Look to market-based solutions to improve current COE system

I refer to “Base COE on needs, not wants” (Feb 7).

Pegging Certificate of Entitlement (COE) prices to a car’s Open Market Value (OMV) removes market distortions and the implicit subsidising of ultra-luxury models.

The Government could then maximise its revenue — since ultra-luxury models are Giffen goods — while prices of lower-end cars would fall.

However, the COE still does not reflect the actual continued cost of car ownership, only the cost at the point of transaction.

Such price difference based on the timing of purchase represents another source of market inefficiency which contributes to increased volatility.

I suggest benchmarking road tax and rebate values against the latest COE prices (pegged to the OMV) to ensure that actual cost of car ownership is borne by all road users.

In times of high COE prices, owners would receive incentives to de-register their vehicles, increasing the supply of COEs.

This will also allow vehicle growth rate to slow down, while maintaining price stability.

Market-based solutions remain the most appropriate approach to the problem.