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					                                                               March 2010 Vol.2 No.11

  A Public Transport Funding Crisis in the Seoul Metropolitan Area and Possible Solutions

Improving the Structure of Transportation Laws with Regard to Low-Carbon Green Growth
                                           A Proposal for Introducing Green Car Insurance

                                         Policy Seminar for Low-Carbon Green Growth
            Seminar on Evaluating and Invigorating Green Growth in the Transport Sector
                 Visit by China’s Chang’an University Professors for a Logistics Seminar
                                                                                                                March 2010 Vol.2 No.11 KOTI World-Brief

       A Public Transport Funding Crisis in the Seoul Metropolitan Area and
                               Possible Solutions
                                Changhwan Mo_Research Fellow, Transport Research Center for Social Inclusion
                                      Suna Cho_Researcher, Transport Research Center for Social Inclusion

     Public Transport Facing a Funding Crisis
     Subsidies for public transportation account for excessively high portions of transport budgets of local governments in the Seoul metropolitan
     area. As a result, they are suffering from fiscal rigidity; huge mass transit costs plus uncontrollable expenditures are reducing the scope of
     discretionary budgets they can use.

     Analysis of Foreign Examples of Mass Transit Financing and Their Implications for Korea
     It is urgently required for the local governments to prepare independent funding measures, rather than relying on direct and indirect assistance
     from the central government. One option would be to expand financing sources through imposing a local consumption tax.

     Measures to Increase Public Transport Funding in the Seoul Metropolitan Area
     To address the funding crisis, this report suggests the following measures: a 5% increase in allotment of Transport, Energy, and Environment
     Tax revenues to the transport system management account, readjustment of the Metropolitan Transport Facilities Charge allotment ratios
     between central and local governments, preparation of Public Service Obligation (PSO) compensation provisions regarding subway free rides,
     imposition of metropolitan transport taxes and local consumption taxes, introduction of the Eco-Pass congestion fee, and introduction of a Tax
     Increment Financing (TIF) scheme.

Public Transport Facing a Funding Crisis                                        Table 1_A Comparison of Transport Bureau Budgets of Local Governments in the Seoul
                                                                                        Metropolitan Area and Their Public Transport-Related Fiscal Burdens
                                                                                                                                                 (Unit: billion won, %)
Local governments in the Seoul metropolitan area are spending
                                                                                                                                                       Losses from
excessively high portions of their budgets as subsidies for public                                              Estimated   Losses from
                                                                                               Transportation                            Total losses     financial
                                                                                                                   bus        subway
transportation. And, subsidy payments are expected to keep                      Classification    budget                                from financial assistance as
                                                                                                                subsidies    operations
                                                                                                   (2009)                                 assistance a percentage
growing.                                                                                                          (2009)       (2008)
                                                                                                                                                       of budget (%)

                                                                                    Seoul         4,086.4         290.0        374.3         664.3          16.3
Subsidies to local buses and subways account for 16.3% of the Seoul
                                                                                  Incheon          891.0          53.0         34.8          87.8            9.9
City Transportation Headquarters’ total budget of 4.1 trillion won,
causing financial burdens to the organization. The government of                                  1,289.1         185.4          -           185.4          14.4
Gyeonggi Province is also experiencing difficulties as subsidies related
                                                                                    Total         6,265.5         528.4        409.1         937.5          15.0
to mass transit transfer discounts amounted to 185.4 billion won in
2009, making up 14.4% of its Transportation and Construction
Bureau’s budget of 1.3 trillion won. Incheon metropolitan city is not an        Public transport subsidy requirements make up excessively high
exception in experiencing financial strains because of the increasing           percentages of the local governments’ discretionary budgets,
subsidies for buses and subways, which in 2009 amounted to 87.8                 which exclude uncontrollable expenditures. Thus, they cause
billion won, or 9.9% of its Transportation and Construction Bureau’s            fiscal rigidity in the local governments’ budget spending.
total budget of 891 billion won.
                                                                                In 2009, the local governments in the Seoul metropolitan area spent a
                                                                                combined total of 937.5 billion won in public transport subsidies, which

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                                                                                                                         March 2010 Vol.2 No.11 KOTI World-Brief

                                                                                             governments, the local governments in the Seoul metropolitan area
                                                                                             should exert efforts to find independent mass transit financing
                                                                                             schemes, such as the metropolitan transport tax (VT) of France’s
                                                                                             Syndicat des Transports d’Ile-de-France (STIF) and local consumption
                                                                                             taxes used by a number of foreign municipalities. Now is the time for
                                                                                             the local governments to intensify endeavors to secure independent
                                                                                             funding channels, which would allow them to supply stable public
                                                                                             transport services.

                                                                                             Legal Basis for Imposing New Taxes for Public Transport Subsidies
                                                                                             In most advanced countries, public transport agencies are suffering
                                                                                             from losses as their fare revenues cannot cover their operating costs
                                                                                             amid decreasing mass transport ridership. A similar situation is taking
                                                                                             place in Korea’s capital region which is predicted to experience growing
                                                                                             public transit operating deficits. As in the foreign countries, the local
                                                                                             governments in the Seoul metropolitan area should prepare a legal
broke down to 528.4 billion won for buses and 409.1 billion won for                          basis for imposing new public transport-related taxes, thus securing
subways. Experiencing a financial pinch as they struggle to pay back                         sufficient budgets needed for operating mass transit in a stable
the principal and interest of subway debt, the local governments are                         manner.
facing fiscal rigidity due to the increase in bus subsidies.
                                                                                             Public Transport Financing through Local Consumption Tax
                                                                                             In the case of the Chicago area’s RTA, the major source of income
Analysis of Foreign Examples of Mass Transit                                                 other than fare revenue is a dedicated regional sales tax. The tax is
Financing and Their Implications for Korea                                                   levied in five northern Illinois counties, with the Illinois state government
                                                                                             collecting the tax. The MTA of New York imposes a public transport
Independent Funding Measures                                                                 operation support tax (MMTOA) as a means of financing mass transit.
Rather than relying on direct and indirect support from the central

Table 2_ Foreign Examples of Public Transport Financing

        Organization                                                           Financing sources                                       Financing allotment
                                      (Participation scope)
                                                                   Federal subsidy                                  Fare and advertisement revenue
                                 Special local autonomy system     Fees, income and local consumption tax           The state government has 15% of sales tax revenues, with
 (Chicago metropolitan area)
                                                                   Sales tax revenue and issuance of bonds          the rest being divided among CTA, Metra and PACE.

                                                                   Federal subsidy
                                                                                                                    New York City (8.5%)
                                 Under jurisdiction of the state   Local government budget
           MTA                                                                                                      New York State (6.7%)
                                 government                        Fare revenue
(New York metropolitan area)                                                                                        Grants from state and municipal governments
                                 (New York State)                  Gasoline tax revenue, real estate tax revenue,
                                                                                                                    MTA local bus companies: Support by New York City
                                                                   tunnel tolls, etc.

                                                                   Federal subsidy
                               Under jurisdiction of the state     Local government budget                          Federal subsidy
(Portland, Oregon metropolitan
                               government                          Fare revenue                                     State subsidy
                                                                   Bonds, property tax

                                 Association of autonomous         Local government budget
             STIF                                                                                                   Participation of various groups
                                 bodies                            Fare revenue
            (Paris)                                                                                                 Institutionalized inspection by local groups
                                 (in the capital area)             Metropolitan transport tax (VT)

                                                                                                                    Local government's financing capacity dependent on the size
                                                                   Subsidy from the central government
                                 Under jurisdiction of the                                                          of subsidy from the central government
            TFL                                                    Local government budget
                                 metropolitan government                                                            Fare revenue
          (London)                                                 Fare revenue
                                 (jurisdiction of London)                                                           Subsidy from the central government
                                                                   Congestion fee
                                                                                                                    Grant from London City

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                                                                                                      March 2010 Vol.2 No.11 KOTI World-Brief

Measures to Increase Public Transport Funding in the                          Public Transport Funding Through a Metropolitan Transport Tax
Seoul Metropolitan Area                                                       There is a need to impose a “Metropolitan Transport Tax,” a local
                                                                              special-purpose tax, on businesses operating with 50 or more
Policy Directions for Fiscal Support for Public Transport                     employees in urban centers in the Seoul metropolitan area. In
In terms of the need to enhance social integration and fairness,              accordance with the benefit principle, businesses benefitting from
assistance should be provided to public transportation, including to low-     improvement of public transportation should be subject to this tax.
income riders. The assistance should be expanded to promote green             Revenues from this tax would help provide a more healthy finance
transportation and safeguard the transportation rights of the citizens.       stream for public transportation. The tax rate should be set at 0.5% of
                                                                              employee wages. In imposing the new tax, the Business Office Tax
Increased Allotment of Transport, Energy, and Environment Tax                 may serve as a standard. Levied on businesses with 50 or more
Revenues to the Transport System Management Account                           employees, the office tax is a local special purpose tax earmarked for
With a three-year extension of the Transport, Energy, and Environment         environmental improvement.
Tax, this report suggests that allotment of the tax revenues to the
Transport System Management Account (formerly mass transit                    Imposition of Local Consumption Tax for Public Transport Financing
account) within the Special Account for Transport Facilities be raised by     Imposing a 1% local consumption tax in addition to the present value-
5% (6~10%          11~15%). This would lead to the creation of an             added tax (VAT) could be considered as a way to secure funding for
additional 400 billion won that could be used in funding public transport.    public transportation. Under this scheme, the VAT rate would go up
Expenditure provisions of the account should be rewritten to cover            from the present 10% to 11%.
mass transit subsidies and financial assistance regarding mass transit
transfer discounts.                                                           Introduction of the Eco-Pass System
                                                                              Introducing a carbon levy (Eco-Pass) in the form of a congestion fee in
Readjustment of Metropolitan Transport Facilities Charge                      Seoul’s city centers south and north of the Han River could be a way of
Allotment Ratios between Central and Local Governments                        securing public transport funding. Most of the Eco-Pass revenues
Allotment ratios for revenues from a development levy called the              should be reinvested in mass transit expansion projects. Eco-Pass
“Metropolitan Transportation Facilities Charge” need to be readjusted to      revenues collected in Seoul need to be fairly distributed among the
increase the portion for local administrative entities. The portion for the   local governments in the Seoul metropolitan area and be used in
central government should be lowered from the present 40% to 20%,             promoting the use of public transportation.
while that for local governments should be increased from 60% to 80%.
                                                                              Introduction of TIF Scheme
Preparation of PSO Compensation Provisions Concerning Subways                 Under the assumption that investment in transport projects like subway
In accordance with the “polluter pays” principle, the central government      expansion leads to property tax increases in the surrounding area, local
should grant public service compensation to cover 50% of losses               governments may issue bonds by using future tax gains as collateral.
caused by free subway rides. The local governments should pick up             By recapturing development gains, which must be reinvested in the
the tab for the remaining 50%, coming to terms with the reality and           local designated TIF district, the local governments can explore
accommodating the cause for allowing transportation-disadvantaged             sources for mass transport funding. This scheme is considered a
people to ride subways free of charge. With regard to this issue, the         desirable way of improving the efficiency of resource distribution.
Urban Railway Law should be revised to include PSO provisions.

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                                                                                                      March 2010 Vol.2 No.11 KOTI World-Brief

                         Improving the Structure of Transportation Laws with
                               Regard to Low-Carbon Green Growth
                                 Changhwan Mo_Research Fellow,Transport Research Center for Social Inclusion
                        Gangghiy Ahn_ Associate Research Fellow, Dept. of Metropolitan and Urban Transport Research

Background                                                                      Chapter 2 National strategy for low-carbon green growth (Articles
                                                                                9~13): national strategy, promotion plan, check and evaluation, etc.
In December 2009, the Korean government enacted the Basic Law on                Chapter 3 Green Growth Commission, etc. (Articles 14~21):
Low Carbon and Green Growth to closely connect and integrate                    formation of a commission and a planning team, etc.
various measures separately pursued by a number of ministries to                Chapter 4 Pursuance of low-carbon green growth (Articles 22~37):
tackle the issues of climate change and global warming, new and                 green economy, green industry, etc.
renewable energy, and sustainable growth. The enactment of the law              Chapter 5 Realization of a low-carbon society (Articles 38~48):
helped lay the legal and institutional foundation for systematically and        coping with climate change, energy policy, emissions control of
effectively pursuing the goal of realizing low-carbon green growth.             greenhouse gases, a cap and trade carbon system, etc.
In a related development, the Ministry of Land, Transport and Maritime          Chapter 6 Realization of green life and sustainable development
Affairs enacted the Law on Sustainable Transportation and Logistics             (Articles 49~59): green life, sustainable development, low-carbon
Development in April 2009, securing a legal basis for ensuring growth           transport system, green architectural structures, etc.
in the area of transportation and logistics. The law was specifically           Chapter 7 Supplementary rules (Articles 60~64): data submission,
aimed at accommodating moves toward green growth and ensuring a                 international cooperation, levies, etc.
shift toward a sustainable transportation policy.
However, problems arose involving the lack of consistency among the           Law on Sustainable Transportation and Logistics Development
laws related to green growth and those related to sustainable                 This law presents basic directions for establishing and implementing
development. In addition, these laws and conventional transportation          transportation and logistics policies that can cope with changing
laws were found to have conflicting and overlapping provisions. These         circumstances such as climate change, energy crises, and demand for
problems prompted calls for improvement.                                      environmental protection. Made up of six chapters and 53 articles, this
                                                                              law provides six principles based on the concept of sustainability
                                                                              involving the efficiency of transport systems as well as green growth:
Major Contents of Green Growth and Sustainability Laws
                                                                                Chapter 1 General provisions (Article 1~6): objectives, principles,
Basic Law on Low Carbon and Green Growth                                        responsibilities, duties and rights, etc.
As the highest-ranking law on green growth, this law presents basic             Chapter 2 Basic plan for development of sustainable national
directions to be pursued in various national sectors on the basis of nine       transport logistics (Articles 7~15): formation of a basic plan,
fundamental principles for strategic national development.                      procedures, etc.
As for transportation, this basic law emphasizes the need to preserve           Chapter 3 Acceleration of a shift toward a sustainable transportation
the values of natural resources and the environment. At the same time,          and logistics system (Articles 16~30): greenhouse gas emissions
it calls for reorganization of land, cities, architectural structures, and      reduction, modal shift, public transport, etc.
infrastructure such as transport facilities, roads, ports and water supply      Chapter 4 Increasing the use of non-motorized, no-carbon modes of
and sewage systems so that they can be efficiently used in endeavors            transport (Articles 31~40): bicycle transport, pedestrian transport,
to realize low-carbon green growth. The law’s main transportation-              intermodal transportation, etc.
related guidelines are contained in Article 47 (Control of greenhouse           Chapter 5 Designation and management of areas where special
gas emissions in the transportation sector) and Article 53                      measures need to be taken (Articles 41~45): transportation demand
(Establishment of a low-carbon transport system). The law is divided in         management measures, etc.
the following sections:                                                         Chapter 6 Supplementary rules (Articles 46~52): education and
                                                                                training, international cooperation, assistance for improvement
  Chapter 1 General provisions (Articles 1~8): objectives, principles,          projects, etc.
  responsibilities, etc.

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                                                                                                                                      March 2010 Vol.2 No.11 KOTI World-Brief

Measures to Ensure Alignment between the Basic Law on Low Carbon and Green Growth and the Law on Sustainable Transportation and Logistics Development

                                           Problems                                                                                Improvement Suggestions

 With regard to Article 47 (Control of greenhouse gas emissions from cars and other                  Add new stipulations to the Law on Sustainable Transportation and Logistics
 modes of transport) of the Basic Law on Low Carbon and Green Growth, the Law on                     Development concerning control of greenhouse gas emissions from cars and other
 Sustainable Transportation and Logistics Development has no provisions concerning gas               modes of transport, incentives for greenhouse gas reductions in regard to the
 emissions reduction and their permissible levels in regard to the manufacture of cars.              manufacture of cars, and criteria for permissible emissions.

 The Law on Sustainable Transportation and Logistics Development has a provision on                  Add new stipulations to the Law on Sustainable Transportation and Logistics
 preferential treatment regarding the manufacture and use of environmentally-friendly cars,          Development concerning imposing levies on purchasers of high-emission cars and
 but it does not have stipulations on imposing levies on purchasers of high-emission cars.           offering incentives to purchasers of environmentally-friendly cars.

                                                                                                     Add new stipulations to the Law on Sustainable Transportation and Logistics
 The Law on Sustainable Transportation and Logistics Development does not have proper
                                                                                                     Development regarding the readjustment of resource allotment ratios of the special
 stipulations on railroad-related contents as described in the Basic Law on Low Carbon
                                                                                                     transport facilities account in a way to increase ratios of investment in railroads relative
 and Green Growth (Clause 3, Article 53). This reflects failure to ensure mutual
                                                                                                     to investment in paved roads. In addition, revision of relevant clauses to ensure
 consistency and specification.
                                                                                                     specification and consistency among related laws.

                                                                                                     Revise the Law on Sustainable Transportation and Logistics Development to include
 The Basic Law on Low Carbon and Green Growth calls for “increasing the use of bicycles,
                                                                                                     provisions on safety measures for bicycle riders, bicycle infrastructure expansion, and
 etc.” (Clause 3, Article 53). The Law on Sustainable Transportation and Logistics
                                                                                                     fundraising systems. Add clauses on improving the walking environment and
 Development mentions plans regarding this, but does not present specific measures.
                                                                                                     safeguarding pedestrian rights in the Basic Law on Low Carbon and Green Growth.

 The Basic Law on Low Carbon and Green Growth has a clause (Clause 4, Article 53) on                 Include a corresponding clause in the Law on Sustainable Transportation and Logistics
 improving the congestion fee and traffic induction charge systems. However, the Law on              Development.
 Sustainable Transportation and Logistics Development does not have a corresponding                  Add stipulations on collecting congestion fees and traffic induction charges to the Basic
 clause. However, there are regulations on the collection of congestion fees and traffic             Law on Low Carbon and Green Growth in a move to support measures for traffic
 induction charges.                                                                                  demand management.

                                                                                                     Revise the Law on Sustainable Transportation and Logistics Development to include
 The Basic Law on Low Carbon and Green Growth has a provision on expanding lanes for
                                                                                                     provisions on exclusive lanes for buses and low-emission cars, expansion of central bus
 buses and low-emission cars (Clause 4-2, Article 53), but the Law on Sustainable
                                                                                                     lanes in large cities, and expansion of HOV lanes on motorways and the right-of-way for
 Transportation and Logistics Development has no corresponding clause.
                                                                                                     high occupancy vehicles.

 The Basic Law on Low Carbon and Green Growth has a clause calling for the “expansion
                                                                                                     Add a new clause to the Law on Sustainable Transportation and Logistics Development
 of intelligent traffic information systems to help distribute traffic volume effectively” (Clause
                                                                                                     to make provisions for expanding intelligent traffic information systems under the goal of
 4, Article 53), but the Law on Sustainable Transportation and Logistics Development does
                                                                                                     establishing a low-carbon society and providing necessary financial assistance.
 not have a corresponding clause.

 The Basic Law on Low Carbon and Green Growth has a stipulation on “constructing low-
                                                                                                     Add financial incentive provisions to the Law on Sustainable Transportation and
 carbon ports and transforming the existing ones into low-carbon ports” (Clause 2-4, Article
                                                                                                     Logistics Development to encourage the construction of low-carbon ports and the
 51). However, the Law on Sustainable Transportation and Logistics Development has no
                                                                                                     transformation of existing ones into low-carbon ports.
 corresponding clause.

                                                                                                     Add new clauses to the Law on Sustainable Transportation and Logistics Development
 The Basic Law on Low Carbon and Green Growth has a clause on “promoting coastal                     to make provisions for promoting coastal marine transportation for carbon emissions
 marine transportation” (Clause 3, Article 53), but the Law on Sustainable Transportation            reduction as well as for providing subsidies to cargo owners using coastal marine
 and Logistics Development has no corresponding clause.                                              transportation instead of land transportation and for reducing port fees for coastal cargo
                                                                                                     ships to help enhance their price competitiveness.

Suggestions for Improving the Structure of Laws                                                       Carbon and Green Growth through the latter’s revision. This would
                                                                                                      make it possible to strengthen the mutual alignment of sustainable
Strengthening the Alignment of the Laws Related to Low-Carbon                                         development-related laws.
Green Growth                                                                                          Third, the contents of the Basic Law on Low Carbon and Green
The following measures should be taken to ensure that the low-carbon                                  Growth and the Law on Sustainable Transportation and Logistics
green growth-related laws are more closely aligned with each other.                                   Development should be reflected in individual transportation laws
First, the transportation-related contents stipulated in the Basic Law on                             through revision of these conventional laws, thus enhancing the
Low Carbon and Green Growth, which is the superior law, should be                                     alignment between sustainability-related laws and transportation laws.
incorporated into the Law on Sustainable Transportation and Logistics                                 Individual transportation laws should be revised so that they can
Development, through revision of the latter. This would make it                                       support low-carbon green growth policies by incorporating the concept
possible to ensure the efficacy of the basic law by specifying its                                    of sustainable development.
contents in the lower-ranking law.
Second, relevant contents of the Law on Sustainable Transportation                                    Establishment of Hierarchy among Laws to Secure Legal Efficacy
and Logistics Development should be added to the Basic Law on Low                                     The structure of transportation laws related to low-carbon green growth

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                                                                                                                     March 2010 Vol.2 No.11 KOTI World-Brief

                                                                                            placing the “Law on Sustainable Transportation and Logistics
                                                            With regard to low-carbon
                         Basic Law on Low
                         Carbon and Green
                                                            green growth, Option I calls    Development” and the “Law on Ensuring Efficiency of Integrated
                                                            for placing the “Law on
                                                            Sustainable Transportation      National Transport Systems” at the same hierarchical level, awarding
                                                            and Logistics Development”
                                                            and the “Law on Ensuring
                                                                                            them a higher status over individual transportation-related laws. Option
            Law on Sustainable       Law on Ensuring the
Option I    Transportation and            Efficiency of     the Efficiency of Integrated    II envisions a legal structure reorganization under which a new law
                 Logistics            Integrated National   National Transport
               Development            Transport Systems     Systems” immediately            called the “Transportation Basic Law” would be enacted as a superior
                                                            above the conventional
                                                            transportation-related laws,
                                                                                            law over the transportation-related laws and be placed under the
                             Individual                     under the superior act of the   “Basic Law on Low Carbon and Green Growth.” Option I is presented
                          Transportation-                   “Basic Law on Low Carbon
                           Related Laws                     and Green Growth.”              as a short-term measure, while option II is suggested as a mid- and
                                                                                            long-term measure as it would take a long time to enact the
                         Basic Law on Low
                         Carbon and Green                                                   “Transportation Basic Law.”
                                                            To resolve the hierarchical
                        Transportation Basic                problems involving
                               Law                          transportation laws and to
                                                                                            Revisions of Overlapping and Conflicting Articles
                                                            ensure social integration       There is a need to streamline relevant provisions and realign the
Option II   Law on Sustainable       Law on Ensuring the    and fairness, Option II
            Transportation and            Efficiency of     envisages reorganizing the      hierarchical relations to tackle the problem of similar programs being
                 Logistics            Integrated National   structure of transportation
               Development            Transport Systems     laws through enacting the
                                                                                            implemented on the basis of different laws, as in the cases of the
                                                            “Transportation Basic Law.”     “Basic Plan for Sustainable Transportation and Logistics Development”
                          Transportation-                                                   and the “Comprehensive Plan for Improvement of the Atmospheric
                           Related Laws
                                                                                            Environment.” Revisions should also be made in conventional
                                                                                            transportation-related laws that contain articles that are inappropriate in
needs to be improved through establishing a strict hierarchy among the                      regard to the pursuance of low carbon and green growth and do not
related laws. For this, this report presents two options. Option I calls for                meet stipulations of higher-ranking laws.

                                   A Proposal for Introducing Green Car Insurance
                                                       Sangyong Han, Research Fellow, Center for Climate Change
                                                   Jaehoon Lee, Senior Research Fellow, Dept. of Railway Research

Introduction                                                                                amounted to 21% and 20%, respectively, ranked second only to the
                                                                                            manufacturing sector. Due to its car-centered transportation system,
The current Korean government is presenting “low-carbon green                               the nation’s transportation sector serves as a major consumer of
growth” as a new national vision. It is pursuing various measures to                        energy and a source of carbon dioxide emissions.
realize this vision, which represents a paradigm shift toward a new                         To improve the nation’s car-centered transportation system, it is
national development strategy that envisions achieving growth,                              necessary to foster an environment where it is convenient and effective
creating jobs and securing new growth engines while minimizing                              to use transport modes other than cars. However, supplying sufficient
energy consumption and carbon emissions.                                                    transport facilities requires a huge amount of investment and takes a
However, the nation’s transportation sector has several limitations that                    long period of time. Taking transport demand control measures would
hamper its endeavors to realize low-carbon green growth. First of all,                      trigger resistance from car owners concerned about their burden of
the nation is heavily dependent on cars for transportation. In 2004, cars                   expenses. Thus, it has a low possibility of being implemented.
accounted for 86% of passenger transportation, and over 90% of cargo                        Also worth mentioning is that domestic car insurance premiums have
transportation. In 2005, the transportation sector’s shares in the                          factors inducing car owners to drive more.1) This is because insurance
nation’s total energy consumption and carbon dioxide emissions                              premiums are decided regardless of distance actually travelled by cars

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                                                                                                                                March 2010 Vol.2 No.11 KOTI World-Brief

and driving frequency. They are just based on the characteristics of
                                                                                                                                                                         Assistance for
cars and drivers such as car value, age (manufacture year), engine                                                                                  Increased            mid- and low-
capacity, car usage, the driver’s age, gender and insurance history, as                                                    Reduced travel           household           income bracket
                                                                                                                             expenses               disposable               people
well as the insurance coverage level.                                                                                                                 income               Green car
As of 2005, there were 10,899,210 passenger cars registered in the                                     Green Car

nation, and 99.6% of them or 10,854,346 vehicles had liability                                         Insurance
                                                                                                                                                 Reduced social
insurance. The percentage of passenger cars with comprehensive                                                              Reduced car
                                                                                                                                                      costs             Realization of
                                                                                                                                                  (congestion,           low-carbon
insurance (voluntary insurance) amounted to 99.5%. Amid the recent                                                         travel distance
                                                                                                                                                    energy,             green growth
economic downturn, car insurance rates have been raised, triggering                                                                               environment)
complaints from drivers who use their cars less frequently than in the
                                                                                                  Figure 1_Green Car Insurance Concept
past. In recent years, the government has been endeavoring to reduce
car use by taking various policies, including those to restrict driving
according to the last number on license plates or the day of the week.                            Among various measures for achieving low-carbon green growth,
These policies faced complaints from many car owners who pointed                                  green car insurance is one that can be implemented expeditiously
out the lack of economic incentives for compliance.                                               without facing technical and financial restrictions. Examples in
Advanced countries like the United States, France, the U.K., Japan                                advanced countries show that the scheme generates a definite effect
and Australia are increasingly using a Pay-As-You-Drive (PAYD) car                                of car use reductions. While making it possible for individual car
insurance scheme, under which the car user pays insurance premiums                                owners to save their car driving-related costs, the new insurance
in proportion to the extent of their car use (the distance the insured car                        system would allow society as a whole to save energy, decrease traffic
actually travels). This scheme provides clear and objective criteria for                          congestion, and reduce traffic accidents and environmental damage.
calculating premiums, thus offering an incentive to drive less. In light of
fierce domestic resistance against the idea of imposing a carbon tax on                           Table 1_Comparison of Emissions Reduction Strategies in the Transportation Sector

gasoline, the PAYD scheme may well be effectively used as a                                                                        Distance-based car         Alternative fuels and high
measure to control traffic demand and to help reduce emissions of                                                                       insurance                 fuel efficiency cars
                                                                                                   Savings on driving-related
carbon dioxide. In addition, introducing the scheme will likely be an
effective way to help lower household transportation expenditures that
                                                                                                    Easing traffic congestion
include expenses on gasoline and car insurance.
                                                                                                         Saving energy
This report examines the prospect of introducing what is tentatively
                                                                                                   Reducing traffic accidents
called “green car insurance” that can enhance fairness related to car
                                                                                                    Reducing environmental
insurance premium payment and contribute to reducing energy                                                damage
consumption and emissions of air pollutants through car use reduction.
                                                                                                  Data: Todd Litman (2008), Pay-As-Drive-Pricing in British Columbia, VTPI.

Concept of Green Car Insurance and Foreign Examples                                               The U.S. Brookings Institute analyzed the effects that the introduction
                                                                                                  of “distance-based car insurance” in California would have on the
Green car insurance, based on the concept of low-carbon green                                     society and households. The outcome shows that car use would
growth, represents a new insurance idea that encourages                                           decrease by 8%, leading to reduction of oil consumption by 1.2 billion
environmentally-friendly use of cars. It is a specific measure that                               barrels a year, and generating social benefits of $10.8 billion a year
makes it possible to cope with energy crises and climate change                                   through reduced traffic accidents and congestion. Also, 64% of the
through reducing energy consumption and carbon dioxide emissions.                                 state’s households would be able to save an average of $270 a year in
The PAYD system, explained above, can be cited as a representative                                their car premiums by using the distance-based car insurance system.
example.                                                                                          Frost & Sullivan, a global consulting firm, is predicting that the distance-
                                                                                                  based car insurance market will rapidly grow in Europe. In 2007, the
1) Liability insurance premium = Base premium (net premium + additional premium) discount         market size amounted to 20 million Euros, encompassing 10,600
   or extra rate + special extra rate contractor characteristics rate (prior insurance coverage   insured cars. By 2015, the market size is predicted to expand to 150
   rate traffic violation rate)
   Comprehensive insurance premium = Base premium (net premium + additional premium)              million Euros with 1.6 million insured cars.
   discount or extra rate + special extra rate contractor characteristics rate (prior insurance   Such countries as France, the U.K. and Australia are witnessing the
   coverage rate traffic violation rate) special rate special contract rate full coverage
   discount rate                                                                                  growing popularity of insurance that collects premiums in accordance

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                                                                                                                      March 2010 Vol.2 No.11 KOTI World-Brief

with distances actually driven (that is, distance-based                                                         insurance of the present system) and a usage
car insurance). The less distance a car travels,                                                                    premium that changes in accordance with
the lower the premium goes. So, it provides                                                                           distance a car actually travels. The obligatory
benefits to insurance contractors that do not                                                                           premium is to be paid at the time of contract,
frequently use their cars.                                                                                                while the usage premium is to be paid at the
Originally, the distance-based insurance                                                                                   end of each month on the basis of the
scheme was introduced as a way to cope                                                                                     monthly travel distance. Judging from the
with insurance fraud. However, through its                                                                                 examples of foreign countries, insurance
implementation, it has been proven that                                                                                    companies would be able to track the
the system provides economic benefits to                                                                                  distance the insured car travels and other
insurance companies. Now, it is drawing                                                                                  driving-related information such as date and
attention as a measure to save energy,                                                                                  duration by installing a specific device (such
reduce gas emissions and improve road traffic                                                                         as a GPS chip) on the car. The system should
safety.                                                                                                            be arranged so that the maximum amount of the
Premium discount rates and calculation methods                                                                 premium would not exceed the contractor’s present
differ from country to country. In Australia, the premium is                                             level of premium, thus preventing the introduction of green
calculated by multiplying the initially agreed yearly distance by a                            car insurance from leading to an increase in premium.
certain ratio ($0.1/km).2) If the customers travel less than the stipulated                  Green car insurance can be divided into two categories: distance-
distance, they are given a refund for the difference. If their cars travel                   based insurance and insurance for weekend-only drivers. Premiums of
more than the agreed distance, they should pay an additional                                 distance-based insurance are based on the distance actually travelled
premium. In France, in case the yearly travel distance is less than                          by cars. The shorter the distance, the greater the premium discount.
4,000km (11km/day), the contractor is given a discount that amounts to                       Under this format, the contractor can use their cars on weekends as
up to 45% of the original premium. In the U.K., if the distance is less                      well as on weekdays. The weekend car insurance is for those who use
than 9,600km (26km/day), the contractor is given a maximum 30%                               their cars only on weekends. Premium rates for this insurance would
premium discount. In the United States, a premium discount is offered                        be lower than those for distance-based insurance. The weekend would
by taking into account such factors as yearly travel distance, driving                       be defined as a period from 9 p.m. Friday through 4 a.m. Monday by
habits and late night driving. For example, a driver is given a maximum                      considering leisure patterns of the people. To prevent the insured car
25% discount if he or she drives less than 16,000km (44km/day),                              from being driven during weekdays, those violating the weekend-only
drives defensively and avoids driving late at night.                                         driving stipulation would be forced to pay back all the premium
The devices needed for monitoring the travel distance (e.g., GPS                             discounts he had been given up until the previous month.
chips) are provided free by insurance companies, or should be
purchased by the contractors. For example, in France and the U.K., the
device is provided free by insurance companies, but in the United                            Survey on Introducing Green Car Insurance
States, the contractor is required to buy the device for $30.
                                                                                             A survey on introducing green car insurance was conducted for 203
                                                                                             car-owning household heads in Seoul, aged between 20 and 65.
Measures to Introduce Green Car Insurance                                                    These people were asked to reply to questions on their commuting
                                                                                             status, expenditures related to their car use, and opinions on
Introduction of green car insurance is aimed at improving the premium                        introducing green car insurance.
calculation method in a way that encourages the environmentally-                             By income, 80 people or 39.4% of the respondents had monthly
friendly use of cars, thus helping to realize low-carbon green growth. In                    income of over 4 million won. The respondents in the 3-4 million won
other words, it features reorganization of the premium calculation                           and 2-3 million won brackets numbered 68 (33.5%) and 53 (26.1%),
mechanism by shifting emphasis from vehicles and insurance                                   respectively. Two persons (1%) reported monthly income of less than 2
contractors to travel distance and car usage characteristics.                                million won.
The premium is to be made up of an obligatory premium (liability                             Regarding their car use, 151 people said they were driving their cars
                                                                                             five or more days a week, accounting for 74.4% of the total
                                                                                             respondents. Twenty-nine or 14.3% replied that they were using their
2) Premium calculation for a 5,000km drive contract : $300 + (5,000km $0.1/km)               cars one or two days a week, while 23 or 11.3% said they were driving

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                                                                                                             March 2010 Vol.2 No.11 KOTI World-Brief

their cars three or four days a week.                                        year (valued at 1.45 trillion won), while traffic accident costs and
As for insurance payment, 131 respondents said they were paying              environmental costs would go down by 440 billion won and 160 billion
500,000 to 990,000 won in insurance premiums, accounting for the             won a year, respectively. Those who take out the distance-based car
largest percentage at 64.5%. Those paying less than 500,000 won              insurance policy would be able to save 600,000 won in gasoline
numbered 52 or 25.6%, and 20 people or 9.9% reported payments of             expenses and 190,000 won in premium payments a year, assuming
more than 1 million won.                                                     that they cut back on their travel distance by 30% and gained a 30%
On the proposed introduction of green car insurance, more than half of       premium discount as they wished.
the respondents (133 people, 65.6%) said they were in favor, while           As for the insurance for weekend-only drivers, an estimated 4.4 trillion
about one third (70 people, 34.4%) voiced their opposition. Those            won would be saved a year, provided that 49.3% of the private
opposing the scheme cited such reasons as prospect of premium                passenger car owners in the capital area buy the insurance and drive
increase (47.1%), insufficient effects in reducing traffic congestion and    their cars only on weekends. Gasoline consumption would be slashed
carbon dioxide emissions (37.1%), and the insurance scheme’s                 by 2.04 billion liters (worth 3.1 trillion won) a year, while savings from
complexity (15.7%).                                                          reduced traffic accidents and environmental damages would amount to
Asked more specifically of distance-based car insurance, 88 people, or       960 billion won and 350 billion won a year, respectively. Those who
43.3% of the total respondents, said they would use the scheme. This         buy the weekend-only car insurance would be able to save 1.32 million
indicated that a considerable percentage of private car owners would         won in gasoline expenses and 450,000 won in premium payments a
favor the distance-based insurance format.                                   year, providing that they drive their cars only during weekends (10
More than half of the people said they were in favor of introducing          days/month) and gain a 70% premium discount.
green car insurance, but the number of respondents who expressed
their willingness to use the new scheme was smaller. This gap may be         Table 2_Effects of distance-based car insurance introduction
attributable to insufficient awareness of the effects of green car                                                                           (Unit: 100 million won/year)

insurance.                                                                                       Savings on        Savings on      Savings on
                                                                             Travel distance
                                                                                                  gasoline       traffic accident environmental              Total
Of those who replied “yes” on whether to buy distance-based                  reduction rates
                                                                                                  expenses             costs      damage costs
insurance, 44.3% said they would reduce the travelling distance of their           10%              4,968             1,519                 545              7,032
cars by 10 to 30%, making up the largest portion. Of the same “yes”                20%              9,936             3,038             1,090               14,604
group, 47.7% said they would want a 20-30% discount from their
                                                                                   30%              14,904            4,556             1,635               21,095
present premiums. The preferred rates of discount for others were 40-
50% (26.1%), 30-40% (22.7%), and 10-20% (3.4%).
On car insurance exclusively for weekend-only drivers, 100 people, or
49.3% of the total 203 respondents, said they would buy the insurance.       Implications and Suggestions
This percentage was higher than that of people who said they would
use distance-based insurance (43.3%). The preferred premium                  Based on the analysis, this report presents several policy directions.
discount rates suggested by those who would buy the weekend car              First, there is a need to correctly recognize the effects of green car
insurance were 60-70% (30%), 40-50% (28%), 50-60% (27%), and 30-             insurance. This insurance scheme definitely has great potential to
40% (15%).                                                                   contribute to increasing household income and realizing green growth.
                                                                             In particular, it has bright prospects in terms of financing and
                                                                             implementation procedures, thus assuming significance as an effective
Analysis of Effects of Introducing Green Car Insurance                       measure to realize green transportation.
                                                                             Second, the existing systems and infrastructure should be refurbished
The economic effects to be generated by the introduction of green car        to ensure effective implementation of the green car insurance scheme.
insurance have been analyzed based on gasoline consumption, traffic          Priority should be given to improving the premium calculation system
accident-related expenses, environmental expenses, and premium               and providing the data tracking device to insurance contractors.
payment.                                                                     Last, there is a need to foster green car insurance as the mainstay of
First of all, assuming that 43.3% of the private passenger car owners in     the next-generation insurance industry. It would be worthwhile to
the capital area would buy distance-based insurance and reduce their         consider awarding carbon emission rights to insurance companies as a
travel distance by 30%, an estimated 2.05 trillion won would be saved        way to encourage their active participation in the green car insurance
a year.                                                                      project by reducing their business risks, and ultimately to provide
Specifically, gasoline consumption would shrink by 940 million liters a      opportunities for them to explore other green business projects.

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                                                                                                       March 2010 Vol.2 No.11 KOTI World-Brief

Policy Seminar for Low-Carbon Green Growth                                    evaluation standards and methods to regularly monitor the
“Low-Carbon Green Growth,” which has been presented as a national             achievements of green growth projects. Findings of the research will
strategy, requires a change in the nation’s transport structure. There is     help lay the foundation for ensuring green growth in the transportation
also a prediction that the global issue of climate change will take a new     sector. They are also expected to serve as tools that make it possible
turn in terms of national obligations and schemes for reducing                to pursue qualitative growth by maintaining balance between
greenhouse gas emissions once the Kyoto Climate Change Treaty                 environmental preservation and economic development.
expires in 2012.                                                              In a related move, KOTI held a seminar on “Measures to Evaluate and
To offer help in mapping out relevant national policies, the Korea            Invigorate Green Growth in the Transportation Sector” at a conference
Transport Institute (KOTI) hosted a seminar entitled “Implementation          room of the Korea Chamber of Commerce and Industry on February 4,
Measures for Low-Carbon Transport Strategy to Cope with Post-2012             with the participation of MLTM officials as well as professionals and
Climate Agreement” on January 26. Held under the auspices of the              scholars from business and academic communities.
Ministry of Land, Transport and Maritime Affairs (MLTM) and the
Presidential Committee on Green Growth, the seminar took place at
the third-floor conference room of the Construction Guarantee Building.
There were keynote speeches on greenhouse gas reduction targets in
the transport sector and implementation strategies, ways to monitor
greenhouse gas reduction effects in transportation, measures to
improve transport price policies to save energy, and transport demand
and policy directions in accordance with oil price fluctuations. These
speeches were followed by sessions for debate and accommodation of
opinions from experts from various fields.

                                                                              Visit by China’s Chang’an University Professors for a
                                                                              Logistics Seminar
                                                                              Professors of China’s Chang’an University visited KOTI on February
                                                                              10 and participated in a logistics seminar held at the Institute’s second-
                                                                              floor conference room.
                                                                              Prof. Dong Qianli, director of the university’s Logistics & Supply Chain
                                                                              Research Institute, delivered a lecture on “Research into the Theory of
                                                                              Logistics-Integrator - A Case of Introduction to the Industry Linkage
                                                                              Project of Logistics and Manufacturing.”
                                                                              The two sides also had discussions on the fourth Korea-China
Seminar on Evaluating and Invigorating Green Growth                           Transportation Symposium scheduled for May.
in the Transport Sector
The Korean government has recently announced a Green New Deal
Policy, along with targets for greenhouse gas (GHG) reductions. In the
transportation sector, which accounts for 16% of the nation’s
greenhouse gas emissions, a variety of transport logistics policies are
under preparation to achieve the target of reducing GHG emissions by
33% to 37% by 2020.
For successful execution of transport logistics policies to ensure green
growth, it is essential to establish an evaluation system that can make it
possible to check implementation strategies on the basis of rational
evaluation standards.
Aware of the need, KOTI has carried out research aimed at developing

                                                            KOTI World-Brief March 2010 11
                                                                                                                                   March 2010 Vol.2 No.11 KOTI World-Brief

Presentation of KOTI Logistics Research Achievements                                               Seminar on Green Growth and Social Integration
The nation’s logistics sector has played a crucial role in providing                               For the transportation sector, the year 2009 was devoted to preparing a
support needed for economic growth, and with the advent of a global                                blueprint for green growth and social integration. Measures announced
economic era, it is expected to assume greater importance than ever                                during the year included plans for constructing nationwide bicycle lanes
before.                                                                                            and ways to invigorate the electric car industry. There were also lively
As illustrated by the U.N. Climate Change Conference held last                                     discussions on basic transport rights aimed at enhancing transportation
December, climate change has emerged as an issue that needs to be                                  equality for the middle class and low-income people.
tackled globally. This situation requires the nation’s logistics sector to                         In 2010, various plans presented last year will begin to be carried out in
come up with a new paradigm for green logistics policies such as                                   earnest. Therefore, KOTI’s Department of Metropolitan and Urban
modal shift towards environmentally-friendly transport modes and                                   Transport Research held a seminar on “Achievements of Transport
promotion of 3PL.                                                                                  Research Aimed at Ensuring Green Growth and Social Integration, and
To review the achievements of national logistics policies and seek a                               Future Tasks” at a KCCI conference room on February 18, with the
new paradigm for the development of the logistics industry, KOTI                                   support of the MLTM and the Presidential Committee on Green
presented research achievements during a session entitled                                          Growth.
“Achievements of National Logistics Policies and a New Paradigm,”
held at a KCCI conference room on February 11 with the support of the
MLTM and the Maeil Business Newspaper.

                           Creating a prosperous future through the harmony of humans, environment, and transport

        1160, Simindaero Ilsanseo-gu, Goyang-si, Gyeonggi-do 411-701, KOREA
        Phone +82-31-910-3182 Fax +82-31-910-3222

        Publisher                Kee Yeon Hwang
        Editor-in-Chief          Ju Young Kim
        Associate editor         Sun Hee Park

        The Korea Transport Institute (KOTI) is an official research agency for the government of the Republic of Korea. The mission of KOTI is to provide recommendations and
        alternatives for the nation's transport policy and to create the optimal transport system through specialized research and technical innovations, while positioning itself as
        one of the world's leading transport research institutions.


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