[Moon in Office] Industry calls for cautious approach in cutting diesel vehicles

The Korea Herald is publishing a series of articles delving into the economic policies and tasks expected of the new Moon Jae-in administration. This is the eighth installment -- Ed.

In a major turn from the past government’s recommendation of using diesel-powered vehicles that were initially touted to be eco-friendly since around 2008, Korea has been moving to slash the number of them as a way to tackle fine dust. And the new Moon Jae-in administration appears determined to take the initiative.

President Moon Jae-in pledged during his election campaign that he would start to slash the number of personal diesel vehicles in the nation and eventually ban them by 2030, to reduce particulate matter emissions by at least 30 percent during his term. 

The market expects the administration’s first move will be to increase the tax on diesel fuel. The current diesel price is at 85 percent of the price of gasoline -- the ratio was fixed in 2007 and remains unchanged since then.

The number of diesel cars that hovered around 7 million in 2013 has now reached 9 million, with about 3 million of them categorized as superannuated diesel vehicles, according to the Ministry of Land, Infrastructure, and Transport.

The central government -- including the Ministry of Land, Infrastructure, and Transport, the Ministry of Strategy and Finance, the Ministry of Environment, Ministry of Environment and the Ministry of Commerce Industry and Energy -- is currently running joint research on diesel’s relation to fine dust, to decide whether the government should raise the diesel price, which was initially proposed by the Ministry of Environment.

The four ministries will make the results of the study public during a public hearing scheduled for late June, a Finance Ministry official said. “Whether the government will raise the diesel price or not will be decided based on the research result,” he added.

On the back of the government‘s recent move that has been well received as an ultimate way to address rising health concerns from aggravating air quality, the domestic oil refiners are also calling for a cautious approach, citing possible financial damage.

Diesel currently accounts for some 25 to 30 percent of the total produce amount of the nation’s oil refiners, although the ratio varies among each firm, according to the Korea Petroleum Association.

In terms of domestic consumption, diesel accounts for some 22 percent, while gasoline accounts for some 8 percent, of the total oil consumption, it added.

”At this moment, it is difficult to gauge how much financial damage the domestic oil refiners will see, but the tax hike will in any case have negative impacts on the industry. As such careful measures may be needed,“ it said.

The Ministry of Environment in June 2016 reported that diesel cars account for some 29 percent of domestic ultrafine dust emissions in metropolitan areas, while suggesting to increase the tax on diesel.

The industry is currently refuting the ministry‘s research in terms of research standards. “Saying that diesel cars account (for 29 percent of emission) is exaggerated,” an industry insider said. Overseas emissions account for a much greater proportion, while diesel cars account for less than 10 percent, of the whole emissions, the source contended.

Automakers are also on alert as the newly elected president may eventually push to reduce the number of diesel cars in the nation as well.

”Financial losses will be inevitable for auto companies that heavily rely on diesel vehicles, in term of their sales, if the government actually decides to drive diesel cars out of the roads,“ an automotive industry insider said.

”Yet the losses may not be significant, as the companies have been shifting to focus more on producing electronic and hybrid vehicles, while less focusing on diesel cars after the Volkswagen emissions scandal. The shift is expected to continue worldwide,“ he added.

The government currently set aside a total of 484 billion won ($431 million) in this year’s budget aimed at reducing the source of fine dust. Of the total, some 260 billion won is fixed to support the electric vehicle industry, while some 70 billion is set aside to provide subsidiaries to install diesel particulate filters and to those who want to scrap their diesel cars.

The number of diesel vehicles in the nation is currently at some 9 million in total, and about 3 million are regarded as “superannuated diesel vehicles,” according to the Ministry of Land, Infrastructure, and Transport.

By Shim Woo-hyun (ws@heraldcorp.com)