By Yoon Ja-young
Following President Moon Jae-in's order to temporarily shut down old coal-fired power plants to tackle fine dust, the market expects the new administration's next move may be to raise the tax on diesel fuel.
The new President had pledged during his campaign that he would reduce domestic fine dust emissions by over 30 percent within his term by shutting down old coal-fired power plants and reducing the number of diesel cars.
To decrease diesel cars, a diesel tax may be raised. Currently, the government levies a 375 won tax per liter of diesel fuel, which compares with the 529 won tax levied on the same amount of gasoline. Raising the tax will pull up diesel prices, inducing drivers to switch to gasoline cars.
According to Korea Petroleum Association, diesel took 47 percent of the 323 million barrels of automotive fuel consumed in 2015. Diesel cars are popular in the country, amounting to 48 percent of vehicles newly registered here last year. Consumers find them attractive due to their high efficiency and low fuel prices.
The government is still cautious about any form of tax hike. When the government announced measures to tackle fine dust last year, the environment ministry pointed to old diesel cars as one of the main sources of fine dust and suggested raising the diesel tax.
"The diesel tax is a complicated issue. Other ministries were against the plan, citing the negative impact on industry. Nothing has been decided yet," an official at the finance ministry said.
The government, which faced severe opposition when it raised the cigarette tax to curb cigarette consumption, fears the same will happen with the diesel tax.
Some also doubt whether a diesel tax hike is the right solution to curb fine dust. According to analysis by the National Institute of Environmental Research, overseas factors such as fine dust from China contributed to 76.3 percent of the fine dust in the first quarter this year. Among the nationwide ultrafine dust emissions, businesses and construction machinery accounted for 58 percent, followed by power plants at 14 percent. Diesel vehicles accounted for only 11 percent of the domestic fine dust.
This means diesel vehicles are not the main source of fine dust. The oil industry thus claims the government should focus on scrapping old diesel cars, pointing out that newer diesel vehicles have little to do with fine dust.
The tax hike may not be effective since large trucks and construction vehicles emit most of the fine dust coming from diesel vehicles. Even if the diesel tax is raised, these trucks for business purposes get subsidies for fuel, which means a tax hike will only affect personal diesel usage.
Korea Institute of Public Finance, meanwhile, advises that it is better to levy a carbon tax on all fuel consumption instead of raising taxes only on specific energy sources such as diesel. "That can minimize negative impact in terms of distribution and control inflation," it noted.
It also points out fine dust is not the only source of air pollution.
"Air and water pollution through emissions of noxious substances as well as global warming through carbon dioxide emissions are all part of the negative externality stemming from energy consumption," the institute noted in the report.
Following President Moon Jae-in's order to temporarily shut down old coal-fired power plants to tackle fine dust, the market expects the new administration's next move may be to raise the tax on diesel fuel.
The new President had pledged during his campaign that he would reduce domestic fine dust emissions by over 30 percent within his term by shutting down old coal-fired power plants and reducing the number of diesel cars.
To decrease diesel cars, a diesel tax may be raised. Currently, the government levies a 375 won tax per liter of diesel fuel, which compares with the 529 won tax levied on the same amount of gasoline. Raising the tax will pull up diesel prices, inducing drivers to switch to gasoline cars.
According to Korea Petroleum Association, diesel took 47 percent of the 323 million barrels of automotive fuel consumed in 2015. Diesel cars are popular in the country, amounting to 48 percent of vehicles newly registered here last year. Consumers find them attractive due to their high efficiency and low fuel prices.
The government is still cautious about any form of tax hike. When the government announced measures to tackle fine dust last year, the environment ministry pointed to old diesel cars as one of the main sources of fine dust and suggested raising the diesel tax.
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"The diesel tax is a complicated issue. Other ministries were against the plan, citing the negative impact on industry. Nothing has been decided yet," an official at the finance ministry said.
The government, which faced severe opposition when it raised the cigarette tax to curb cigarette consumption, fears the same will happen with the diesel tax.
Some also doubt whether a diesel tax hike is the right solution to curb fine dust. According to analysis by the National Institute of Environmental Research, overseas factors such as fine dust from China contributed to 76.3 percent of the fine dust in the first quarter this year. Among the nationwide ultrafine dust emissions, businesses and construction machinery accounted for 58 percent, followed by power plants at 14 percent. Diesel vehicles accounted for only 11 percent of the domestic fine dust.
This means diesel vehicles are not the main source of fine dust. The oil industry thus claims the government should focus on scrapping old diesel cars, pointing out that newer diesel vehicles have little to do with fine dust.
The tax hike may not be effective since large trucks and construction vehicles emit most of the fine dust coming from diesel vehicles. Even if the diesel tax is raised, these trucks for business purposes get subsidies for fuel, which means a tax hike will only affect personal diesel usage.
Korea Institute of Public Finance, meanwhile, advises that it is better to levy a carbon tax on all fuel consumption instead of raising taxes only on specific energy sources such as diesel. "That can minimize negative impact in terms of distribution and control inflation," it noted.
It also points out fine dust is not the only source of air pollution.
"Air and water pollution through emissions of noxious substances as well as global warming through carbon dioxide emissions are all part of the negative externality stemming from energy consumption," the institute noted in the report.
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