Research Report
Ⅰ. Background and Purpose
□ The effectuation of the Climate Change Agreement with the obligation to reduce carbon emissions will inevitably lead to a significant rise in the overall costs of industrial production due to the need to purchase CERs and to an increase in energy taxes on carbon fuel consumption.
○ Such a situation will considerably weaken the price competitiveness of goods made in this country due to the structure of the country’s economy, in which the share of energy-guzzling sectors is high.
○ Thus, efforts will be made internationally to develop new technologies for reducing carbon emissions based on the principle of enhancing energy efficiency, while new markets for the renewable energy and the new energy industry will emerge.
□ It is necessary to reorient the country’s energy market structure in order to lay the groundwork for sustainable growth of the country’s economy under the Climate Change Agreement, in which the obligation to reduce emissions
○ The effectuation of the Climate Change Agreement will result in a drastic shrinkage of traditional energy markets focusing on fossil fuels and a rapid expansion of markets for renewable energy, so on. In this case, the national economy can expect to engage in sustainable development.
Ⅱ. Main Contents
□ The world’s supply of primary energy has increased steadily amid continuous economic growth.
○ Korea relies on imports for 95.8% of its energy needs and the amount of imports in korea has continued to increase in step with economic growth.
□ The worldwide expansion of renewable energy and the development of new energy technologies are very important with regard to the climate change issue and the need to create economic opportunities and help people who are currently unable to enjoy the benefit of power supply.
○ In 2014, renewable energy met about 19% of the world’s energy needs and In 2015, the relevant facilities’ capacity continued to increase.
○ Its new and renewable energy-related basic plan projects the share of renewable energy as a proportion of primary energy to reach 3.2% by 2012, 5.0% by 2020, 9.7% by 2030, and 11% by 2035.
- New and renewable energy’s share in terms of total power consumption is set to reach 13.4% by 2035.
○ The country’s energy businesses are linking energy-related technology with ICT and manufacturing, as seen in the status of investment in new energy sectors announced in 2015.
□ Trend of Carbon Tax/Emissions Trading System (ETS) in and outside the country
○ The carbon tax and the emissions trading system are leading policy tools for reducing gas emissions.
○ The carbon tax has been adopted in some EU countries, while the ETS has been or will be adopted in some European countries, the United States (RGGI and California), South Korea, and China and About 8% of GHG emissions are managed by the ETS.
○ In the EU, a total of 28 countries had joined the ETS by 2015, following its adoption in 2005. The volume amounts to 7.72 billion tons (2012), which accounts for 72% of the world’s total CER transaction volume (10.73 billion tons).
○ At the 15th UNFCCC COP held in November 2009, Korea presented its target for voluntary reduction (i.e. a 30% reduction of BAU by 2020), enacted the relevant law in May 2012, and finalized the basic plan for the Emissions Trading System (2015-2025) in January 2014.
□ International trend of greenhouse gas emission reduction
○ At the 21st United Nations Framework Convention on the Climate Change Conference of the Parties (UNFCCC COP21) held in Paris in December 2015, the Paris Agreement was signed as the basis for the New Climate Regime, in which all countries will take part, starting from 2020.
○ Under this agreement, all countries should work together strive to limit the rise in the planet’s average temperature to no more than 1.5°C, compared to the early industrialization period.
○ All countries are encouraged to submit and execute their voluntarily set emission reduction target every five years and encouraged for the developed countries to play a leading role in the formation of the relevant funds as well as a more transparent system adopted concerning climate action and the relevant support.
○ Negotiations are under way with regard to such details as long- term global objectives, reductions, market mechanisms, adaptation, support for means of execution, technology and innovative mechanisms, etc.
○ One of the core items of the New Climate Regime, in which all countries will ultimately be take part, is the Intended Nationally Determined Contribution (INDC) and Korea submitted its INDC (i.e. a 37% reduction of BAU by 2030) in June 2015, ahead of the Paris Agreement.
□ It is important to set the country’s relevant policies as follows to lay the groundwork for the local energy structure and sustainable growth in preparation for effectuation of the Climate Change Agreement.
○ The imposition of a higher rate of consumption tax on traditional fossil fuels will enhance the effect of the reorganization.
○ Widening the scope of fossil fuels/energy sources subject to taxation will enhance the effect of the reorganization.
○ Although it is desirable to set a high rate of consumption tax concerning fossil fuels, it is also necessary to provide a period of adaptation to the new tax rates. Thus, it is thought that it will be realistically better to adjust the tax rates gradually to minimize the negative effects of the rise in tax rates.
○ It is necessary to apply the Pigouvian consumption tax to the existing consumption tax system concerning fossil fuels, while setting tax rates comprehensively from the perspective of environmental costs and congestion tax.
○ It will be necessary to adopt a price indexation system as a means of supplementing the current specific duties taxation structure when imposing the Pigouvian consumption tax.
□ In the event that the Climate Change Agreement is implemented without this country making adequate preparations to cope with it, we will not be able to fulfill the obligation to reduce our carbon emissions with traditional production and consumption methods. The situation may weaken the country’s international competitiveness due to the increase in the burden imposed on the economy and result in economic retreat amid a shrinkage of production and consumption.
○ We must lay the groundwork for sustainable growth by developing the high value added industrial sectors and reorganize the country’s energy markets in preparation for the post-Climate Change Agreement period.
○ The country’s energy market remains severely distorted due to the low power supply rates compared to other energy sources.
○ We need to come up with methods of improving the distortion of the country’s current energy price system, and to consider adopting the carbon tax and the concept of the “energy prosumer” to promote the formation and stable operation of markets for the new energy technology industries.
Ⅲ. Expected Effect
□ The adoption of a high price policy for energy will encourage the market to develop technologies designed to improve energy efficiency and look for ways of saving energy. It will also bring about a sustainable energy consumption structure and growth.
□ The market will also look for ways of implementing structural reforms designed to cope with the post-Climate Change Agreement period proactively.
○ Proposals for structural reform of the energy market.
○ Proposals for improvement of the relevant polices and systems as a concrete means of execution.