The big problem is you DON'T have to keep you COE for 10 years. When COE prices fall, you can scrape your car, get some COE rebate and bid for a NEW COE. Example, if you bought your COE in 2003 for 40k and when COE drops to 10k in 2005, it make sense to scrape your car because you can get back $32k just from your COE and use those money to buy a brand new $10k COE+car.
When you scrape your car, your COE get rolled back into the system within months. This is thus a big problem. In 2001-2004 the COE prices were very high but it dropped a lot in 2005. EVERYONE who bought a COE in 2001-2004 scraped their car and bidded for a new COE in 2005-2006. Those COEs that were launched in 2001-2004 got added back into the pool in 2005-2006 further forcing the prices down.
While low prices looked good at that time, it caused a BIG problem 10 years down the road as all the COE that is supposed to expire in 2011-2014 is all gone. Even if the COE prices rocket up, it does not really help as everyone's COE has not expired yet. All it does is to restrict demand and does NOTHING on the supply side. (frankly, someone should have foreseen this problem at that time)
Introducing COE rebates pegged at a percentage(discount) of todays price, allows rising COE prices to encourage people to GIVE UP driving and return the COE back to the government. By allowing Government to buy back COE from WILLING SELLERS, this allows the government to take some cars OFF the road, and thus able to introduce new COEs without increasing the car population.
The government then sells the COE to the next happy buyer at todays prices and makes some money.