Background Paper Section II For SPO Introducing number plate bidding systems II-1. Description of NPB (related to Section IV. Brief description of the policy option) Number plate bidding (NPB) system is such a policy that requires people obtain a number plate (or license) through a sealed or open bidding process to own and drive a car. The main principle of this policy is to control the ownership of vehicles and offer that ownership permit through a bidding process. Therefore, it can be also called vehicle license bidding system, vehicle ownership permit auction system or more specifically Vehicle Quota System (VQS) which has been used since 1990 in Singapore. NPB is initially introduced to control the vehicle population growth and reduce the negative impact of it on city environment such as traffic congestion, air pollution or vehicle noise. It has a function of restricting the ownership of vehicles (especially private vehicles) and is complementary to other vehicle restriction measures such as road fee or tax, area licensing system, etc, which proved to be effective in controlling the usage of vehicles in cities, but inadequate in controlling the ownership of vehicles that may subsequently lead to the increase use of vehicles. The NPB is also a move towards from a price-based system to a quantity rationing system, that means only fixed number of additional vehicles per period are allowed to be added into the vehicle population, rather than only imposing registration fees or taxes on new automobiles, which is inadequate in controlling vehicle quantity when people s income increase so fast that price indicator has little effect on people s decision to buy a new car(anthony Chin and Peter Smith, 1997). The quota bidding system has been widely used in many fields (e.g. fishery industry) in the world. However, in transportation sector, only in Singapore has vehicle quota system been used for a long time and successfully. Some other cities such as Shanghai, Hong Kong, Bangkok, Kuala Lumpur either implement it for only a short period or are planning to introduce a similar system. Therefore, a deep analysis of VQS used in Singapore is crucial for better understanding of this mechanism. II-2. The case of Singapore 1) Introduction of VQS (related to Section V. Background) The vehicle quota system (VQS) was implemented in May 1990 in Singapore to complement existing fiscal tax measures to control the growth in vehicle population. Under the VQS, each car buyer must first bid for a vehicle quota license----officially referred to as the Certificate of Entitlement (COE) which are akin to road usage passports. Each quota license allows a vehicle to be on the road for ten years. At the end of this period, the owner may either de-register the vehicle or renew the license for a further 5-year or 10-year period, by paying a prevailing quota license premium. Transit busses, diplomatic and first aid vehicles are COE-exempt. The VQS is devised to let market forces determine the premium price of COE for various categories of vehicles(anthony Chin and Peter Smith, 1997; Winston et al, 1994). The annual quota of COE is determined by the Land Transport Authority of Singapore. Every quota year beginning in May, the LTA projects the number of vehicle due for de-registration and calculates the quota based on a 3% vehicle growth rate. Then, the quota of COE is spread out over the 12 months.
2) Bidding process (related to Section VI. Critical Instruments, Design, planning and management) Auction are held monthly through public tenders where bidder submit their bids for their chosen vehicle categories either on forms or through the automated teller machine and have to put up a 50% deposit. Electronic bidding make this process more efficiently and are mostly used currently. Until June 2001, the quota licenses were allocated through a sealed-bid uniform price auction and each bidder is allowed to submit only one bid in each tender exercise. The COE premium in each auction is determined by the amount of the lowest successful bid and all successful bidders pay the same premium except that successful bidders for company carts pay double the quota premium in their respective categories. This bidding process changes from initial sealed to an online open format in several phases, beginning in June 2001. Since May 2002, there are two auction conducted twice a month online. This shift is recommended to promote more informed tendering and thereby mitigate price distortions. 3) Validity of certification of entitlement (COE) (related to Section VI. Critical Instruments, Design, planning and management ) When VQS was first introduced in May 1990, the issued quota licenses were valid for six month from May to October 1990, which means they must be used to register a new vehicle during that time period. This valid period of license is then decrease to 3 month but some categories again obtained a lengthened period to 6 month in October 1991. The quota license will expire after 10 years and after that, the vehicle owner may either deregister the vehicle or renew the license for a further 5 or 10 years by paying what is called the prevailing quota price. If a vehicle is sold within the country before the expiry date, the quota license will be transferred to the buyer together with the vehicle; the seller will have to bid for a new quota license if he wishes to purchase a new vehicle. If a vehicle is deregistered before the expiry of the quota license, the owner is entitled to a rebate on the quota price paid, pro-rated to the remaining life span of the license. Initially, the COE is transferable and a thriving secondary market is developed, but then, in order to curtail the speculative activities in the market and the high price of CEOs, in October 1991, the COEs were made non-transferable. 4) Impact of Vechicle Quota System (VQS) - Increase in car price (related to Section VII-a. Impacts on the driving forces for environmental degradations) Figure II-1 shows the trend of VQS premium for the four categories of vehicles from 1992 to 1999. It can be seen from post-vqs curve that the COE premiums have been rising with a large degree especially in the initial introduction year of VQS. This will lead to a considerable rise of car price though this effect has been moderated in current years. The COE component today account for about 30-40% of the total cost of medium-size cars and 15-25% for large-sized cars(foo Tuan Seik, 1998).
Figure II-1: Trend of VQS premium for Category 1-4 from 1992 to 1999 Source: Mark T. Hon and Soo-Keong Yong, 2004 - Decrease in vehicle population (related to Section VII-a. Impacts on the driving forces for environmental degradations) The VQS has successfully reduced the growth speed of vehicle population. From 1990-2001, the average annual motor vehicle growth rate was 2.9%, less than that from 1975 to 1989,
4.4%. It also reduces the variability in the growth rate of vehicle population: the standard deviation of variability changes from 4.3% in 1975-1989 to 2.1% in 1990-2001. As a part of result of this policy, the streets of Singapore are relatively free flowing with average speeds of about 30km/h while many other cities in the world are experiencing traffic congestion( Winston T.H. Koh, 2003) - Increase in annual mileage of cars (related to Section VII-a. Impacts on the driving forces for environmental degradations) Though the VQS system reduces the growth of vehicle population, it has no effect on or even increase the annual mileage of an individual car. This is not surprising since the owner want to make the most use out of the car given a high expenditure for the car. In this sense, some other schemes developed to impose an additional price on usage of car, such as ERP (Electronic road pricing) is introduced in Singapore to moderate the trend of high vehicle usage. - Increase in revenue (related to Section VII-b. Impacts on the environment and socio-economic conditions) Until end-september 2002, a total of 850,459 COEs were allocated in 147 auctions, with total auction revenues of US$10.67 billion (exchange rate of US$1 to S$1.75). Thus, each auction had yielded average revenue of US$72.6 million. This contribute largely to Singapore s Consolidated Funds, which are targeted at national infrastructure improvement. 5) Vehicle categories (related to Section VIII-b. Equity) When initially implemented, VQS has seven different categories depending on engine capacity and intended car usage as follows: Category1: Small cars (1000 cc and below) Category2: Medium-sized cars and taxis (1001-1600 cc) Category3: Big cars (1601-2000 cc) Category4: Luxury cars (2001 cc and above) Category5: Goods vehicles and private buses Category6: Motorcycle Category7: Open Category8: Weekend cars The rationales for adopting separate categories are to protect buyers of motorcycles and small cars from being outbid by richer buyers of bigger cars. It also helps to reduce previous COE premium volatilities in categories with low quotas. The open COE can be used to register any new vehicles, which allows some flexibility for market forces to affect the vehicle mix. The weekend category is for automobiles used only at certain times of the week and weekends, which was canceled in 1994. In 1999, the number of categories was further reduced to five as some categories were merged for the purpose of maintaining social equity in car ownership while enhancing flexibility in engine size. 6) Financial issues of bidding system in Singapore (related to Section VIII-c. Efficiency) In Singapore, the bidding price (called premium) saw a general increase trend from 1990 to 2002, which has generated an considerable aggregated revenue of US$10.67 billion during that period. Since a total 850459 auctions was issued over that period, every issued number
plate cost an average of US$12850, accounting for a big proportion of total price of a vehicle. This is because that since the allocated number of plate is determined by government, the bidding price of it is determined by market and reflect the demand of people. Except for the effect on controlling of vehicle number, the number plate bidding system will also benefit the other relative policy. For example, in Singapore, the additional registration fee (ARF) that was also used to control the use of vehicles has decreased by about 25% after the implementation of VQS. However, one negative effect of this policy is to increase the vehicle price in large degree that makes the ownership of vehicle unaffordable. In recent year in Shanghai, the prices of some number plates are almost equal to the market price of small-size car. This will lead to public objection against this policy and outcry to abandon it. II-3. Lessons from Singapore s VQS (related to Section X. Applicability and limitation) Singapore is a city-state with unique characteristic. It is experiencing a high economic growth but also seeks a sustainable development with minimized exploitation of geographic and environmental resources. The successful implementation of VQS in Singapore can give some lessons and experiences for other cities faced with similar problem. The success of VQS depends on several conditions, including 1) it needs a strong political will to encourage and implement; 2) it needs public understanding and acceptability, i.e. people can not only admit the high price of vehicles but also find alternative public transport systems cheaper and with equal or more convenience; 3) it should be technological feasible, of low capital and operating cost, transparent and impartial. However, there are also some limitations on implementation of this policy. First is that Singapore is a city-state and has a one-level government and one-stop transport authority but other cities do not have, so it is difficult for them to adopt and implement this policy efficiently. Second is that this policy may lead to increase and fluctuation of car prices, which may lead to consumer s uncertainty of car price and lack of affordability and equitability on car purchase. Albeit these limitations, the VQS is especially appropriate for cities with similar land-scarce, large population and high economic growth conditions. Meanwhile, in addition to reducing the congestion, this policy can also be used for other purposes through combination with other policies. For example, it can be used to restrain multiple car ownership by requiring households to bid for vehicle license for second car. Reference: 1. Anthony Chin and Peter Smith, 1997, Automobile ownership and government policy: economics of Singapore s vehicle quota system, Transport Research A 31, 129-140 2. Foo Tuan Seik, 1998, A unique demand management instrument in urban transport: The vehicle quota system in Singapore, Cities 15, 27-39 3. Haynes C. Goddard, 1999, Promoting urban sustainability: The case for a tradable supplementary license system for vehicle use, Urban Studies, Vol. 36, No. 13, 2317-2331, 4. Ling Huitan, 2003, Rationing rules and outcomes: The experience of Singapore s vehicle quota system, IMF Staff Papers 50, No. 3
5. Mark T. Hon and Soo-Keong Yong, 2004, The price of owning a car: an analysis of auction quota premium in Singapore, Applied Economics 36, 739 751 6. Sing-Fat Chu, Winston T.H. Koh and Yiu Kuen Tse, 2004, Expectations formation and forecasting of vehicle demand: An empirical study of the vehicle quota auctions in Singapore, Transportation Research Part A 38, 367 381 7. Sing-Fat Chu, 2002, Auctioning rights to vehicle ownership: Singapore s experience with sealed-bid tenders, Transportation Research Part A 36, 555 561 8. Winston T.H. Koh, 2003, Control of vehicle ownership and market competition: Theory and Singapore s experience with the vehicle quota system, Transportation Research Part A 37, 749 770 9. Winston T. H. Koh and David K. C. Lee, 1994, The vehicle quota system in Singapore: An assessment, Transportation Research A 28A, 1-47