Abstract
In Korea, multiple efforts, including subsidies to energy industries, have been made to increase renewable energy use and strengthen the competitiveness of renewable energy industries. Ironically, a considerable number of subsidies have also been provided for fossil fuels, drawing criticism both within Korea and overseas that these subsidies increase not only fossil fuel consumption and greenhouse gas emissions, but also energy market distortion. Thus, the Korean government announced a plan to discontinue some fossil fuel subsidies in 2020. Based on Korea’s policy orientation to expand renewable energy and strengthen its competitiveness, various scenarios to phase out fossil fuel subsidies and increase renewable energy subsidies can be examined. This study used the computable general equilibrium model to subdivide the energy sector and analyze the influence of changes in subsidies on the Korean economy and CO2 emissions based on three scenarios. The results show that phasing out fossil fuel subsidies causes a significant reduction in domestic CO2 emissions by −6.9 to −8.5%, depending on our scenarios. Implementing energy policy in Korea may have minimum impacts on its economy when fossil fuel subsidies transfer to renewable energy industries. The real gross domestic product could be only decreased by −0.04 to −0.14%.
Highlights
The demand for renewable energy has been rapidly increasing worldwide, as countries seek to respond to climate change, reduce air pollutant emissions, and prepare for fossil energy depletion
This study showed that converting for renewable energy by increasing public expenditure, in terms of GDP loss, changes in coal subsidies to renewable energy production subsidies is better than creating demand welfare, and cost‐effectiveness of GHG reduction, even though the study only reviewed for renewable energy by increasing public expenditure, in terms of GDP loss, changes in biomass renewable energy sources and coaleven among fossilthe fuelstudy sources
Government consumption increases in scenario 1 because government income increases due to the reduction in fossil fuel subsidies
Summary
The demand for renewable energy has been rapidly increasing worldwide, as countries seek to respond to climate change, reduce air pollutant emissions, and prepare for fossil energy depletion. Several national plans have been established in Korea to increase the proportion of renewable energy and to strengthen its competitiveness in the energy sector [3]. A comprehensive plan—the “Korean New Deal”—was announced, which includes strategies to increase renewable energy use, i.e., the promotion of electric and hydrogen vehicles and the early retirement of diesel vehicles, to transform Korea into a sustainable, low-carbon, eco-friendly country. Renewable energy has the advantage of minimizing environmental damage [4], but its internal rate of returns (IRR) is relatively low with respect to higher risks [5]. Any deficiencies can be overcome if suitable amount of subsidies are provided early
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