The South Korean government and the ruling party have allowed any consumer in the country to buy a liquefied petroleum gas (LPG)-powered vehicles or modify their cars to run on LPG starting on March 26 as part of efforts to improve air quality. However, they have failed to come up with countermeasures for such downsides as a drop in tax revenue and an increase in greenhouse gas emissions.
The most immediate problem is an increase in green house gas emissions. Under the United Nations Framework Convention on Climate Change, South Korea has obligations to reduce greenhouse gas emissions starting next year. To this end, the government decided to strengthen the average carbon dioxide (CO2) emission and fuel efficiency standards for automobiles from 140 g/km to 97 g/km and from 17 ㎞/l to 24.3 ㎞/l, respectively, in 2016. These standards are similar to those of Japan but they are still weaker than 93 g/㎞ of the European Union. Accordingly, the Ministry of Environment was planning to further tighten the emission standards after 2021. However, the ministry’s job has become more difficult as the Ministry of Trade, Industry and Energy (MOTIE) has hastily lifted LPG car restrictions.
LPG vehicles emit less fine dust compared to conventional gas or diesel-fueled cars but emits more CO2. When LPG consumption increases, the government has to strengthen regulations on CO2 emissions further. However, automakers would react to such a decision, saying that they just followed the government’s policy. Moreover, the restriction on CO2 emissions itself can be useless when automakers choose the fuel efficiency standards set by the MOTIE. The fuel efficiency of LPG vehicles set by the MOTIE is 1.26 times higher than the average. So, companies will not be hit hard even when they increase LPG car production.
There are also no countermeasures for lower tax revenues. LPG has 30 to 50 percent lower taxes than gas and diesel. Therefore, the country’s fuel tax revenues will go down when LPG consumption grows. The MOTIE submitted a report to the National Assembly which estimated the amount of tax revenue reductions at 333.40 billion won (US$294 million) over the next 10 years when the government lifts LPG car restrictions. However, the Ministry of Economy and Finance, which is in charge of taxation systems, points out that it is a “nonsense estimation.” The tax revenues from gas and diesel, excluding value added tax, came to 22.21 trillion won (US$19.58 billion) as of 2017. An official from the government said, “When gas and diesel consumption decreases by only 1 percent, the tax revenues can drop by more than 200 billion won (US$176.37 million) a year. The government has failed in both tax revenue estimation and alternative discussion.”
In addition, the latest decision will not be effective in reducing fine dust. MOTIE estimates that it will decrease 71 tons of fine dust over the next 10 years, about 7 tons a year. This is about one sixtieth of the 427 tons of fine dust reduction per year to be achieved by reforming the tax systems for power generation. MOTIE plans to raise taxes on bituminous coal for power generation while lower them for LNG starting from April.