Review of Vehicle Quota System Given Swings in COE Prices

Mr Laurence Lien asked the Minister for Transport whether the vehicle quota system needs a fundamental review in light of it producing large swings in the COE quotas and COE prices over the past decade.

Mr Lui Tuck Yew: The Vehicle Quota System (VQS) allows us to manage the growth of our vehicle population in a sustainable manner, and within these parameters, uses market forces to determine the cost of owning a car in Singapore. Since the VQS was introduced in 1990, we have made several refinements to the methodology for determining the COE supply. In particular, we have made changes to determine the supply of replacement COEs for vehicles that have been de-registered, which is the main source of the large swings in COE quotas.

Before 1999, the replacement COEs were determined based on the preceding year's vehicle de-registrations. However, this was felt to be not sufficiently responsive, and a fine-tuning was made in 1999, by projecting vehicle de-registrations for the year ahead using past de-registration trends. This revised methodology was adopted between 1999 and 2010, but it was found to be inherently challenging to make accurate projections, and we ended up with vehicle population growth rates that were well off the targeted growth rates. For example, we had growth rates ranging from -0.2% to 6.6%, instead of the targeted 3% from 1999 to 2008 1 .

We, therefore, decided in 2010 to revert to the earlier methodology of recycling COEs using actual vehicle de-registrations, but to be more responsive by shortening the lag time to six months, instead of one year under the previous system. With this change, we were able to achieve vehicle population growth much closer to the allowable growth rate. In 2011, the vehicle population grew within the 1.5% allowed.

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However, no matter which method of determining the replacement COE supply we use, the underlying issues are that our vehicle population age profile is not uniform, and vehicle owners de-register their vehicles based on multiple considerations. Therefore, de-registration patterns will be uneven, resulting in fluctuations in the COE quota supply.

On the issue of COE price fluctuation, apart from the supply of COEs, there are other factors at play. These include how well our economy is doing, the interest rate environment and even the introduction of new models by motor dealers. Keeping the COE quota supply constant will not prevent COE prices from moving to levels to match demand and supply.

The core constraint of land-scarcity and the need for reasonably flowing traffic even at peak hours, require us to maintain an adequately tight control over the vehicle population growth rate. However, we will continue to review the VQS to refine its implementation.