COE prices are high because the Certificate of Entitlement is a market with a fixed, quota-limited supply, so the supply curve is vertical and the price is set entirely by demand. With strong demand, including companies bidding for certificates, the equilibrium price is pushed up, and a Category B COE has been clearing around S$127,000 to S$130,000 in mid 2026. The deeper point is an unintended consequence: vehicle-related revenue is now about 9.1 percent of total government operating revenue, so the policy is partly locked in by the money it raises, even if it no longer fits its original purpose of managing road congestion.
Every quarter the number lands in the news and the same reaction follows. In mid 2026 a Category B Certificate of Entitlement, the COE you need to own a larger car, has been clearing at around S$127,000 to S$130,000, and that is before the car. Premiums across the categories have run very high. The usual verdict is that something has gone wrong, that someone is gouging. There is a far more interesting explanation, and it is sitting in the first half of your syllabus.
The COE is not a tax dropped on top of a car. It is the price of a thing the government deliberately keeps in fixed supply: the right to put one more car on the road. Once you see it as a market with a quota, the high price stops being a scandal and becomes a prediction, and the genuinely interesting question moves elsewhere, to what this policy now does to the government's own books.
The COE is a market with a fixed supply
Start with what the Certificate of Entitlement is. Singapore runs a Vehicle Quota System: the government decides how many cars may be added to the roads in a given period, and to own one you must first win a certificate at auction. The certificate lasts ten years. The number released each period is a quota, a deliberate ceiling, set by policy rather than by the market.
- Certificate of Entitlement (COE)
- A ten year licence, won at auction, that you must hold to own and use a vehicle in Singapore. It is the right to put one car on the road, priced separately from the car.
- Vehicle Quota System
- The policy that fixes how many vehicles may be added to the roads each period. The quota, not buyers and sellers, sets the quantity supplied.
- Perfectly inelastic supply
- Supply that does not respond to price at all, drawn as a vertical line. Because the quota is fixed, the quantity of COEs is the same whatever the price climbs to.
That quota is the whole point for the diagram. Because the number of certificates is fixed by policy, the quantity supplied does not rise when the price rises, the way it would for most goods. Supply is perfectly inelastic, a vertical line. And when supply is vertical, it cannot do any of the adjusting. The entire price is set by demand. Push demand right, against a wall that will not move, and the only thing that can give is the price.
So the price is set entirely by demand
This is why the premiums climb. Demand to own a car in Singapore is strong, incomes are high, and the certificate is the one gate everyone must pass through. On top of household buyers, companies bid for certificates too, leasing firms, dealers and businesses, which adds to demand against that same fixed quota. More bidders chasing an unchanged number of certificates simply walks the equilibrium up the vertical supply line. The figure below is the entire mechanism.
Read it off the figure. There is no upward sloping supply curve to share the load, because the quota will not let quantity grow. So a rise in demand cannot pull in more certificates; it can only bid up the price of the ones that exist. That is why a Category B premium can sit near the price of a flat in some parts of the world. It is not greed, and it is not a malfunction. It is exactly what a vertical supply curve does when demand is strong.
Mr Toh's take
Here is where I think the real story is, and it is not the headline number. COE prices are high, and yes, part of that is companies bidding the certificates up. But the consequence that fascinates me is an unintended one. Vehicle-related revenue is now about 9.1 percent of the government's total operating revenue, nearly one dollar in every eleven, with COE premiums raising in the order of S$8.66 billion in the year to March 2026 and FY2026 projected around S$9.42 billion. The quota system, designed to ration road space, has quietly become a major revenue source.
And that creates a trap. Even if the government came to feel the policy was no longer the right tool for the job, it would hesitate to reform it, because so much revenue now leans on it. The policy is partly locked in by its own success as an earner. There is a second problem layered on top: car policy is now asked to do too many things at once, push electric vehicle adoption, raise revenue, and address wealth inequality through tiered Additional Registration Fees, rather than its original objective of managing congestion. A policy stretched across that many goals serves none of them cleanly.
The policy is partly locked in by its own success as a revenue source. That is the unintended consequence.
A COE question is a gift, because the supply side is the cleanest version of an idea examiners love: perfectly inelastic supply. Draw the vertical supply curve, state that the quota fixes quantity, and show that the price is therefore determined entirely by demand, so a rightward shift in demand raises price with no change in quantity. Then reach for the higher marks with evaluation: a policy that has drifted from its stated objective, that has become revenue-dependent and so is hard to reform, and the trade-off of one instrument being asked to serve several goals. A model sentence: "Because the COE quota fixes supply, the supply curve is perfectly inelastic, so the equilibrium price is set wholly by demand, and strong demand, including corporate bidding, pushes the premium up; the sharper evaluation is that the policy has become a significant revenue source, which constrains the government's willingness to reform an instrument now stretched across competing objectives."
- The COE is a market with a fixed, quota-limited supply, so the supply curve is vertical, perfectly inelastic, and the quantity will not rise however high the price climbs.
- Price is therefore set entirely by demand. Strong demand, including companies bidding for certificates, pushes a Category B premium to around S$127,000 to S$130,000 in mid 2026.
- The unintended consequence is a revenue trap. Vehicle-related revenue is now about 9.1 percent of total government operating revenue, so the policy is partly locked in by the money it raises.
- The policy now serves too many goals at once, EV adoption, revenue, and wealth inequality through tiered ARFs, rather than its original objective of managing congestion.
- For the exam, draw the vertical supply curve, set price by demand, then evaluate a policy that has drifted from its objective and become hard to reform.
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Frequently asked
Why are COE prices so high?
COE prices are high because the Certificate of Entitlement is a market with a fixed, quota-limited supply. The government decides how many certificates to release each period, so the quantity does not respond to price, supply is perfectly inelastic, a vertical line. When supply is vertical it cannot do any of the adjusting, so the price is set entirely by demand. Demand to own a car in Singapore is strong, and on top of household buyers, companies also bid for certificates, which pushes the equilibrium price further up. The result in mid 2026 has been a Category B premium of around S$127,000 to S$130,000, before the cost of the car itself. It is not gouging, it is what a fixed supply does when demand is strong.
What is the COE?
The Certificate of Entitlement is a ten year licence, won at auction, that you must hold to own and use a vehicle in Singapore. It is part of the Vehicle Quota System, under which the government fixes how many vehicles may be added to the roads in a given period. In effect the COE is the right to put one more car on the road, priced separately from the car, and because the number of certificates is capped by policy, that right is auctioned to the highest bidders. The original purpose was to manage road congestion by limiting the growth of the vehicle population.
Why does the government not lower COE prices?
The government does not set the price directly, it sets the quota, the number of certificates, and the price is then determined at auction by demand. It could in principle release more certificates and let the price fall, but there is a tension worth understanding. Vehicle-related revenue is now about 9.1 percent of total government operating revenue, so the COE system has become a significant revenue source. That means even if the policy were felt to be no longer the ideal tool, there is a strong reason to be cautious about reforming it, because doing so would forgo revenue. This is the unintended consequence: a congestion policy partly locked in by the money it now raises.
Is the COE a tax?
Not in the strict sense, though it works a little like one. A tax is a compulsory levy set by the government at a rate it chooses. The COE premium, by contrast, is a market price discovered at auction: the government fixes the quantity, the quota, and bidders set the price between them. So the level is determined by demand against a fixed supply, not by a rate the government picks. That said, because the certificates raise very large sums for the government, around 9.1 percent of total operating revenue from vehicle-related sources, the COE has the economic effect of a major revenue raiser, which is part of why reforming it is not simple.
Does company bidding push COE prices up?
Yes, it adds to the demand side. Against a fixed quota of certificates, every additional bidder competing for the same unchanged number of COEs walks the equilibrium price further up the vertical supply line. When leasing firms, dealers and other businesses bid alongside individual buyers, total demand is higher than it would be from households alone, and because supply cannot expand to meet it, that extra demand shows up almost entirely as a higher price rather than more certificates. It is one of the reasons premiums have run so high, and it is a clean illustration of price being set by demand when supply is perfectly inelastic.
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