The Economic, Energy and Emissions Impacts of Climate Policy in South Korea

Using an economy-wide model, we evaluate the impact of policies to meet South Korea’s Paris pledge to reduce greenhouse gas (GHG) emissions by 37% relative to those under business as usual (BAU) in 2030. Simulated BAU emissions in 2030 are 840.8 million metric tons (Mt) of carbon dioxide equivalent (CO2e), indicating that economy-wide emissions should be constrained to 529.7 MtCO2e. Under South Korea’s Emissions Trading System (KETS) and fuel economy standards, a 2030 carbon price of $89/tCO2e is needed to meet this goal. Without considering benefits from avoided climate damages, these policies reduce 2030 GDP by $20.6 billion (1.0%) and consumer welfare by 7.9 billion (0.7%). Comparing this scenario to one where South Korea’s Paris pledge is met solely by an ETS, indicates that adding a fuel economy standard reduces GDP and welfare by, respectively, $4.2 billion and $1.1 billion. Declines in sectoral production are largest for fossil-based energy sectors and the chemical, rubber and plastic products, and iron and steel sectors.The authors gratefully acknowledge financial support from the General Motors Company. The MIT Joint Program on the Science and Policy of Global Change is funded by a consortium of industrial sponsors and Federal grants. For a complete list of sponsors, see http://globalchange.mit.edu/sponsors