How COE Quota Is Calculated: The Formula Explained

The COE quota — the number of certificates available in each bidding exercise — is the single most important supply-side variable in the market. Unlike demand, which is influenced by countless consumer and economic factors, supply is determined by a specific formula managed by the Land Transport Authority. Understanding this formula gives you a framework for anticipating future supply conditions and their likely impact on premiums.

The Basic Formula

The total COE quota for a given quarter is calculated as:

Quota = Projected Deregistrations + Vehicle Growth Allowance - Adjustments

Component 1: Projected Deregistrations

This is the largest component, typically accounting for 95% or more of the total quota. LTA uses actual deregistration data from a trailing period (generally three months, with a lag) to project the number of vehicles that will leave the register. Every deregistered vehicle creates one future COE certificate.

The trailing period creates a natural lag: deregistrations from Q4 2025, for example, feed into the Q2 2026 quota. This means current deregistration trends today affect supply two quarters hence, not immediately.

Component 2: Vehicle Growth Allowance

The government sets an annual vehicle growth rate that determines how many additional vehicles (net) can be added to the roads. Since 2018, this rate has been set at 0%, meaning the total vehicle population is targeted to remain constant. A 0% growth rate means no additional certificates are created beyond the deregistration replacement — every new vehicle must be offset by one leaving.

In earlier periods, the growth rate was positive (up to 3% per annum in the 1990s), which added substantial supply. The reduction to 0% was a major policy shift that permanently constrained supply.

Component 3: Adjustments

LTA makes adjustments for factors such as:

• Certificates from the previous quarter that were not used (added back to supply)
• Certificates allocated but later cancelled (returned to the pool)
• Administrative corrections

These adjustments are typically small relative to the deregistration component.

Category Allocation

The total quota is distributed across the five categories based on the proportion of deregistrations in each category. If Category A deregistrations represent 45% of total deregistrations, Category A receives approximately 45% of the total quota. This proportional allocation ensures that each category's supply roughly tracks its own replacement rate.

Category E is handled separately — its quota is set as a fixed percentage of the total, currently approximately 10%.

Why Supply Is Structurally Tight

Several factors explain why COE supply has been persistently constrained:

1. 0% vehicle growth rate: Eliminates the growth allowance that previously added supply.
2. High COE renewal rates: When owners renew COE at the PQP instead of deregistering, future supply shrinks because no certificate is created for the recycling pool.
3. Aging but well-maintained fleet: Modern cars last longer, reducing the natural attrition rate.
4. No policy override: Unlike fiscal policy, which can be adjusted quickly, the quota formula operates mechanically with limited scope for discretionary intervention.

Forecasting Future Quotas

To forecast future quotas, you need to forecast deregistrations. Key indicators to watch:

• The age profile of the vehicle fleet: Vehicles approaching their 10-year COE expiry are the primary source of deregistrations.
• PQP levels: Higher PQPs discourage renewal and encourage deregistration, boosting future supply. Lower PQPs have the opposite effect.
• Economic conditions: Recessions increase deregistrations as owners cut expenses; booms reduce them as owners hold onto appreciating vehicles.

Monitor deregistration trends on our deregistrations page for the latest data.

Frequently Asked Questions

Can the government increase quotas without changing the formula?

In theory, the government could introduce a special allocation of additional certificates outside the formula. This has been discussed but never implemented. The risk is that it would be seen as interfering with the market mechanism and could create expectations of future interventions, distorting bidding behaviour. Policy changes have historically come through adjustments to the growth rate or the formula inputs, not through ad-hoc quota injections.

How far in advance are quotas announced?

LTA typically announces the quarterly quota shortly before the first bidding exercise of the quarter. The announcement provides per-exercise quota numbers for each category. This gives bidders visibility for the upcoming three months but not beyond.

What would happen if the vehicle growth rate were increased to 0.5%?

A 0.5% annual growth rate on a vehicle population of approximately 960,000 would add about 4,800 certificates per year, or roughly 200 per exercise across all categories. This would represent a meaningful supply boost of approximately 4-5% relative to current quotas. The impact on premiums would depend on demand conditions, but a 5% supply increase could reduce premiums by 3-6% based on historical elasticities.