South Korea’s strategies for deploying battery electric vehicles (BEVs) primarily include providing purchase subsidies and expanding charging infrastructure. An empirical analysis of new vehicle registrations from 2019 to 2022 shows that investing in charging facilities is more costeffective than offering purchase incentives for increasing BEV adoption. To achieve a higher share of BEVs, a stronger policy focus on improving the charging network is necessary to stimulate overall demand for BEVs.

Ⅰ. Background

In pursuit of carbon neutrality by 2050, South Korea’s transportation sector is focusing on deploying clean vehicles, particularly battery electric vehicles (BEVs) and hydrogen cars (fuel cell electric vehicles, FCEVs), as a key means of implementation. BEVs and FCEVs can reduce greenhouse gas (GHG) emissions by replacing conventional motor vehicles powered by internal combustion engines (ICE). In October 2021, South Korea unveiled the “2050 Carbon Neutrality Scenario,” jointly announced by relevant ministries, which outlines plans to increase the market share of BEVs and FCEVs to over 85% by 2050, aiming to drastically bring down GHG emissions in the transportation sector (98 million tons, 13.5% of the total in 2018) to less than one-tenth of that figure. More specific targets are included in the “2030 National Determined Contribution (NDC) Upgrade Plan,” released around a similar time, targeting 4.5 million BEVs and FCEVs (16.7%) out of approximately 27 million total registered vehicles by 2030. These targets are also reflected in the “National Strategy for Carbon Neutrality and Green Growth and the First National Basic Plan” (2023).

Many countries have made BEVs eligible for government subsidies due to their higher prices than competing ICE vehicles and the requisite installation of charging infrastructure. South Korea is no exception. Official statistics indicate that BEV registrations in Korea started with 44 units in 2010, while FCEV registrations began with 28 units in 2015. In the years since, adoption rates have rapidly increased, supported by government initiatives. By the end of 2022, the cumulative number of BEV registrations (including passenger, commercial, and freight BEVs) reached about 390,000, with FCEVs recording about 30,000. Despite the trend of a steep increase, achieving the target of ‘deploying 4.5 million BEVs and FCEVs by 2030’ requires a further substantial increase in the number of these vehicles, necessitating a comprehensive review of effective policy strategies.

In Korea, newly registered clean vehicles primarily consist of BEVs, FCEVs, and hybrid electric vehicles (HEVs), with PHEVs being negligible. Based on data from the Ministry of Land, Infrastructure, and Transport, Figure 2 depicts the changes in shares of vehicle types in new registrations. The proportion of ICE vehicles in annual new registrations has steadily declined, while that of clean vehicles has increased. As of 2023, however, the sharper increase in the share of HEVs, as opposed to the marginal decrease in the BEV share, warrants a close-up examination of the future direction for clean vehicle deployment policy.

Ⅲ. BEV Deployment Policy and Government Spending

Government policy support has been the chief driving force for expanding the adoption of clean vehicles. Based on the timing of the actual support, it can be categorized into support at the purchase stage and support during the ownership (and operation) stage. At the purchase stage, government support primarily includes the provision of purchase subsidies and reductions in individual consumption tax. During the ownership stage, support consists of the expansion of charging infrastructure and assistance with various costs.

The scale of fiscal expenditures associated with the deployment of BEVs and FCEVs can be estimated by examining the central government’s budget execution. The central programs for BEVs and FCEVs consist of i) purchase subsidies and ii) charging infrastructure installation. Figure 3 shows the trajectories of their spending. Expenditures for the Ministry of Environment’s BEV and FCEV programs have sharply increased from 2019 to 2023. In 2023, the related budget (2.8 trillion won for purchase subsidies and 0.5 trillion won for charging infrastructure deployment) accounts for 25.3% of the Ministry’s total budget of 12.9 trillion won.

Based on Article 58 (Operation of Low-Emission Motor Vehicles) of the Clean Air Conservation Act, purchase subsidies from the national budget are granted according to set amounts for different vehicle models. Additionally, local governments provide tiered subsidies in coordination with national subsidies. Table 1 displays the maximum unit subsidy amounts from national and local sources for 2018 and 2022. As clean vehicle adoption expanded, the unit subsidy amount from the central government has gradually decreased to support more vehicles with limited resources, and local subsidy levels have been adjusted accordingly.

Ⅳ. Impact of BEV Deployment Policies

Since purchase subsidies and charging infrastructure expansion entail substantial fiscal outlays, assessing their effectiveness in promoting clean vehicle adoption is vital for guiding policy directions. Numerous empirical studies conducted abroad have investigated the effects of government support policies on the adoption of BEVs and PHEVs by analyzing changes in vehicle registration numbers. Similar to Li et al. (2017), this study investigates the effectiveness of Korea’s BEV promotion policies by estimating elasticities for key policy variables based on BEV registrations from 2019 to 2022. Specifically, it sets ‘annual new registrations of individual passenger BEV models by region’ as the dependent variable, with ‘cumulative number of chargers’ and ‘actual price paid after subsidies’ (vehicle price minus subsidy) as primary explanatory variables to calculate charger elasticity and price elasticity.

According to the analysis, all main explanatory variables are statistically significant at the 1% level, with charger elasticity and price elasticity estimated at 1.24 and -1.58, respectively. The charger elasticity indicates that a 10% increase in the regional cumulative number of chargers is associated with a 12.4% rise in regional new registrations. Similarly, the price elasticity shows that a 10% decrease in regional vehicle prices due to subsidies corresponds to a 15.8% increase in regional new registrations. These estimates align with analyses of the US BEV registration data (Appendix Table 1).

Furthermore, passenger cars are categorized based on their usage into government vehicles (managed and operated by central administrative agencies and their affiliates, as well as local governments), commercial vehicles (used for transportation, automobile sales, car rental services, etc.), and private vehicles (those not classified as government or commercial). The estimation results are compared across these categories, as shown in Figure 4, including comparisons excluding government vehicles and those excluding government and business vehicles. Notably, the results reveal that when limiting the scope to ‘private vehicles’ only, both elasticities are lower in absolute terms than analyses of ‘all vehicles’ and ‘private and business vehicles.’ This suggests that private vehicles are less responsive to changes in charging infrastructure availability and price fluctuations compared to government and commercial vehicles.

Ⅴ. Cost-Benefit Analysis of BEV Subsidies

Building on the earlier estimation results, counterfactual scenarios can be explored by assuming that passenger BEV subsidy policies were absent throughout the study period (2019~22). Specifically, it is possible to estimate the decrease in the number of adoptions if subsidies were removed, or alternatively, the additional number of adoptions resulting from providing subsidies. Table 2 shows new registration estimates in the absence of BEV subsidies (national and local). This counterfactual analysis reveals that approximately 66,000 vehicles (27.4%) were added due to subsidies, out of the 240,000 new passenger BEV registrations eligible for subsidies during this period.

In other words, the other 72.6% represents adoptions that would have taken place even without subsidies. This is an inevitable aspect in situations where it is difficult to provide differentiated support based on consumer preferences. Based on new passenger BEV registration figures and unit subsidy amounts, the combined national and local subsidies granted in 2019~22 stand at about 2.6 trillion won.

Subsidy-induced adoption accounted for about 27.4% of the 240,000 BEVs eligible for purchase subsidies in 2019~22.

This section also estimates the cost required for charger installation to achieve the same adoption numbers as those resulting from purchase subsidies. Using the previous charger elasticity (1.24) for all passenger BEVs, an estimated 90,000 additional chargers would be needed to match the effect of subsidies (66,000 additional BEVs). In line with the government support criteria for charging stations while maintaining the existing composition of slow and fast chargers (89.6% slow, 10.4% fast as of 2022), installing these additional 90,000 chargers would require approximately 390 billion won in government support. This is substantially lower than the 2.6 trillion won spent on subsidies. Although this is a simplified calculation and the number of additional chargers (90,000) represents nearly 50% of those deployed over the past seven years, it suggests that promoting BEV adoption via expanding charging infrastructure could be more cost-effective.

Furthermore, it is also possible to carry out a cost-benefit analysis for the adoption expansion of passenger BEVs through purchase subsidies, albeit limited to subsidy policies with sufficient data for estimating government spending. Direct benefit estimation involves accounting for the subsidy amount transferred to consumers, the deadweight loss from subsidy payments, and the reduction in environmental externality costs from replacing ICE vehicles. Benefits and costs under several scenarios are examined based on assumptions regarding the social cost of carbon and the eco-friendliness of electricity. Overall, the results (Appendix Table 2) show a negative value in net benefits with the ‘benefit-cost ratio’ (= benefit amount ÷ cost amount) below 1. The ratio being less than 1 is primarily due to the fact that when adoption surpasses the range of ‘consumers responsive to an appropriate level of subsidies,’ inefficiency increases, leading to a lower benefit-cost ratio. The consistent finding of benefitcost ratios below 1 across various scenarios suggests that the current subsidy levels may be excessive.

Analysis suggests that promoting BEV adoption through the expansion of charging infrastructure would be more cost-effective than offering purchase subsidies. Additionally, the direct social benefits derived from BEV subsidies generally fail to outweigh their costs, indicating current subsidy levels may be excessive.

Ⅵ. Policy Implications

본Based on the findings of this study, the key implications of deployment policies of BEVs, the primary type of clean vehicle, are as follows. As a fundamental direction, it is necessary to focus more on strengthening charging infrastructure rather than providing subsidies for BEV deployment policies. This approach is expected to enhance the efficiency of government spending related to clean vehicle policies.

The detailed considerations are as follows. First of all, purchase subsidies should be gradually reduced. As of 2022, the breakdown of cumulative registrations for all passenger motor vehicles was 92.2% private, 7.5% business, and 0.4% government, while for BEVs, it was 65.6%, 30.2%, and 4.2%, respectively. Thus far, BEVs have been more rapidly adopted in the business sector, particularly for rental cars and taxis, with substantial government adoption due to policy mandates for public BEV use. The breakdowns show that the future demand for BEVs should come from private BEV ownership. One finding worth noting in this study is that private car users are less price-sensitive.

In addition, purchase subsidies are likely to become less effective as a policy tool because BEVs are gaining a competitive edge over ICE vehicles due to technological advancements that improve battery performance and reduce costs. The Korean government temporarily increased the national subsidy from 6.8 million won to 7.8 million won in late 2023 in response to the lower-than-expected BEV adoption rate, but such a measure is likely to prove ineffective in the long term given these contextual factors.

Secondly, charging infrastructure should be improved to enhance operational convenience. In the context of Korea, this policy direction can be addressed from both qualitative and quantitative perspectives. Qualitatively, policy efforts should focus on ensuring the full functionality of existing chargers by prioritizing maintenance tasks such as inspections, repairs, and replacements, as well as improving the user experience by making the system more convenient. In June 2023, the government announced a management plan for BEV charging facilities, and its inclusion of initiatives to upgrade charging service quality deserves positive appraisal (Joint Statement by Relevant Ministries, June 2023). However, the mandatory installation ratio of BEV charging units for new buildings was increased from 0.5% to 5% in January 2022 (scheduled to reach 10% by 2025), together with a 2% installation requirement imposed on existing buildings. These new regulations would place more importance on the management of charging stations.

Quantitatively, improving charging conditions at major travel hubs, such as highway rest areas, is becoming increasingly important in addition to enhancing charging infrastructure in residential and nearby vicinities. According to the 2019~23 S&P Global survey of major countries (see Table 3) and subsequent analysis, while the likelihood of purchasing clean vehicles initially increased after the widespread release of new models in 2021, it has since declined due to concerns about charging infrastructure and driving range. This suggests that, beyond purchasing, operational inconveniences could impede clean vehicle adoption. Although in international comparisons, Korea falls on the spectrum with relatively well-developed charging infrastructure, this assessment does not account for the distribution of slow and fast chargers. As of 2022, the shares of fast chargers out of total BEV charging units in major countries (IEA, Global EV data) are in the order of China (43.2%), US (21.9%), UK (17.0%), Germany (16.9%), Japan (13.9%), and Korea (10.4%). While those six countries had less than 5% in cumulative deployment rates for BEVs and PHEVs, even countries exceeding 10% demonstrate higher shares for fast chargers than Korea (Iceland 37.8%, Norway 17.5%). Consequently, future strategies for deploying BEV-led clean vehicles should direct policy resources toward the widespread installation of fast chargers at key travel hubs to facilitate long-distance travel and increase overall BEV adoption.

Future BEV deployment policies should prioritize reinforcing charging infrastructure over providing purchase subsidies. In particular, deploying enough fastchargers at key travel hubs is essential to improve convenience and facilitate long-distance travel.

 

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CONTENTS

• Ⅰ. Background
  
  Ⅱ. Trends in BEV Adoption
  
  Ⅲ. BEV Deployment Policy and Government Spending
  
  Ⅳ. Impact of BEV Deployment Policies
  
  Ⅴ. Cost-Benefit Analysis of BEV Subsidies
  
  Ⅵ. Policy Implications