number of vehicles currently in the vehicle quota system is something in the order of one million in Singapore. So, the question, in a sense, is that with ERP 2.0, if the intensity of usage falls, whether we could allow for the possibility of an increase in that total number, or if we do not, then naturally that reduced usage would also imply a reduction in COE prices.
Mr Chee Hong Tat: Mr Speaker, I thank Assoc Prof Lim for his clarification. Let me address his first supplementary question.
The intent that we explained when we did the “cut and fill” last year, was indeed to try and reduce the peak-to-trough ratio. If we could add to this direction by having this additional injection of about 20,000 COEs over the next few years, I think it will certainly help to make a further step towards reducing the peak-to-trough ratio.
We are not doing this injection only because of the 6%. I think the 6% reduction in the vehicular usage is one factor. For that, I would not link it to ERP 2.0 per se. I think it is more driven by the changes in the travel patterns after COVID-19. Because we are already seeing that, even though we are still in the initial stages of installing ERP 2.0, we now have 150,000 to 160,000 vehicles, which is less than 20% of the total vehicle population.
So, the drop in the vehicular usage is more likely linked to the changes in the usage patterns after the pandemic. But I agree with Assoc Prof Lim that with ERP 2.0, when we collect the data, if it shows that we are better able and more confident to manage traffic congestion and avoid gridlocks, there is scope to look at whether we can further increase the COE supply. If we look at distance-based charging as an additional usage-based pricing tool, that will give us further leeway to do that. But the objectives are similar. We are looking at different usage-based pricing tools to avoid congestion. If we are confident in achieving that outcome, then increasing the car population by relaxing ownership controls would not be a worry.
Mr Speaker: Mr Louis Chua.
Mr Chua Kheng Wee Louis (Sengkang): Thank you, Speaker. Just one question for the Minister. Thank you for the handout. I was just looking at Table 1 where the quota premium has come down by 4% to 21% compared to a year ago. At the same time, if you look at Table 2, the Cat A and Cat B COE bids won by car leasing companies have also come down from about 24% to 26% in 2022 and 2023, to about 10% in 2024 as of October.
Would this not then suggest that the car leasing companies do actually have an influence on the quota premiums? If I were to look back at 2012 when LTA made the decision to remove taxi companies from the COE bidding process, they have also stated that the taxi operators’ influence on COE prices is actually observed from them taking up a larger proportion, up to 25%, of Cat A COEs back then. So, just wondering if the Minister can elucidate on that.
Mr Chee Hong Tat: Mr Speaker, first of all, Table 2 for the PHCs, car leasing companies, in terms of percentage of bids won by the car leasing companies, if we look at 2022 versus 2024, that percentage has come down. But the COE price in 2024 compared to 2022 has actually gone higher up. So, this is one indication that the main driver for the increase in the COE price is unlikely to be due to the PHC car leasing companies.
Having said that, I am certainly not saying that they do not contribute to the overall demand. They do. That is a fact. They do. But the point I am making is, what are the key drivers that are contributing to the increase in demand?
What I have also explained in my main reply is that if we look at having a separate category – we are not ruling out that possibility, we are studying it. However, I hope Mr Chua agrees with me on this, that by having a separate category, it does not mean that you have suddenly got a windfall of COE supply dropping from the sky. It means you have to transfer existing quotas from Cat A and Cat B to this new category. So, that process of deciding how much to transfer is not so straightforward.
We did it for taxis, but there is a difference between taxis and PHCs. PHCs, some of them, or in fact, quite a number of them, are used also as private vehicles by the owners. They come in part-time during peak hours, for example, but during other parts of the day, they may use it as a private vehicle. So, it is not so clear-cut that these are just point-to-point vehicles or private vehicles – it is a bit of a hybrid, they use it for dual purposes. Because of that, it is not so easy to ascertain what is this total number that would then fit into this separate category, if we decide to have a separate category.
So, that is one of the challenges that we face. It is in deciding what would be the amount that you need to transfer in terms of the supply to this new separate category. And so, it is something that I think we need to take a look at carefully. If there are other ways to address the concerns with COE supply, we should also be open to looking at those other options too.
Ministry of Transport
12 November 2024
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=oral-answer-3703
Office of the Leader of the Opposition 