Are Emissions Trading Policies Sustainable? A Study of the Petrochemical Industry in Korea

Yongrok Choi,Hyoung Lee

doi:10.3390/su8111110

Abstract

In 2015, Korea inaugurated an emissions trading scheme (ETS). In this regard, many studies have considered the sustainable performance and efficiency of industries that emit carbon; however, few have examined ETS at company level. This paper focuses on companies’ data related to Korean ETS in the petrochemical industry. Based on the non-radial, nonparametric directional distance function (DDF), the paper evaluates the governance factors related to ETS policies and sustainable performance in terms of carbon technical efficiency (CTE), the shadow price of carbon emissions, and Morishima elasticity between the input and undesirable output of carbon emissions. Using a dual model, the paper shows that Korean ETS has huge potential for participating companies to improve CTE. If all companies consider the production possibility frontier, they could potentially improve efficiency by 52.8%. Further, Morishima elasticity shows strong substitutability between capital and energy, implying that green technology investment should bring a higher degree of energy-saving performance. Unfortunately, however, the market price of carbon emissions is far too low compared with its shadow price, suggesting that the Korean government’s price-oriented market intervention has resulted in the ETS producing poor sustainable performance. As the title suggests, ETS of Korea is not sustainable at the current stage, but with more efforts on the transition period, all the developing countries should support the governance factors of the ETS in terms of the more effective green investment with easier access to the green technology.

Highlights

Since the historic meeting of the United Nations Framework Convention on Climate Change (UNFCCC) in 1994, numerous efforts have been made to find the optimal path toward worldwide sustainable development
Since carbon emissions form most greenhouse gas (GHG) emissions, we evaluate the GHG emissions of companies based on their efforts to decrease emissions trading scheme (ETS) targets
One year has passed since the Korean government inaugurated its ETS in 2015; it may be too early to evaluate the sustainability of the government’s ETS policies

Summary

Introduction

Since the historic meeting of the United Nations Framework Convention on Climate Change (UNFCCC) in 1994, numerous efforts have been made to find the optimal path toward worldwide sustainable development. The session agreed to pursue efforts to limit the temperature increase to 1.5 degrees centigrade above the pre-industrial level. Since using one of the most powerful market-oriented frames, the Korean government has prepared and promoted its nationwide emissions trading scheme (ETS). This scheme became regulated in 2015; it has caused diverse conflict among politicians, industrial leaders, and even academic experts. Emissions targets have been initially set at 95% of the regime Because of this loose, yet uncomfortable, arrangement among ETS interest groups, it is easy for regulated companies not to invest in the sustainable performance of green productivity and to avoid the extra burden of carbon targets in the short run. Since carbon emissions form most greenhouse gas (GHG) emissions, we evaluate the GHG emissions of companies based on their efforts to decrease ETS targets

Objectives

Methods

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Conclusion