Promoting electric vehicles in Korea

Posted Tuesday, 19 January 2016, 03:00

Siyou Kim & Zifei Yang

When we published this study last year on fiscal policy incentives for electric vehicles (EVs) offered in various vehicle markets around the world, we were not able to include information on South Korea. That was unfortunate, because Korea is the eighth largest car market in the world and it has an interesting and informative set of incentives promoting EVs. So we wanted to take an opportunity to update that paper with some details on Korea's EV market and corresponding policy initiatives.

EV sales in Korea have shown some growth over the last three years, as the table below shows.


Korea electric vehicle and passenger car sales, 2012–2014.

BEV = battery electric vehicle; HEV = hybrid electric vehicle.

Sources: For EV sales, KAMA, KAIDA; for passenger car sales, Markline

Note that as of 2014 no plug-in hybrids had yet been sold in Korea.

Korea announced its EV incentive program in 2011, with subsidies and tax benefits available initially in 5 regions, expanding to 17 regions in 2015. The national government offers 15 million won (~$13,636) in subsidies for battery electric vehicles; that amount will decrease from 2014 to 2020. Local governments also offer subsidies, though these vary by locality. For example, Jeju, a self-governing province that aims to become carbon-free by 2030, offered additional subsidies in 2015 worth 7 million won ($6,364). It's noteworthy that the total BEV subsidy in Jeju, around US$20,000, far exceeds the maximum $10,000 BEV subsidy in California. Unsurprisingly, in 2014, 28% of all EVs sold in Korea were sold in Jeju, though total sales there were only 1.9% of all new vehicle sales in Korea.

Both national and local (province and city) governments offer tax incentives for BEV purchasers, which combined can amount to as much as 4.2 million won (~$3,818). 

Taken together, the direct subsidies and tax incentives available to BEV buyers in Korea add up to a substantial monetary benefit. (There is also a significant disparity in fuel costs between fuel and electricity). 

The Kia Soul BEV, one of the most popular BEV models (35% of sales) in 2014, provides a clear illustration of the impact of incentives.

In Jeju, the total cost of owning a Soul EV ($18,720) is 55% lower than the total cost if it was taxed regularly, and 18% cheaper than the gasoline model Soul. As shown in the figure below, purchasing and operating a Soul EV is much cheaper in Jeju than in California. The strong government support for EV development attempts to compensate for the price disadvantages of BEVs. 


*Note: Total Cost of Ownership includes vehicle purchase and registration costs, as well as ownership taxes and fuel / electricity costs for 4 years. For purposes of this comparison, the Korea base price was used, for consistency. 1 USD = 1,100 WON (Korea currency). The methodology behind this type of comparison is described here

In addition to these fiscal incentives, the Korean government and some local governments offer a variety of non-monetary benefits, such as a permanent environmental improvement charge exemption for zero emission vehicles (ZEVs), special parking privileges for BEVs, exemption from congestion fees, reduced public parking fees, and lower electricity prices.
 
Korea has said that it intends to become one of the greenest countries in the world. Robust EV subsidies—along with related initiatives such as expanding the availability of charging stations nationwide— are clearly part of its national strategy to achieve that goal. And it's working: 
 
EV sales in the first half of 2015 had already equaled 2014 annual sales. Korea aims for EV sales of 64,000 units in 2020. We look forward to keeping an eye on the growth of this market!