Authors at the Research Centre for Sustainable Hong Kong, City University of Hong Kong, continue their three-part series of policy proposals to help Hong Kong achieve its emissions reduction targets. In this third and final article, they focus on transportation emissions, particularly in the private vehicle sector, and recommend the electrification of private cars.

Transportation produces 20% of all carbon emissions in Hong Kong and is the second-largest source of emissions by sector after power generation. To substantially reduce the emissions caused by transportation, we maintain that the most important of all measures is the replacement of fossil fuel–powered private cars with electric vehicles (EVs).

Currently, 90% of all registered private vehicles in Hong Kong are fossil fuel cars. These vehicles produce nearly 1.5 million metric tons of CO²-e (carbon dioxide equivalent) per year, accounting for 4.5% of the city’s total annual carbon emissions of 34 million metric tons of CO²-e (see Table 1).

The government began promoting EVs in 2018 and four years later, in 2022, the number of new EVs surpassed new fossil fuel cars for the first time. However, given the large fleet of fossil fuel vehicles in use, the government needs to step up efforts to accelerate the transition to EVs. We propose two directions of efforts: (1) adjusting the registration taxes for private cars, and (2) investing more in the infrastructure for EVs.

Taxis and public light buses account for 1.9% and 0.6%, respectively, of Hong Kong’s total carbon emissions. The vast majority of these fleets have transited to liquefied petroleum gas (LPG) as fuel (see Table 2), but goods vehicles and public buses still use fossil fuel because the current renewable fuel technology cannot produce sufficient power output. To tackle this, the government could finance local transport enterprises, research institutes and universities to develop fuels that would enable more types of vehicle to use renewable fuel. We could also learn from the experience of foreign companies in developing EVs.

Policy roadmap to phase out fossil fuel cars by 2035

The government has implemented a number of policies to phase out fossil fuel cars by 2035 and to promote EVs (see Table 3), including offering a tax allowance to car owners who replace their fossil fuel vehicles with EVs (namely, the One for One Replacement Scheme), installing EV charging stations in government car parks and public buildings, and launching the EV-charging at Home Subsidy Scheme (EHSS) to subsidise the installation of EV charging stations in car parks of existing private residential buildings.

The two-pronged approach of combining administrative policies with incentive measures aligns with the ‘push and pull’ policy approach we suggested in our first article in this series (see the September 2023 edition of CGj).

Despite these policies and incentives, in 2022 a total of 92% (526,000) of the 572,000 private cars registered in Hong Kong were fossil fuel vehicles (petrol and diesel), with only 8% powered by electricity (see Table 4).

Assuming the pace of replacement of private vehicles remains the same, it would take more than 10 years to replace all fossil fuel vehicles with EVs. The process must therefore be expedited.

Policy recommendations for reducing Hong Kong’s transportation emissions

Regressive tax exemption scheme to incentivise car owners to purchase EVs

The One-for-One Replacement Scheme initially granted a tax exemption of up to HK$250,000 to car owners who replaced their fossil fuel cars with electric cars. The tax exemption was later increased to HK$287,500, but will only last until 31 March 2024. With no long-term tax exemption policy in sight, car owners will not be incentivised to switch to electric vehicles.

We propose that the government extends the One-for-One Replacement Scheme until 2035 and that it reduces the tax exemption each year until it reaches zero. That way, car owners will be encouraged to replace their fossil fuel cars with EVs sooner rather than later in order to obtain greater tax exemption benefits.

Progressive first registration tax for fossil fuel vehicles

A ‘first registration tax’ is levied on the taxable value of a vehicle, which is charged progressively. A tax rate of 46% is charged on the first HK$150,000 of taxable value, while the tax rate increases to 132% on the remaining taxable value once HK$500,000 has been reached.

We suggest assigning different rates for the first registration tax for EVs and for fossil fuel cars, with a higher rate for the latter. The difference in tax rates could be increased progressively from 2024 to 2035 to dampen car owners’ desire to purchase fossil fuel vehicles.

More EV charging stations

The lack of charging stations is a material factor putting off car owners in Hong Kong from switching to electric cars. Hong Kong has approximately 5,400 EV charging stations – approximately one charging station for every eight EVs. Amongst those, 1,000 are quick-charging stations, 3,000 are medium-charging stations and 1,400 charge at a regular speed (the slowest).

A quick-charging station can replenish 80% of an electric car’s battery in 30 minutes, medium-speed chargers take three to four hours to do the same, while standard chargers take as long as eight hours. The massive difference in performance explains why Hong Kong’s electric car market is dominated by a single brand, as they build the quickest charging stations.

Additional resources need to be invested to encourage the construction of more quality EV charging stations and to foster healthy competition between a larger number of operators through, for example, low-interest loans, return guarantees for a specific amount of time and service agreements between EV charging station companies and car owners.

Summary

To accelerate the transition to EVs in Hong Kong, similar to our recommendations for the power generation sector as discussed in our previous article (see last month’s edition of CGj), we propose two measures under the ‘market control’ policy mechanism – namely a regressive tax allowance for electric cars and a progressive tax for fossil fuel cars. The proposal to increase the number of EV charging stations is a measure under the ‘commercialisation mechanism’.

Our proposals focus on private vehicles as they produce the majority of the emissions in the transportation sector in Hong Kong. Taxis and public light buses have already shifted to LPG and have much lower emissions. The government has set up a HK$1.3 billion New Energy Transport Fund, as well as the Green Tech Fund – which is a separate low-carbon green research fund – to hasten the development of EVs. Pilot schemes for electric public buses and electric single-decker buses are well under way. Our proposals are designed to add to the existing mix of policies to speed up the transition process.

We hope that our policy papers in this series on emissions reduction policies will play a small part in helping Hong Kong to achieve carbon neutrality by 2050.

Linda Chelan Li, Liang Dong, Phyllis Lai Lan Mo, Yunhong Liu and Kin On Li

Research Centre for Sustainable Hong Kong, City University of Hong Kong

This article is based on Policy Paper 23 of the Research Centre for Sustainable Hong Kong, City University of Hong Kong, issued in August 2023, which is the third of three policy papers offering recommendations to help reduce GHG emissions in Hong Kong. Articles based on the other two policy papers can be found in the September 2023 and February 2024 editions of this journal.

The authors can be contacted at: sushkhub@cityu.edu.hk.