KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Background and purpose of Research

 ▶ Background and purpose of Research

○ Background to this research

-In response to the new climate change regime that aims to achieve carbon neutrality, emission control in the transportation sector such as motor vehicles is gradually strengthening around the world, and therefore, efforts at the policy level to expand the share of eco-friendly vehicles such as electric vehicles are also strengthening

- To achieve the goal of carbon neutrality by 2050, Korea has proposed a plan to supply a total (cumulative) of 8.5 million eco-friendly vehicles by 2030, including 3.62 million EVs, 0.88 million hydrogen vehicles, and 4 million hybrid vehicles

- Meanwhile, to reflect carbon neutrality policies, several bills have been proposed and are under discussion in the National Assembly to further codify the rationale for support of zero-emission vehicles differentiated from low-emission vehicles

○ Purpose of this research

- This research is an ex post facto legislative evaluation study to evaluate whether the legislation is appropriate for the legislative purpose or to respond to the current changed policy situation by focusing on Article 58 of the 「Clean Air Conservation Act」, which is the basis for subsidizing low-emission motor vehicles, and subordinate statutes such as enforcement decree and enforcement rule

 ▶ Legislative Evaluation Overview 

○ Evaluated for 

- ｢Clean Air Conservation Act｣, the subject of this study’s legislative assessment, was enacted to “enable all people to live in a healthy and comfortable environment, by preventing air pollution which causes harm to people and the environment, and by managing and conserving the atmospheric environment in a proper and sustainable manner"

- This study analyzes Article 58 of the ｢Clean Air Conservation Act｣, which is the basis for subsidies for eco-friendly vehicles (low-emission motor vehicles), and subordinate statutes such as enforcement decree and enforcement rule

○ Evaluation methods

- This study analyzes “the effectiveness of legislation, and various impacts of legislation, etc.” through data on the registration, operation, supply, and emissions of eco-friendly motor vehicles, as well as data from user surveys and opinion surveys 

Ⅱ. Major Contents

 ▶ Analysis of the current status and actual state of eco-friendly motor vehicles

○ General status and analysis of eco-friendly motor vehicles

- While the total number of motor vehicles has continued to grow, the share of eco-friendly motor vehicles has increased from 1.1% at the end of 2016 to 5.8% in September 2022, with hybrids at 4.4%, electric vehicles at 1.4%, and hydrogen vehicles at 01.1%

- Electric vehicles account for about 70% of domestic vehicles and 30% of foreign vehicles (Q3 2022) and are expected to continue to increase due to an increase in the number of new vehicle registrations and an expansion of the types of electric vehicles (freight vehicles, vans, etc. in addition to passenger vehicles)

○ Eco-friendly motor vehicle usage survey

- In 2022, the number of vehicle registrations increased by 2.3% compared to 2021, and the average distance driven per vehicle per day decreased by 8.0% year-on-year, but the distance driven by electric and hydrogen vehicles besides gasoline, diesel, and LPG fuel has increased by 35.0% over the past decade (hybrid vehicles: 20.3%, electric vehicles: 149.7%)

- The average distance driven per vehicle type is significantly higher for hybrids, with the average monthly distance driven by electric vehicles (1,984 km) being 900 km longer than for conventional internal combustion engine vehicles (1,053 km) (as of 2021)

○ Analysis of the current status of eco-friendly motor vehicle subsidies  

- The number of EVs supported per year increases, but the residual rate increases (12% in 2019 and 35% in 2023): From 2013 to 2015, per EV, national subsidies of up to 15 million won and local subsidies of 3 million to 9 million won were available, but since 2020, the national subsidies were reduced to 9 million and continued to be decreased in 2022 and 2023

- Subsidies for electric vehicles are paid differently by vehicle depending on vehicle performance (fuel efficiency, mileage) and air quality improvement effects, and in the case of national subsidies, passenger vehicles receive subsidies of 6.8 million won, freight vehicles receive 12 million won, and vans receive subsidies of 47 million won (medium-sized) and 67 million won (large) (as of 2023)

- While the national subsidies are the same, local subsidies vary depending on regional characteristics and income, and the sales rate of electric vehicles is decreasing, especially in Daejeon, Incheon, and Seoul

 ▶ Analysis of the legal system 

○ Laws and regulations regarding subsidies for eco-friendly motor vehicles

- The provision related basis of subsidies for zero- and low-emission motor vehicles in the「Clean Air Conservation Act」 was first established on April 15, 1999, in Article 36.2, as an article for the operation of zero- and low-emission motor vehicles

- At the time, it was enacted to support zero- and low-emission vehicles and fuel supply facilities for public transportation operating in air quality control areas, and zero- and low-emission vehicles included natural gas vehicles, electric vehicles, and hydrogen vehicles (Article 85.3 of the enforcement rule of the「Clean Air Conservation Act」), and was partially amended on December 26, 2002, to expand the scope of the subsidy from public transportation vehicles to vehicles in general. 

- Through several partial revisions, including May 21, 2009, February 1, 2012, May 23, 2012, January 27, 2016, April 2, 2019, and April 13, 2021, the current regulations include the definition of low-emission motor vehicles, support for purchase, remodeling, and scrappage of low-emission motor vehicles, and actions to facilitate the distribution of low-emission motor vehicles

- The「Enforcement Decree of the Clean Air Conservation Act」 (Article 52-3) stipulates that “zero-emission vehicles” including an electric vehicle, solar-powered vehicle, and hydrogen electric vehicle, and the 「Enforcement Rule of the Clean Air Conservation Act」 (Article 79-3) provide the following criteria for differential payment of low-emission vehicle subsidies: 1. Whether the purchase was from a car seller, 2. Sale Price, 3. Performance, such as fuel economy and driving range, 4. Car seller’s annual low-emission motor vehicle supply goal achievement performance 5. Other standards deemed necessary by the Minister of Environment to facilitate the distribution of low-emission motor vehicles

- The Ministry of Environment (MOE) notified 「Guidelines for Subsidizing Electric Vehicle Supply Project」 establishes more detailed standards and procedures for subsidizing electric vehicles

- The「Act On Promotion Of Development And Distribution Of Environment-friendly Motor Vehicles」 has been revised several times since its enactment in October 2004 (enforced in April 2005) and stipulates the definition of eco-friendly motor vehicles, master plans and implementation plans, support for fuel production and charging facilities, obligation of public Institutions to purchase eco-friendly motor vehicles, purchase target systems, and exclusive parking areas.

○ Related laws

- Article 8 of the 「Carbon Neutrality Act(Framework Act On Carbon Neutrality And Green Growth For Coping With Climate Crisis)」 requires the government to set a reduction ratio by presidential decree in the range of 35 percent or more of the national GHG emissions in 2018 by 2030 for the mid-to long-term national GHG reduction target, and accordingly, the presidential decree sets a reduction target of 40 percent (Article 3, paragraph 1)

 ▶ Analysis of key policies and legislation

○ Major initiatives for eco-friendly motor vehicles

- ｢The fourth Master Plan for Eco-friendly Motor Vehicles (2021-2025)｣ 

  (Feb. 2021) is a master plan established and implemented by the Ministry of Trade, Industry and Energy (MOTIE) every five years, in accordance with the ｢Act On Promotion Of Development And Distribution Of Environment-friendly Motor Vehicles｣, and sets a goal of supplying 3.85 million electric and hydrogen vehicles by 2030

- The ｢2030 Nationally Determined Contribution (NDC) Upward Plan｣ (Oct. 2021.), based on the 「Framework Act On Carbon Neutrality And Green Growth For Coping With Climate Crisis」proposes a 40% reduction in total emissions from 2018 by 2030 and a goal of zero domestic net emissions by 2050, with “Plan A” targeting a 97% ratio of zero-emission motor vehicles in the transportation sector and “Plan B” at 85%, and a goal of supplying 4.5 million electric and hydrogen vehicles by 2030

- ｢The first National Plan for Carbon Neutrality and Green Growth (2023-2042)｣(April 11, 2023) provides sectoral and yearly reduction targets for achieving the national GHG reduction targets under the above-mentioned ｢2030 Nationally Determined Contribution (NDC) Upward Plan｣ in accordance with the 「Framework Act On Carbon Neutrality And Green Growth For Coping With Climate Crisis」and accordingly the transportation sector proposes a reduction target of 37.8% compared to 2018, a policy to shift from low-emission to zero-emission vehicles, and a cumulative supply target of 4.5 million electric and hydrogen vehicles by 2030

- The ｢2023 Implementation Plan for Distribution of Environment-friendly Motor Vehicles｣ (Apr. 2023) is an implementation plan established and implemented annually by the Ministry of Environment in accordance with the ｢Act On Promotion Of Development And Distribution Of Environment-friendly Motor Vehicles｣. The plan aims to distribute 2 million zero-emission motor vehicles by 2027 (4.5 million by 2030) as an implementation measure to reduce ultrafine particles by 30%, and to reorganize the “Low-Emission Motor Vehicle Classification System” to operate a supply system centered on zero-emission motor vehicles

○ Related legislation

- Recently, a number of amendments to the 「Clean Air Conservation Act」have been proposed concerning eco-friendly motor vehicles, including a proposal related to subsidy payment standards and a proposal of reorganization centered on zero-emission motor vehicles

- 「Clean Air Conservation Act」, as amended in 2021 by Representative Gun-Young Youn’s 「Clean Air Conservation Act Amendments」and the Environment and Labor Committee’s substitute, which incorporated it, to revise subsidy criteria to correct reverse discrimination against low- and mid-range electric vehicles.

-Recently, the「Clean Air Conservation Act Amendments」 (Representative Chul-min Jang, Representative Juhwan Lee), which seeks to shift support for low-emission motor vehicles to zero-emission motor vehicles, and the amendments to strengthen transparency of performance information to enhance the safety of electric vehicles (Representative Hoon-sik Kang) have been proposed.

 ▶ Analysis of key foreign legal systems

○ Trends in Major Foreign Legal Systems

-As global climate change worsens, major foreign countries are transitioning from producing and using internal combustion engine vehicles to zero-emission vehicles such as electric cars to achieve the 2050 carbon neutrality goal.

- In particular, following the EU’s decision in March 2023 to completely phase out internal combustion engine vehicles from 2035, EU member states that had previously set 2040 as their target year are also bringing forward their target year to 2035.

- On the other hand, the United States expressed its intention to promote the development and distribution of electric vehicles in the country by setting criteria for subsidies that prioritize domestically assembled electric or fuel cell vehicles through the “Inflation Reduction Act” in 2022.

- China has secured a significant competitive edge as three of the top 10 brands in the world in terms of sales are Chinese companies, with electric vehicles accounting for 25% of new car sales in 2022 after pursuing a long-term electric vehicle growth policy.

- As a result, China has stopped providing subsidies for electric vehicles since 2023, and there is a trend of reducing subsidies, as in Germany.

○ Implications

- In Korea, the share of electric vehicles is only 1.4%, and the country’s major automobile and parts industry is based on internal combustion engines, and the electric vehicle infrastructure is also relatively insufficient.

- Therefore, support policies for electric vehicles should be carried out stably for a certain period of time, and policies that can support demand stably, such as subsidy policies and infrastructure policies, should be strengthened.

- As a notable example of this, the French “Green Industry Law” will establish an electric vehicle support law according to which the entire range of eco-friendly vehicles, including subsidies, will be systematically regulated in relation to the carbon neutrality goal.

 ▶ Analysis of the effectiveness of eco-friendly motor vehicle subsidy policies and legislation 

○ Analysis of the correlation between the supply of eco-friendly motor vehicles and the carbon neutrality goal

- The government’s eco-friendly motor vehicle supply target is 4.5 million electric and hydrogen vehicles and 3.62 million electric vehicles by 2030 after the announcement of the ｢2030 Nationally Determined Contribution (NDC) Upward Plan｣ (2021)

- On the other hand, due to the characteristics of Korea’s power structure, the lifetime GHG emissions of domestic eco-friendly motor vehicles are relatively high due to fuel production and manufacturing, and the vehicles with the lowest lifetime GHG emissions are electric vehicles (40 kWh), plug-in hybrids, hybrids, hydrogen electric vehicles, electric vehicles (80 kWh), and internal combustion engine vehicles

○ Analysis of the effects affecting the purchase eco-friendly motor vehicles

- In a survey of EV owners (n=150) and intenders (n=150), those who currently own an EV but intend to buy in the future (intenders) seem to consider price, subsidies, and safety-related factors to be the most important factors in their purchase

- When the purchase factors of EVs were divided into economy, appearance, performance, and other (charging facilities, pollution emissions, safety, etc.), intending EV buyers ranked economy and performance higher, while existing buyers ranked appearance and other higher.

- Among the 13 detailed factors, intenders were found to consider battery safety (4.76), charging stations (facilities) (4.46), distance to empty (4.46), charging time (4.41), and purchase subsidies (4.40), while air pollutant emissions (3.81) are relatively low (1-5). 

○ Analysis of the feasibility of eco-friendly motor vehicle subsidies

- Regarding the changed 2023 EV purchase subsidy payment standards compared to 2022, they are more likely to have a negative perception of the reduced subsidy (buyers 2.81 and intenders 2.50), while other aspects (subsidy sliding scale, implementation subsidy, charging infrastructure subsidy, innovative technology subsidy, and post-management evaluation) are viewed as fair or better.

- There is a high level of agreement that it is appropriate to give preferential treatment to domestic over foreign cars (70%), with the most common reason being that it is appropriate for the taxes paid by the people to be used for the benefit of the majority of the people (45%), followed by the global trend of adopting protectionist policies (25%) and treating the same environmental impacts equally (18%)

- The amount of the subsidy was found to be closely correlated with the purchasing power intention of EVs, with a sharp increase in purchase abandonment based on 5 million won (19% abandoned under 6.7 million won, cumulatively 40% abandoned under 6 million won, and cumulatively 69% abandoned under 5 million won)

○ Scenarios and sensitivity analysis concerning eco-friendly motor vehicle subsidies

- In order to realize the 2030 target of 4.5 million zero-emission vehicles (3.62 million electric vehicles) to meet the Nationally Determined Contribution, there are several ways besides increasing the conversion rate of zero-emission vehicles, including reducing the number of car registrations, reducing the average annual mileage, reducing overall traffic, and increasing the share of public transportation

- However, a viable policy option that might be predicted to reduce GHG emissions in the transportation sector is the switch to eco-friendly motor vehicles, given the pattern of growing car registration, maintaining the average annual mileage, and decreasing the share of public transportation

- The cumulative supply of 2.4 million vehicles in 2030, or 66% of the target supply, is predicted based on the trend in annual sales of electric vehicles, and to reach the target supply, a weighted increase of about 1.5 times the current weighting is needed, and if subsidies are reduced from their current levels, the expected supply may be even lower

○ Improvement strategies for eco-friendly vehicle policy direction

- Overall, buyers of electric vehicles have a high intention to repurchase (75%) and in terms of specific satisfaction factors, buyers of electric vehicles are most satisfied with fuel cost savings (3.99), driving performance, and ride comfort (3.85), but they are less satisfied with distance to empty (3.51) and charging convenience (3.37), indicating that it is crucial to expand the infrastructure of charging facilities

- The majority of those who intend to buy an EV have a negative opinion about the current national subsidy; 37% believe that the current level of subsidies is moderate and 31% inadequate, and 92% say that the amount of subsidy influences their intention to buy; 34% believe that it affects them very much and 58% believe that it affects them somewhat, indicating that the significance of preserving the subsidy policy

- Intenders prefer public and transit parking lots (31%) and existing buyers prefer workplaces and schools (23%) as charging locations for electric vehicles, indicating that the consumer demands need to be considered as opposed to concentrating on utilizing already-existing public or communal spaces as locations for charging facilities.

○ Adequacy of Electric Vehicle Purchase Subsidy Design Direction

- With the residual subsidy rate for EVs increasing in 2023 compared to 2019, and the sales rate of EVs shrinking globally outside of Korea, policies to maintain or increase the sales rate of EVs are required

- As the affordability of electric vehicles improves, it is likely that driving distances will increase, so policies are needed to ensure that these economic factors do not lead to social cost shifting

▶ Legislative Evaluation Results 

○Overview of the legislative evaluation results of the 「Clean Air Conservation Act」 eco-friendly motor vehicle subsidies

- This study conducted a legislative evaluation with an emphasis on the legislative effects and impacts of the provisions related to subsidies for eco-friendly motor vehicles in the‌「Clean Air Conservation Act」 and subordinate legislation on such contents, in compliance with the goal of legislative impact analysis under the‌「General Act On Public Administration」

○ Measures to improve eco-friendly motor vehicle subsidy criteria

- Eco- First, a unified definition of the term “environmentally friendly vehicle” must be established.

- Second, the standards for environmentally friendly vehicle subsidies should be linked to the national greenhouse gas reduction target.

- Third, the standards for environmentally friendly vehicle subsidies should be diversified to reflect social environments such as personal characteristics and income levels.

- Fourth, the standards for environmentally friendly vehicle subsidies should be guaranteed at a more legal level. There is a need to establish standards in the law that can predict the level of change every year.

- Fifth, regulations on the “Air Conservation Act” regarding environmentally friendly vehicles should be systematized.

- Sixth, factors related to the safety of environmentally friendly vehicles should be considered in the payment of subsidies.

- Seventh, factors related to the infrastructure of environmentally friendly vehicles should be considered in the payment of subsidies.

Ⅲ. Expected Effects

▶ Academic effects

○ By empirically analyzing the legislative effects of the eco-friendly motor vehicle subsidy system, which has been recently discussed legislatively, this study aims to present the analysis method and analysis case of effective legislative evaluation

 

▶ Policy contribution

○ This study is expected to contribute to proposing rational improvements to the subsidization criteria for low- and zero-emission vehicles under the 「Clean Air Conservation Act」, reflecting the rapid socio- environmental changes that have occurred in recent years, and the development of the automobile industry and technology.