The rollout of natural gas buses in South Korea was once hailed as an effective way to tackle urban air pollution. But after the World Cup boom, the pace of adoption has slowed dramatically. Some now question whether the NGV program was simply a temporary showcase rather than a long-term solution.

In fact, some regions are moving in the opposite direction. Jeju, for example, introduced one LPG bus with support from SK Gas and plans to add ten more by 2003.

Meanwhile, new diesel buses fitted with emission-reduction devices are steadily being introduced. The government had pledged to replace all diesel buses with NGVs by 2007. But many of the old diesel vehicles being retired are still replaced with new diesel buses—making that target impossible to meet.

So what is the Ministry of Environment planning now?

This feature takes a closer look at why the natural gas bus program has struggled, and what challenges must be overcome if NGVs are to become a permanent fixture in South Korea’s public transport network.

Natural Gas Bus Rollout: Headed for Failure?

Editorial: BusLife
Source: Korea Gas Corporation
Published: February 4, 2003

Why has the NGV rollout faltered?

The biggest reason is cost. Bus operators must pay a significant premium to purchase NGVs compared with diesel models.

The table above reflects the latest figures as of February 2003.

In short, operators need to spend about KRW 21 million more per vehicle to choose CNG over diesel. Even after factoring in filter costs for diesel buses, NGVs still end up about KRW 18 million more expensive over an 8-year cycle. For private operators driven by profit, that’s a tough sell.

Government loans are available, but loans are not subsidies—they must be repaid. With the cost of three NGVs, a company could buy four diesel buses. Faced with that choice, many companies understandably stick with diesel.

A study estimates that phasing out diesel buses nationwide by 2014 would create KRW 2.49 trillion in public benefit. Yet by 2007, subsidies to bus and fueling companies will total only KRW 730 billion—leaving the government with a net gain of KRW 1.76 trillion. Meanwhile, bus operators lose about KRW 25 million each, and fueling stations about KRW 86 million.

The result: a program highly profitable for the government, but a losing deal for private operators.

Additional comparisons were made between standard diesel buses, “clean diesel” buses with oxidation catalysts, and NGVs. Pollutants considered include particulates, SOx, NOx, hydrocarbons, and CO. Data shows that while NGVs perform far better environmentally, they come with higher upfront and operating costs.

Social Cost of Air Pollutants

Fuel Consumption by Bus Type

Pollutant Emissions by Bus Type

Social Cost of Pollution by Bus Type

Direct Costs for Bus Operators

Total Social Costs per Bus Type

Government Cost-Benefit Analysis

Bus Operator & Fueling Station Cost Analysis (Present Value, KRW thousand)

Even after subsidies, bus operators still face a loss of KRW 25 million per vehicle, and fueling stations about KRW 86 million. Meanwhile, the government walks away with a KRW 1.76 trillion surplus. The imbalance is obvious.

For the NGV program to succeed, part of that government surplus must be reinvested to make NGVs financially viable for operators. Fuel subsidies, reduced gas tariffs, or purchase incentives could make the difference. If NGVs become more profitable than diesel, operators will adopt them voluntarily—even without subsidies.

At its core, the NGV rollout is a public good project. Expecting private companies to absorb the cost of a national environmental policy is unreasonable. For the program to succeed, the government must take greater responsibility in sharing both the risks and the rewards.

Without stronger measures, there is a real danger that South Korea’s NGV program will fade into irrelevance—despite its clear environmental benefits.