WHY the Government’s subsidy to encourage early replacement of HK’s dirtiest vehicles failed

February 16, 2010

By Joanne Ooi

Here is the gist of today’s SCMP article about the Government’s failed subsidy program to accelerate replacement of pre-Euro IV commercial vehicles.

In April 2007, the Government launched a HK$3.2 billion voluntary replacement scheme to encourage owners of the dirtiest commercial diesel vehicles (buses and trucks registered before 1995) to replace them as soon as possible. (The Euro 1 emission standard came into existence in 1995. The latest engine standard is Euro V. Notably, the combined Hong Kong franchised bus fleets contain only 1 retrofitted Euro V standard bus.) Under the scheme, owners are eligible for grants if their new vehicles comply with the latest Euro IV standards, which are up to 30 times less polluting than the older ones.

The scheme expires at the end of next month and is now being called a failure, even by the EPD. “The Environmental Protection Department said it would not extend the scheme because that would be counter to its objective of encouraging owners to replace vehicles early.”

At the end of January, less than 20% of the subsidy was awarded. The Environmental Protection Department had approved 13,798 applications, with 89.2% of those for goods vehicles, 6.9% for non-franchised buses and 3.8% for light buses. Since the inception of the scheme, there are 23% fewer of these vehicles on the road, but 3,000 vehicles would have been eliminated through natural obsolescence anyway. That leaves us with 39,000 of such vehicles still on Hong Kong’s streets. 92 per cent of pre-Euro and Euro I commercial diesel vehicles are goods vehicles.

Lai Kim-tak, chairman of the Medium and Heavy Truck Concern Group, explained why the subsidy scheme failed: “[T]he scheme was not attractive to truck owners because it offered them little financial help to buy a new vehicle. The average grant is HK$43,000, while a Euro IV truck costs between HK$650,000 and HK$800,000. ‘The scheme did not spur our members to replace trucks earlier because the subsidy is small and trucks are so expensive. We buy a new truck when ours no longer work and then we apply for the fund,’ he said. ‘But by that time, with or without the grant, we need to buy a new truck.’”

Dr Alexis Lau Kai-hon, a professor at HKUST, said, “‘Apart from carrots, there should be sticks in government policy,’ he said. The government should give a clear signal that environmental conservation is its priority: ‘Look at the example of the plastic bag levy. Traders opposed it fearing it would harm their business. But the levy is working very well now.’ He suggested the government set up low-emission zones or raise licence fees for dirty old vehicles.”

Last month, the EPD said it would consider compelling owners to scrap their polluting vehicles. But Legco rejected a proposal to increase licence fees for older vehicles last year, due to concerns about the economic downturn.

CAN’s view:

First and foremost, the Hong Kong Government needs to make public health, not the transport constituency, top priority. The lack of stick in the present scheme is tantamount to stating, clean air is optional — not a necessity.

The failure of the present scheme demonstrates the importance of having sticks to accompany carrots, especially when the amount of the subsidy per vehicle is not extremely attractive to vehicle owners.

However, is it fair for vehicle owners to bear almost the full brunt of early replacement when subsidies are as small as those in the present scheme? NO. Rather, there is a strong argument for a larger subsidy per vehicle, regardless of whether early replacement is mandatory or not, IF we believe that clean air is an indispensable public good, for which government must be responsible. Just as bus riders should not have to be the only ones to pay for a cleaner bus fleet, transport companies should not be the only ones to pay for cleaner trucks and buses. ALL stakeholders — especially government — must be be willing to sacrifice if we are to clean up Hong Kong’s air.

Finally, the present scheme would have been vastly more successful had the permissible subsidy per vehicle been twice as much. For a size of subsidy which would be effective, California provides a good example. Their newly introduced hybrid vehicle voucher system stimulates purchase of green commercial vehicles through vouchers. http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20091222005202&newsLang=en
These vouchers defray the cost of a new hybrid truck or bus by US$10,000-45,000 (HK$80,000-360,000). So, again, if carrots are to be useful, EVEN WITHOUT STICKS, they have to be meaningful financial enticements to would-be purchasers of cleaner vehicles.