[Yonhap]
[Yonhap]

The government is set to launch a review of the current electric vehicle purchase subsidy system, which splits costs between the central and local governments.

The move comes as surging EV sales have placed a growing financial strain on local authorities required to co-fund the subsidies alongside the central government.

According to the Ministry of Climate, Environment and Energy on Friday, the ministry plans to commission a research project to conduct a comprehensive review of the EV subsidy framework and will hold expert consultations in the near future.

The ministry intends to examine whether it remains appropriate to require local governments to provide subsidies amounting to at least 30 percent of the central government's subsidy.

EV purchase subsidies are divided into two components: funding from the central government and funding from local governments.

Under the operational guidelines for the EV distribution project, local governments are required to budget local subsidies equal to at least 30 percent of the central government's subsidy amount.

This year, a surge in oil prices triggered by the war between the United States and Iran drove EV demand so high that some local governments ran through their subsidy budgets entirely.

According to the Korea Automobile Manufacturers Association, newly registered EVs in the first half of this year totaled 198,509 units, a 113.6 percent increase from the same period last year. EVs accounted for 23.3 percent of all newly registered vehicles — 850,636 in total — during the first half.

As EVs emerge from the so-called "chasm" of temporary demand stagnation and gain popularity, the ministry is planning to increase the number of subsidized units available next year.

The challenge is that expanding the subsidy pool would increase the financial burden not only on the central government but on local governments as well.

A particular concern is Gyeonggi Province — the region with the highest number of new vehicle registrations in the country — which recently declared a fiscal crisis.

Beyond the local subsidy ratio, the ministry will also examine whether the current per-unit subsidy rates for different EV types are appropriate.

In particular, the ministry will work to calculate appropriate subsidy rates in anticipation of large electric freight trucks that have received ministry certification and are preparing for market launch.

"We will review how much subsidy needs to be provided — taking into account production costs and other factors — for large electric freight trucks to be competitive against internal combustion engine vehicles and to establish a viable market," a ministry official said.


thlee@heraldcorp.com