A subsidy to drive off old, polluting vehicles

PUBLISHED : Monday, 27 September, 2010, 12:00am
UPDATED : Monday, 27 September, 2010, 12:00am

Up to 90 per cent of all nitrogen dioxide and particulate matter emissions at the roadside come from commercial diesel vehicles, including buses and trucks. Most of the emissions come from engines that do not meet European emission standards or those that meet only the lowest standard.

Two measures could substantially clean up these polluting vehicles.

First, the government could offer a subsidy to encourage owners to scrap their pre-Euro and Euro I vehicles. A 2007 scheme offering owners a subsidy to replace these vehicles met with decent success: just under 30 per cent of all eligible vehicle owners took advantage of it, and HK$700 million of the HK$3.2 billion fund was ultimately distributed. But, by March this year, there were still approximately 36,800 pre-Euro and Euro I commercial diesel vehicles on the road.

According to public feedback on the subsidy, many owners did not take up the subsidy for several reasons - one of which was the lack of an option to just retire the vehicle.

The unused funds from the expired 2007 subsidy scheme - HK$2.5 billion - could be used to encourage owners of these trucks and non-franchised buses to scrap their vehicles.

To motivate the hold-outs, the government could also introduce a stick commensurate with the carrot: with each passing year, the vehicle owner could be made to pay a disproportionately higher licence renewal fee, while the incentive to scrap the vehicle dwindled in inverse proportion, until, say, year 20, when scrapping became compulsory. That way, all owners would be strongly motivated to take advantage of the scrapping incentive as soon as possible.

Based on a rough calculation of the number of pre-Euro and Euro I commercial diesel vehicles still on the road today, multiplied by the average subsidy awarded under the expired scheme, a scrapping subsidy would cost HK$1.6 billion.

That leaves us with the question of how to clean up the oldest franchised buses, a much thornier issue.

The idea of a subsidy offends some environmentalists because, to their minds, the polluter must always pay. But, in this case, what is needed is compensation paid to bus companies that have property rights lawfully vested under the franchise agreements and tax code. Under the principles of contract law, bus companies must be compensated for lost depreciation allowances and the foregone use value of prematurely retired buses. Only then would be it be reasonable for the government to insist that bus companies invest in new Euro V or hybrid buses. Bus companies, and not the Hong Kong treasury, will have to buy those new buses.

The undepreciated value of Euro I and II buses at the beginning of 2013 will be HK$147 million. (At that point, there will be no more pre-Euro buses on the road.) The compensation is a matter of negotiation between the bus companies and the government. Such a scheme would benefit bus companies while immediately cutting emissions along Hong Kong's busiest corridors.

Joanne Ooi is the chief executive officer of Clean Air Network