Oral Reply by Minister for Transport Chee Hong Tat to Parliamentary Questions on Certificates of Entitlement (COEs)

Mr Saktiandi Supaat asked the Minister for Transport

a.     how much of the tax rebates for electric vehicles flow through to the end-consumer in the form of lower cost of vehicle ownership;

b.     whether these tax rebates are absorbed by the car dealers by marking up the prices of electric vehicles or by bidding higher for Certificates of Entitlement (COE); and 

c.     whether the Government needs to do more, including by reforming the COE system, to hasten the uptake of greener vehicles.

Mr Yip Hon Weng asked the Minister for Transport

a.     whether the Ministry can clarify how the additional certificates of entitlement (COEs) over the next few years will not exacerbate traffic congestion;

b.     what alternative measures are being considered to prevent any unintended increases in road density; and 

c.     whether the "cut and fill" approach will continue or whether a more sustainable system can be developed to maintain a balanced COE quota.

Mr Yip Hon Weng asked the Minister for Transport

a.     whether the Ministry will review the current level of electric vehicle (EV) subsidies particularly as cheaper models enter the market given that EVs still contribute to carbon emissions through power generation; 

b.     whether LTA's goal remains for Singapore to go car-lite or has the primary focus shifted to be on transitioning from petrol cars to EVs; and 

c.     what active steps, beyond expanding the public transport network, are being taken to discourage overall car usage.

Melvin Yong Yik Chye asked the Minister for Transport

a.     whether the Ministry will review the current zero percent allowable vehicle growth rate, given that ERP 2.0's system is expected to allow the authorities to better manage traffic congestion; 

b.     whether the Ministry assesses that the planned injection of 20,000 COEs will help to stabilise COE prices during the years where COE quota is in short supply; and 

c.     if so, whether more details can be shared.

Ms He Ting Ru asked the Minister for Transport 

a.     what is the anticipated impact of planned increase of 20,000 additional COEs on Singapore’s ‘car-lite’ ambitions; and 

b.     whether the Ministry expects the plans to result in increased adoption of private car use for transport.

 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 ten 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.

Ms He Ting Ru asked the Minister for Transport what are the specific parameters which the Ministry will take into consideration in deciding when to start distance-based charges under the ERP 2.0 system in view of the additional 20,000 COEs to be injected into the vehicle population in Singapore. 

Mr Yip Hon Weng asked the Minister for Transport 

a.     whether the Ministry can elaborate on the rationale for the current structure of COE categories, especially regarding the use of power output as the basis for categorisation, in view of the influx of new electric vehicle brands which has crowded the pool of COEs in Category A and impacting COE prices and affordability for families; and 

b.     what adjustments are being considered to balance sustainable EV adoption with accessibility to and affordability of mass-market family cars.

Ms See Jinli Jean asked the Minister for Transport in respect of the injection of COEs from February 2025, whether the Ministry can conduct a study on how the increase in the number of COEs will impact the point-to-point transport sector in terms of the number of taxis and private-hire vehicles.

Reply by Minister for Transport Chee Hong Tat:

1.      Mr Speaker, may I have your permission to provide a combined response for oral questions 3 to 6, in today’s Order Paper, as well as related questions for subsequent Sittings?

2.     Members have raised two broad categories of questions. The first in relation to LTA’s recent announcement that it will inject up to about 20,000 additional COEs from February 2025, across the different vehicle categories over the next few years. The second is about the impact of EV subsidies on COE prices. I will address these in turn.

3.     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 Associate Professor Jamus Lim asked if we could review the total size of our vehicle population, given the capabilities of ERP2.0 to better manage congestion.

4.     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.

5.     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.

6.     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.

7.     As LTA explained when it announced the move to inject up to about 20,000 COEs, travel patterns have evolved after COVID-19 pandemic, and total vehicle mileage decreased by around 6% from 2019 to 2023. We have also observed lower traffic demand in the 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.  

8.     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. 

9.     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.

10.    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. 20,000 additional COEs is about 2% of our total vehicle population.

11.    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.

12.    I want to be clear that this injection of up to about 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 ERP2.0 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. 

13.    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 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.

14.    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? Members may also access the 15.    First, if we 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.

16.    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 (PHCs), has also decreased from 26% in 2022 when COE prices were relatively lower, to about 10% this year.

17.    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.

18.    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. 

19.    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-à-vis demand from non-PHC buyers, and could lead to an increase in COE prices in these categories. On the other hand, if we under-estimated 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.  These are the difficult trade-offs and it is not a straightforward exercise.

20.    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 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.

21.    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. 

22.    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. 

23.    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, Associate Professor 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.