An Effect of Carbon Dioxide and Energy Reduction on Production Efficiency and Economic Growth: Application of Carbon Neutrality in Korea

Abstract

Global interest in climate change and carbon neutrality is hot. According to the Intergovernmental Panel on Climate Change, achieving carbon neutrality is the solution to avoiding climate change. Carbon neutrality is a global challenge for sustainable economic growth. In response, Korea declared 2050 carbon neutrality in 2021. However, for Korea to be carbon neutral, an incredible transformation in terms of an energy revolution is required. In this context, this study aims to diagnose the current situation to achieve carbon neutrality in Korea and to explore the direction of minimizing the national economic burden in the implementation process. To this end, we use the data envelopment analysis (DEA) directional distance function based on the material balance flow approach to examine changes in production efficiency and GDP due to carbon dioxide reduction and energy conversion. The empirical analysis results are as follows. First, in the analysis, according to the type of reduction, when only 1% of CO2 was reduced, GDP decreased by about 0.1%. Still, when reduced simultaneously with fossil energy, GDP fell by about 0.3% or more. Secondly, based on the scenario of the 2050 carbon-neutral plan, as a result of estimating the efficiency and GDP change caused by Korea’s energy transition, Korea is a country with a significant increase in inefficiency due to the energy transition and a substantial loss of GDP. Therefore, the government should establish a Korean carbon-neutral policy at a level that the national economy can afford.