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Extended Essay
IB Diploma Programme 2021 – 2022
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Research Question:
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To what extent has the Vehicular Emissions Scheme (VES)
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been effective in increasing the consumption of light electric
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vehicles between 2018 and 2020 in Singapore?
Subject: Economics
Topic: Market Failure
Word Count: 3998
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Table of Contents
1
Introduction…………………………………………………………………… 3
1.1 Vehicular Emission Scheme (VES)…………………………………………. 5
1.2 The Economic Theory of Electric Vehicles in Singapore….………………... 7
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Methodology…………………………………………………………………… 11
3
Data Collection, Presentation, and Analysis...………………………………. 13
3.1 Determining the effectiveness of the VES through secondary data………….. 13
3.2 Analysis of the effectiveness of the VES…………………………………….. 13
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3.3 Determining the Price Elasticity of Demand for Light-EVs in Singapore….. 16
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3.4 Analysis of Price Elasticity of Demand……………………………………... 19
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3.5 Determining factors for effectiveness through qualitative interviews………. 21
Conclusion……………………………………………………………………… 27
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3.6 Discussing of data and observations from qualitative interviews…………... 23
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4.1 Other Possible Solutions……………………………………………………. 27
4.2 Extension……………………………………………………………………. 28
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Bibliography…………………………………………………………………… 29
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Appendix……………………………………………………………………….. 33
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1
Introduction
From the 1960s till today, Singapore’s economy has grown substantially at a rapid rate
with its GDP per capita rising from approximately USD 420 to USD 60,000, with
Singapore currently holding the seventh-highest GDP per capita in the world1. As a result
of rapid urbanisation, it has suffered from a high carbon emission profile with 8.45 metric
tons2 of carbon produced per capita in 2017 with 12.4% of its primary emissions arising
from transport3.
According to the World Health Organisation (WHO), transport is one of the main sources
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of air pollution that directly affects mortality, respiratory, and cardiovascular diseases4.
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Carbon emissions from transport are caused by Internal Combustion Engine (ICE)
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vehicles that require petroleum, a scarce resource that emits carbon when utilized5. These
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carbon emissions result in external costs such as pollution, respiratory problems, and
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higher health care costs for third parties (residents of Singapore)6. Subsequently, in the
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past decade, Singapore’s health care expenditure has increased alongside carbon
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emissions from $12.7 billion in 2015 to $15.9 billion in 2018 due to a rise in lung and
cardiovascular diseases caused by air pollution7.
Environmentally cleaner transport substitutes with no carbon emissions are electric
vehicles (EVs) that run on an electric motor that is powered by rechargeable batteries8.
With car buyers purchasing EVs over ICE vehicles, consumption of EVs would rise,
while consumption of ICEs would fall, thus significantly reducing carbon emissions in
Singapore. A study by the Land Transport Authority (LTA) of Singapore found that
increasing the percentage of EVs to 50% by 2050 would reduce carbon emissions by up
to 30%9. This change is significant because Singapore is a densely populated and
geographically small country and is especially vulnerable to climate change caused by
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high carbon emission rates while spending $15.9 billion on healthcare due to rises lung
and cardiovascular diseases in 2018. Former Transport Minister, Ong Ye Kung, stated “If
all our light-vehicles run on electricity, we would reduce carbon emissions by 1.5 to 2
million tonnes, or about 4% of total national emissions”10. Light-vehicles refer to
vehicles under a certain weight class, which include only cars and taxis in Singapore.
Therefore, the LTA started to implement regularly updated incentives and tax schemes to
encourage the consumption of light EVs and reduce carbon emissions in Singapore. One
of the primary innovations that Singapore implemented to achieve this goal and address is
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the Vehicular Emissions Scheme.
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1.1
Vehicular Emission Scheme (VES)
Vehicle emission schemes were introduced to Singapore in 2013 to encourage the
consumption of cleaner light-vehicles by granting rebates and imposing surcharges based on
the vehicle’s emission rate of carbon and other pollutants11. The long-run goal of the vehicle
emission schemes is to reduce total national carbon emissions by 4% by having 100%
light-vehicles in Singapore run on electricity by 2040.
The LTA vehicle emission schemes are updated biennially to further encourage vehicle
buyers to shift to EVs and further reduce harmful emissions.
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Table 1: List of Vehicle Emission Schemes implemented by the LTA11:
This essay seeks to analyse the effect of the most recently completed emission scheme in
increasing the consumption of EVs. Hence, this essay focuses on the effectiveness of the
Vehicular Emission Scheme (VES), which is the vehicle emission scheme that was
followed in Singapore from 1st January 2018 to December 31st, 2020. It was introduced by the
LTA to reduce not only carbon emissions but four other pollutants as well, which when
emitted cause crucial damage to the environment12.
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Table 2: The VES tax-rebate and surcharge design11:
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EVs fall under band A1 as they have no tailpipe emissions13. Hence, to achieve the VES goal,
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car buyers must register for vehicles in-band A1, where they receive a $20,000 tax-rebate
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(11.1% discount of the estimated average price of an electric car in Singapore).
The VES acts as a subsidy towards cleaner low emissions light-vehicles, as well as a tax
towards harmful high emissions light-vehicles to lower negative externalities. The VES
subsidy grants a tax-rebate towards every unit of a clean vehicle registered, while the VES
tax surcharges every unit of a harmful vehicle registered.
Hence, this paper focuses on the impact of the tax-rebates on increasing consumption of
EVs and the impact of the VES as a subsidy.
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1.2
The Economic Theory of Electric Vehicles in Singapore
Electric Vehicles are merit goods which are goods that are held to be desirable for consumers
but are under-provided by the free market14. They bear positive externalities of consumption
which are social benefits such as reducing carbon emissions, improved health, improved air
quality, and domestic economic development15. Being under-consumed in the free market,
the market of EVs in Singapore is an example of Market Failure.
Market Failure refers to the failure of the market to allocate resources efficiently leading to
allocative inefficiency, where too much (over-allocation) or too little (under-allocation) of
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goods or services are produced or consumed relative to what is held most socially desirable16.
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In Singapore, the aim is to have all vehicles run on electricity by 2040 for society to bear the
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maximum benefit of reduced carbon emissions. The following diagrams illustrate and analyse
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the impact of the VES on the free market of light-EVs.
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Figure 1: Free-Market Diagram of Light Electric Vehicles in Singapore before
Government Intervention (before VES)
*Diagram is not to scale*
Legend:
D: Demand
S: Supply
MPC: Marginal Private Costs
MSC: Marginal Social Costs
MPB: Marginal Private Benefits
MSB: Marginal Social Benefits
Qₘ: Market Quantity = 0.05 (% of
light EVs consumed with no
intervention)
P1: Price at optimal Quantity
Pm: Market Price
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Qₒₚₜ: Socially optimum percentage
of EVs = 100
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In Figure 1, the MSB curve is greater than the MPB curve because each unit of private
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consumption arises a spill-over benefit to third parties, in the form of reduced carbon
emissions and better air quality b. The vertical distance between the curves denotes the
positive consumption externalities of EVs. Allocative efficiency is achieved when MSC =
MSB. The percentage quantity of light-EVs determined by the free market in 2017, before the
introduction of the VES, was 0.05 (Qₘ) where MSC > MSB. However, the socially optimal
percentage of light-EVs, denoted by the intersection of the MSB and MSC curves, is 100
(Qₒₚₜ), estimated with respect to the LTAs aim to have all light-vehicles run on electricity to
reduce national carbon emissions.
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When left to the free market, there is an under-allocation of resources at the market
equilibrium (Qₒₚₜ < Qₘ) resulting in a loss of social benefits which creates welfare loss in
Singapore. Hence, the Singaporean free market of light-EVs is an example of market failure.
Figure 2: Market of Light Electric Vehicles in Singapore after Imposition of VES rebates
*Diagram is not to scale*
Legend:
S₁: New supply, MSC, and MPC
after VES
Area A + Area B: Welfare loss
before VES
Area B: Welfare loss after VES
Q VES: Market Quantity after VES
0.05: Free market quantity (%)
100: Socially optimum quantity
(%)
Pc: Price if subsidy = external
benefits
PVES: Price after VES
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S₂: New supply, MSC and MPC if
the subsidy = external benefits
Figure 2 details the imposition of the VES rebates as a subsidy, a form of government
intervention on the market of light-EVs in Singapore. Intervention refers to a situation where
governments take action in a market economy in an effort to correct market failure and
impact the economy17.
The VES subsidy should be equal to external benefits to fully internalize externalities and
eliminate welfare loss, where S shifts to S2 and the socially optimum quantity of 100% of
light-EVs is produced. However, in real-world situations, allocative efficiency is not achieved
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easily due to difficulties in measuring externalities causing the subsidy to not fully internalize
these externalities. This is also due to other external factors that affect the consumer’s
willingness and ability to purchase light-EVs (discussed in 3.5).
In this case, the subsidy causes MPC to fall (S to S1) creating a new market equilibrium
where quantity increases from 0.05% to QVES which internalizes some externalities and
reduces welfare loss from area A+B to area B. The value of QVES and internalized
externalities is determined by the effectiveness of the VES as a subsidy by providing taxrebates in increasing the consumption of light-EVs.
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As global carbon emissions increase, countries explore methods to effectively reduce their
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carbon emissions. One such effective method adopted by countries such as Australia18, New
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Zealand19 and The USA20 is providing tax-rebates on each unit of an EV registered.
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Hence this paper holds significant external validity and relevance that led me to formulate my
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research question: To what extent has the Vehicular Emissions Scheme (VES) been
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effective in increasing the consumption of light electric vehicles between 2018 and 2020?
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2
Methodology
To answer the research question, I used an adapted tripartite structure of social science
analysis21 to conduct inductive research:
1. The effectiveness of VES was determined through the comparison of the
percentage population of light-EVs before and after the VES was
introduced, through the analysis of secondary data. To analyse the
relationship between the percentage population of light-EVs and time during
the VES, a linear regression model was used. A trendline was then used to
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predict the percentage of light-EVs by 2040, comparing it to Singapore’s goal
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agency websites from the LTA.
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of 100%. To obtain accurate and reliable secondary data, I used government
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2. To analyse the impact of price on a consumer’s willingness to purchase
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light-EVs, the Price Elasticity of Demand (PED) of EVs was determined
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through primary quantitative surveys. The aim of the surveys were to
examine how changes in price affect the consumption of EVs in Singapore.
The PED was calculated to determine how changes in price affect car buyers’
willingness and ability to purchase light-EVs. Hence, it helps determine the
effectiveness of tax-rebates in increasing the consumption of light-EVs. A
sample size of 60 of an estimated 660,00022 light-vehicle buyers were asked
whether changes in the cost of registering EVs would affect their decision to
purchase one. This sample size was selected to obtain data with a confidence
level of 80% and a marginal error of 8.3%23. Furthermore, an intentional
attempt was made to ensure that participants were an unbiased representation
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of gender, age, and race in Singapore. Additionally, participants from various
income groups were surveyed to analyse the effect of income on PED. This is
important as EVs are relatively more expensive than their substitute, ICE
vehicles, and thus take up a higher proportion of income. Subsequently,
studies have shown that EV owners are typically higher-income earners2415.
Hence, by dividing the participants into income groups, I can analyse the PED
of EVs on higher-income earners against lower-income earners to further
justify reasons for said effectiveness.
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3. The factors for the effectiveness of the VES were determined through
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primary qualitative interviews. 30 respondents were asked 4 open-ended
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questions about the factors that influence their decision to purchase EVs over
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cheaper ICE vehicles. It was deliberately ensured that these were Singapore
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residents who have or are currently looking to purchase a car. Responses were
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then analysed to draw common trends and understand consumers’ behaviour
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and decision-making to provide factors affecting consumption of light-EVs in
Singapore and justify the said effectiveness of the VES.
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3
Data Collection, Presentation, and Analysis
3.1
Determining the effectiveness of the VES through secondary data
To analyse the impact of the VES in increasing the consumption of light-EVs, I compared
the percentage population of light-EVs during the imposition of the VES.
The VES was imposed from January 1st, 2018, to December 31st, 2020.
Quantity of
Electric
Taxis
Total Quantity
of Light Electric
Vehicles
Total Quantity of
Light-vehicles
(including ICE
vehicles)
Percentage of
Light Electric
Vehicles (%)
2017
314
0
314
635,396
0.049
2018
560
102
662
636,033
0.104
2019
1120
133
1253
649,138
0.193
2020
1217
32
1249
649,720
0.192
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Analysis of the effectiveness of the VES
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*All data was taken at the end of said year
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Quantity of
Electric
Cars
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Table 3: Displaying the quantity and percentage change of light EVs after imposition of the VES22
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Table 3 shows a clear and consistent increase in the quantity and percentage of light-EVs
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until the year 2020. It indicates that during the imposition of the VES, the percentage
population of light-EVs increased from 0.049% to 0.192%. This illustrates that the
VES was effective in increasing the consumption of Light EVs to a certain extent and
hence internalised some externalities.
To uncover the magnitude of this extent, it should be ascertained whether the VES is an
effective enough scheme that allows Singapore to reach its aim and increase the
percentage population of EVs to the socially optimum quantity of 100% by the year 2040.
To deduce this, a linear regression model was executed, plotting a trendline between the
percentage population of light-EVs and time during the imposition of the VES. This
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allowed me to obtain an equation for the yearly rate of change of the percentage
population of light-EVs and hence estimate the percentage population of light-EVs in
2040 at this rate.
0.25
y = 0.0518x - 104.42
0.2
0.15
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0.1
0
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0.05
2017
2017.5
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Percentage Population of light EVs
Figure 3: Percentage population of light-EVs in Singapore
against time during the imposition of the VES
2018
2018.5
2019
2019.5
2020
2020.5
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Figure 3 indicates a positive correlation between the percentage of light-EVs with time
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(years). The annual rate of change formula for the percentage of light-EVs is:
y = 0.0518x – 104.42
Where y is the year and x is the percentage of light-EVs. This formula was used to
calculate the estimated percentage of light-EVs in 2040, solely based on the effect of the
VES alone.
y = 0.0518x – 104.42
subbing in x = 2040
y = 0.0518(2040) – 104.42
= 1.252%
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Therefore, the effect of the VES alone will increase the percentage population of light-EVs in
Singapore to 1.252% in 2040. This is far off Singapore’s goal to reach the socially optimum
quantity of 100%. The rate at which the VES alone increases the consumption of EVs is
not high enough to reach the socially optimal quantity of 100% by the year 2040. Hence,
the VES alone is ineffective to a great extent in increasing the consumption of light-EVs.
However, this is an estimated value as it is assumed that until 2040 all external factors stay
constant, which is unrealistic in the real world. Other limitations include government agency
websites only providing data annually, hence allowing for only 4 data points. 4 data points
are too few for accurate linear regression and it results in lower accuracy of the relationship
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between the percentage of light-EVs with time with an R2 value of 0.896. The COVID-19
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pandemic also created a limitation because it disrupted market behaviour in 2020, causing the
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set of data in 2020 to be unreliable in determining the impact of the VES on the percentage of
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light-EVs.
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3.3
Determining the Price Elasticity of Demand for Light-EVs in Singapore
Price elasticity of demand (PED) is the measure of the responsiveness of quantity
demanded to a change in the price of a good or service26. Here, it is used to analyse the
extent to which reductions in price, provided by VES rebates, affect the quantity
demanded of light EVs and justify the reason for the ineffectiveness of the VES in
increasing consumption of EVs.
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The PED value can either be elastic or inelastic:
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The formula of PED is given by:
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PED > 1: price elastic demand, where a change in price causes a proportionately larger
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change in demand and quantity demanded is relatively responsive to price.
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PED < 1: price inelastic demand, where a change in price causes a proportionately
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smaller change in demand.
The PED was calculated through a quantitative survey where 60 participants were asked
how changes in price affected the number of EVs they are willing to purchase. In this
survey, the average amount of an electric car was said to be $180,00025.
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Table 4: Displaying the average quantity of electric cars demanded at different prices
Percentage Change in
Price of Electric Cars
Total Quantity of Electric Cars
Demanded by 60 Participants
Average Quantity demanded
(Qd) of Electric Cars per
Consumer
+60.00%
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0.28
+40.00%
34
0.57
+20.00%
41
0.68
+0.00%
44
0.73
-20.00%
47
0.78
-40.00%
54
0.90
-60.00%
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Table 5: Displays the calculation of the PED of electric cars in Singapore
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% Δ Quantity demanded
(Initial Qd = 0.73)
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(0.28 − 0.73)
× 100%
0.73
0.28
= -61.64%
−61.64
60.00%
= -1.03
-0.55
-21.92%
0.68
-6.85%
-0.34
0.73
0.00%
0.00
-20.00%
0.78
6.85%
-0.34
-40.00%
0.90
23.29%
-0.58
-60.00%
1.10
50.68%
-0.84
+40.00%
+20.00%
0.00%
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+60.00%
PED
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Electric Cars
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Cars
of Electric Cars
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% Δ Price of Electric Average Qd for
To analyse the estimated overall PED for electric cars, the average of the results should be
taken.
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The average PED of electric cars in Singapore is 0.613 illustrating that electric cars in
Singapore are price inelastic in demand.
The survey participants were separated into income groups of $0 to $4,999, $5,000 to
$11,499, and $11,500 per annum and over. The average PED for electric cars for each
income group was then calculated to find the effect of income on the price elasticity of
electric cars in Singapore.
Average Qd for
Electric Cars
% Δ Quantity demanded of
Electric Cars
(Initial Qd = 0.35)
PED
+60.00%
0.15
-57.14%
-0.95
+40.00%
0.25
-28.57%
-0.71
+20.00%
0.30
-14.29%
-0.71
0.00%
0.35
0.00%
0.00
-20.00%
0.40
14.29%
-0.71
-40.00%
0.45
28.57%
-0.71
-60.00%
0.60
71.43%
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% Δ Price of
Electric Cars
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Table 6: Displays PED of electric cars in Singapore for income group earning $0 to $4,999
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Average PED = -0.833
Table 7: Displays PED of electric cars in Singapore for income groups earning $5,000 $11,499
% Δ Price of
Electric Cars
Average Qd for
Electric Cars
% Δ Quantity demanded of
Electric Cars
(Initial Qd = 0.85)
PED
+60.00%
0.20
-76.47%
-1.27
+40.00%
0.60
-29.41%
-0.74
+20.00%
0.80
-5.88%
-0.29
0.00%
0.85
0.00%
0.00
-20.00%
0.90
5.88%
-0.29
-40.00%
1.05
23.53%
-0.59
-60.00%
1.30
52.94%
-0.88
Average PED = -0.677
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Table 8: Displays PED of electric cars in Singapore for income groups earning $11,499 and over
% Δ Price of
Electric Cars
Average Qd for
Electric Cars
% Δ Quantity demanded of
Electric Cars
(Initial Qd = 0.73)
PED
+60.00%
0.50
-50.00%
-0.83
+40.00%
0.85
-15.00%
-0.38
+20.00%
0.95
-5.00%
-0.25
0.00%
1.00
0.00%
0.00
-20.00%
1.05
5.00%
-0.25
-40.00%
1.20
20.00%
-0.50
-60.00%
1.40
40.00%
-0.67
Average PED = -0.480
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Analysis of Price Elasticity of Demand
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The PED of electric cars was calculated to a value of 0.613, illustrating that the demand for an
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electric car in Singapore is price inelastic. This means that the quantity demanded is relatively
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unresponsive to a change in price. Hence, the VES is significantly ineffective in increasing
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the consumption of light-EVs due to the demand inelastic nature of electric cars and its
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inability to affect the willingness and ability of consumers to register EVs. This justifies
one factor of the findings in section 3.2 and why the VES tax-rebates are ineffective in
increasing the consumption of light-EVs and internalising all externalities.
Estimating the average price of an EV in Singapore as $183,116.925, the tax-rebate of $20,000
provides a 10.29% reduction in price. With reference to Table 5, a reduction of price by 20.00%
increased the quantity demanded of electric cars by only 6.85%, with a high price inelasticity
of demand with a PED of 0.34. By a 20% reduction in price diminutively increasing
consumption, a 10.92% reduction provided by the VES is clearly a highly ineffective rebate
amount to increase the consumption of light-EVs. To cause a significant change in the quantity
demanded of electric cars, a 60.00% price reduction is required where the average amount of
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electric cars demanded rises by 50.68% Hence, due to the price inelastic demand of electric
cars, to reach the goal of 100% light-EVs by 2040, a much higher tax-rebate should be
provided. The VES does not provide a high enough tax-rebate and reduction in price to
increase the consumption of EVs significantly.
Effectiveness of VES on Income Groups
With reference to Tables 6, 7, and 8, the PED of electric cars for income groups were:
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$0 to $4999 has a PED of 0.833.
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$5,000 to $11,499 has a PED of 0.677.
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$11,499 and over has a PED of 0.480.
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There is a negative correlation between the PED and income with the price inelasticity of
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demand increasing as income groups increases. This shows that the quantity of electric cars
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demanded becomes more unresponsive to changes in price as income increases.
This validates that the VES will be more effective in increasing the consumption of light-EVs
for lower-income earners due to vehicles taking up a high proportion of their income and the
VES increasing the affordability of light-EVs relative to its substitutes. To elaborate, the VES
tax-rebate reduces the MPC of owning an electric car and hence increases its affordability for
lower-income earners more significantly than high-income earners because it will then take up
a significantly lesser proportion of their income. The VES tax-rebate would make EVs more
affordable relative to their substitutes, ICE vehicles, causing some lower-income earners to
purchase them over their harmful substitutes. Electric cars take a far lower proportion of highincome earners’ income causing a change in price to insignificantly change its affordability for
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them. This causes them to demand the same quantity, hence making EVs more price inelastic
for them. Thus, the VES is ineffective in increasing the consumption of light-EVs for
higher-income earners which makes it ineffective in increasing light-EV consumption to
a great extent as majority of EV consumers are higher-income earners.
3.5
Determining factors for effectiveness through qualitative interviews
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Figure 4:
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Yes
27%
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No
73%
Question: Do you think that VES providing
a $20,000 tax-rebate on electric vehicles
would influence your choice to register for
an electric car over diesel, petrol, and hybrid
cars?
Common Trend
Mentions
Yes
8
No
22
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Figure 5:
Transportation
efficiency
17%
Expense of
purchasing the
vehicle
27%
Expense of
mantainence and
utility of the
vehicle
23%
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at
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Convenience and
comfort
33%
Question: What are the most important factors that
you consider when deciding to purchase a car in
Singapore?
Common Trend
Mentions
The expense of purchasing
the vehicle (includes
8
registration fees and
COE)
The expense of
maintenance and utility of
the vehicle (includes road
7
tax, petrol prices, parking
fees, motor insurance)
Convenience and comfort
10
Transportation efficiency
(availability of public
5
transport)
Improving
charging
infrastructure
and availability
for electric cars
27%
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Increasing
awareness of the
social benefits of
electric cars
17%
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Figure 6:
Lowering the
expense of
purchasing a
electric car
33%
Lowering cost
of utility of
electric cars
23%
Question: What do you think is required to increase
the percentage of electric cars in Singapore?
Common Trend
Lowering the expense of
purchasing a electric car
(lowering COE and
registration fees by a
greater extent)
Lowering cost of utility of
electric cars (lowering
road tax and parking fees)
Improving charging
infrastructure and
availability for electric
cars
Increasing awareness of
the social benefits of
electric cars
Mentions
10
7
8
5
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Figure 7:
Yes
23%
Question: When purchasing a car, do you consider the
eco-friendliness of and emission account of carbon and
other pollutants of the car?
Common Trend
Mentions
Yes
7
No
23
at
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No
77%
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Restricted by time constraints and the COVID-19 pandemic, only 30 interviews were held
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which serves as a limitation to the accuracy of results obtained from the interviews due to a
Discussion of data and observations from qualitative interviews
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3.6
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low confidence level and higher marginal error of this data.
73% of the interviewees stated that the VES rebate on light-EVs would not influence their
decision to purchase a light-EV over ICE vehicles, supporting the findings in sections 3.2
and 3.4. A range of external factors were found to influence this decision:
23
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3.6.1 The high expense of owning an electric car
27% of responses mentioned the expense of owning a car, which includes Certificate of
Entitlement (COE) fees, in Singapore as an important factor in making purchase
decisions. In Singapore, the COE provides the right to own and use a vehicle for 10
years27. Some interviewees mentioned that the “COE for EVs is too high” and EVs were
“unreasonable” to purchase. The COE for EVs is 54.2% more than ICE vehicles28, due
to higher engine powers, making EVs much more expensive to own in Singapore. One
interviewee stated, “the benefits received from owning an EV do not compensate for the
extremely high COE”. These responses support the findings in section 3.4, that the VES
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does not provide a high enough tax-rebate to increase the consumption of EVs in
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Singapore significantly. Subsequently, 33% of interviewees stated that a “heavily
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reduced” COE for EVs is necessary to increase the consumption of EVs
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Moreover, 23% of interviewees mentioned that the most important factor is the expense
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of maintenance and utility of a car, which includes mentions of recurring financial
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expenses like road taxes, parking fees, etc. EVs have higher “recurring private costs”,
including increased road tax due to higher power usage29, which strongly discourages
consumers from purchasing an EV. One interviewee remarked, “I must pay higher road
taxes for owning a more expensive car. So, to me, it is a much smarter decision to
purchase the much cheaper option in the first place, an ICE car.” Furthermore, 23% of
interviewees mentioned that lower recurring financial expenses for EVs are required to
increase consumption of EVs.
Thus, these responses illustrate that the VES rebates are ineffective in influencing
consumers’ decisions to purchase EVs to a great extent due to the “unreasonably
high” pre-existing costs and higher re-occurring costs of owning EVs in Singapore.
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3.6.2 Convenience and comfort of owning electric cars in Singapore
33% of the interviewees stated that comfort and convenience were the most important
factors when purchasing a car. The “lack of charging points” and “range anxiety” were
stated to be sources of inconvenience with one interviewee stating that “owning an EV in
Singapore is a risk”. Singapore has over 200 charging stations available island-wide25,
which is only 0.274 charging points/km2. This poor infrastructure of charging points
increases range anxiety, which is the fear of getting stranded somewhere faced by EV
owners due to low battery charge and unavailability of charging points, and causes
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“heavy inconveniences” such as increased stress and time to a journey30.
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This illustrates that consumers feel that EVs in Singapore are “more of a burden” to own
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and thus a reduction in the expense of EVs may not influence their decision to purchase
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one. 27% of the interviewees also stated that for an increase in consumption of EVs,
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improved charging infrastructure is a “necessity”. Furthermore, this emphasis on
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convenience over expense could imply that financial factors are less significant than
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convenience and comfort factors for car-buyers in Singapore, justifying the price
inelastic demand of light-EVs in Singapore and thus, highlighting why the VES taxrebates are ineffective in increasing light-EV consumption to great extent.
3.6.3 Lack of awareness of social benefits of EVs
Social costs and benefits are the sums of external and private costs and benefits
respectively. According to a study, consuming 1 EV instead of an ICE vehicle would
cause a 25% reduction in social costs in 10 years15. However, 77% of the interviewees do
not consider the social benefits of the car when deciding to purchase one.
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Therefore, this lack of awareness amongst car-buyers in Singapore makes them less likely
to purchase EVs over ICE vehicles. Subsequently, 17% of interviewees stated that
increasing the awareness of the social benefits of EVs is necessary to increase the
consumption of EVs in Singapore. This highlights, that the underconsumption of EVs
in Singapore is complemented by the lack of awareness of their social benefits,
further justifying the ineffectiveness of VES rebates in increasing light-EV
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consumption significantly.
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4
Conclusion
The VES alone has been ineffective to a great extent in increasing the consumption of
light-EVs in Singapore between 2018 and 2020 primarily due to their high price inelastic
demand and a range of external factors. Based on secondary data, although the VES
increases light-EV consumption, the rate of change in consumption is insufficient to reach
Singapore’s goal of 100% light-EV population (socially optimal quantity) by 2040.
Hence, the VES is ineffective in internalising all externalities. Furthermore, primary data
illustrates the price inelastic demand of light-EVs in Singapore, which justifies the
ineffectiveness of the VES tax-rebates in increasing the consumption of light-EVs
at
i.a
e
significantly. Additionally, the qualitative interviews illustrate external factors that affect
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the consumption of light-EVs in Singapore such as - the high expense of owning a light-
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EV, inconvenience due to poor charging infrastructure, and lack of awareness of social
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Other Possible Solutions
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4.1
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benefits of EVs, all of which justify its price inelastic demand.
The price inelastic nature of light EVs, emphasises the need for a much higher rebate and
subsidy to improve the effectiveness of VES. Furthermore, the government should
provide incentives that directly address the external factors (discussed in section 3.6) to
increase the consumption of EVs in Singapore. For example, to reduce the burden of
recurring financial expenses, governments should lower road taxes and parking fees.
Next, they should improve the charging infrastructure by increasing the number of
charging ports per km2, thus making EV ownership more convenient. Finally, Singapore
should also inspiration from countries like Canada31 and India32 and incentive awareness
campaigns and increase the awareness of EV social benefits. Since these incentives
27
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directly impact the primary determinants of demand for light-EVs in Singapore, their
successful implementation can make light-EVs less price inelastic in demand and thus
increase their consumption through tax-rebates.
4.2
Extension
Due to time constraints and insufficient resources, the scope of the research was limited
and there is room for development. As such, to deduce a more accurate said effectiveness
of the VES, the impact of the VES as a tax should have also been analysed by finding the
cross-price elasticity between ICE vehicles and EVs to analyse the effect of the VES as a
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whole. More interviews and surveys should have also been conducted, as to achieve data
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with a higher confidence level.
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5
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6
Appendices
Appendix 1: Quantitative survey (for determining PED)
The estimated average cost of registering (purchasing) an electric car in Singapore
WITHOUT any ARF tax rebates is approximately $180,000. Taking this and your financial
status into account, answer the following questions.
Personal Details
1. Age:
2. Gender:
3. Monthly Income:
at
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a) $0 to $4,999
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b) $5,000 to $11,499
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Registration of Electric Cars:
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c) $11,500 and above
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1. How many electric cars are you willing to register?
2. How many electric cars are you willing to register if the cost of registering an electric
car in Singapore increases by 20%?
3. How many electric cars are you willing to register if the cost of registering an electric
car in Singapore increases by 40%?
4. How many electric cars are you willing to register if the cost of registering an electric
car in Singapore increases by 60%?
5. How many electric cars are you willing to register if the cost of registering an electric
car in Singapore decreases by 20%?
6. How many electric cars are you willing to register if the cost of registering an electric
car in Singapore decreases by 40%?
7. How many electric cars are you willing to register if the cost of registering an electric
car in Singapore decreases by 60%?
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Appendix 2: Qualitative Interviews
1. Do you think that VES providing a $20,000 tax rebate on electric vehicles would
influence your choice to register for an electric car over diesel, petrol, and hybrid
cars?
2. What are the most important factors that you consider when deciding to purchase a
car in Singapore?
3. What do you think is required to increase the percentage of electric cars in Singapore?
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4. When purchasing a car, do you consider the eco-friendliness of and emission account
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of carbon and other pollutants of the car?
34