Additional 20,000 COEs could stabilise vehicle prices, but this is only possible with ERP 2.0, say analysts

SINGAPORE: The injection of up to 20,000 additional certificates of entitlement (COEs) starting from February 2025 could help to stabilise COE prices, said analysts of the rare initiative. 
But a main reason why this move, the first in over 20 years, is possible is because of the upcoming ERP 2.0 system, that seeks to better manage vehicular congestion in densely populated Singapore, they said. 
The additional COEs will be injected across all vehicle categories over “the next few years”, and the move was made partly due to the upcoming implementation of the ERP 2.0 system for traffic congestion management, said LTA in a statement on Tuesday (Oct 29). 
Associate Professor Walter Theseira, a transport economist from the Singapore University of Social Sciences, said that the injection of COEs could come into effect starting next year, to help make up for the lower COE supply in recent years. 
“The most logical way of using this (COE supply injection) would be to inject it as soon as possible in 2025 or 2026, rather than waiting for the later part of the decade,” he said. 
This is because the COE supply is projected to rise in the coming years after a period of lower supply in the past five years compared to the period between May 2015 and July 2019.
“In fact, adding in too much in the later part (of the decade) would probably make the high COE supply in those years even higher, which is not good for stability,” he said. 
The volatility of COE prices has come under the spotlight in recent years, with record-high COE prices across multiple categories. 
This led the government to pursue a “cut-and-fill” move – bringing forward COE supply from peak years to fill periods of low supply in order to manage volatility in pricing. 
Assoc Prof Theseira said the additional COE quota was “complementary” to the cut-and-fill method, as both work “in the same direction” to help manage supply. 
He added that with volatility in COE prices comes a slew of undesirable knock-on effects, such as affecting profitability for companies that rely on vehicles. 
“I think what this is really about is trying to find other policy mechanisms to smooth out COE supply in Singapore,” he said. 
It is only with the ERP 2.0 system that such flexibility in increasing COE numbers is possible, said one analyst. 
With the new system, LTA will be able to introduce new “virtual gantries” that allow for “more flexible and responsive congestion management”, said the authority. 
The ERP 2.0 system, which uses the Global Navigation Satellite System technology, is able to detect where vehicles are in real time – enabling the setting up of virtual gantries to prevent congestion.
“(ERP 2.0) can better locate (vehicles) and so can come up with better management policies to maintain congestion levels at every road,” said Professor Raymond Ong, a transport analyst from the National University of Singapore (NUS). 
Assoc Prof Theseira shared the same view, and said that an increased supply of vehicles typically leads to new congestion hot spots. 
“With today’s technology, before ERP 2.0 is fully deployed, there are actually no good options,” he said. “It takes too long to actually construct a gantry and to start managing traffic there.” 
But with the new system comes more flexibility. 
“Because of better congestion pricing from ERP 2.0, we can have better control over the (number of vehicles on roads), which means that actually, it is possible to inject a one-time (increase in vehicle quotas),” said Dr Ong, who is Associate Professor and Deputy Head (Research) in the Department of Civil and Environmental Engineering at NUS. 
LTA said the move to increase COEs will be on top of the existing allowable vehicle growth rate (VGR), which remains at 0 per cent for most categories. 
The VGR is the annual growth rate of the total vehicle population in Singapore, and is reviewed every three years. It is separate from the progressive introduction of the additional COEs. 
Assoc Prof Theseira said that if LTA commits to a vehicle growth rate, it would not have the flexibility to decide when the COEs are added. 
“Whereas this 20,000 (COE injection), they have a lot of policy flexibility,” he said. 
This has its pros and cons.
“The good thing is that they can be a bit more aggressive with filling in the low supply years … But on the other hand, flexibility also means that the market will have difficulty predicting what’s going to happen,” he said. 
Dr Ong said that the 20,000 COE injection can be seen as a “one-off” move ushering in the new ERP 2.0 technology. 
“The 20,000 … you can treat it as a bonus number that is put in because of the implementation of (ERP 2.0) technology,” he said. 
Likewise, between 1997 and 2003, 10,500 new COEs were injected upon the introduction of the current ERP system. 
“By committing to an (annual) number, that means you are committing to a VGR irrespective of the reasons,” he said. “You cannot keep on increasing by (a certain percentage) every year, and then expect the conditions (in the future) to be the same as today.” 
With the possibility of distance-based charging in the future, could there be another increase in COEs? 
Dr Ong said that with distance-based charging, there would be an even more dynamic charging strategy that could manage congestion even more effectively than virtual gantries. 
“There is a potential we can have another injection (of COEs) in the future,” he said. 
However, Assoc Prof Theseira said that the current ERP 2.0 system first needs to prove itself to be effective in managing congestion before distance-based charging can be considered.  
“We haven’t used (distance-based) charging before, and globally, there are almost no countries with such a system that allows this fine-tuning of road charging,” he said. 
Tests have to be done when ERP 2.0 is fully adopted to see if it would be effective in managing traffic, and the system also has to gain public acceptance before it can be rolled out. 
“These are things that we have to kind of evolve as we go along,” he said.
Editor’s note: This article has been amended to more accurately reflect Associate Professor Walter Theseira’s views on COE trends.