Abstract
This paper examines not only the effectiveness of the South Korean emissions-trading scheme (ETS), but also the determinants of its performance. We apply a directional distance function and stochastic frontier analysis method to estimate environmental efficiency and the marginal CO2 abatement costs for 50 coal-fueled power plants from 2008 to 2016. The result indicates that the efficiency differs between the Lee Myung-bak and Park Geun-hye administration periods, with performance in the former period being relatively more effective than in the latter. Meanwhile, there were price gaps of 57.98% and 72.76% in 2015 and 2016, respectively, between the realized carbon market price and our result, indicating significant suppressed pressure on the market. We conclude that the Korean government should strengthen its regulations to more effectively implement a green economy. Policymakers could impose a carbon tax; substantially decrease the carbon emissions-free quota; and provide more incentives, especially to the energy-intensive, resource-saving coal-fueled power plants. This would ultimately keep market prices within a reasonable range and achieve a balance between the supply and demand for carbon emission allowances in the market.
Highlights
The global environmental problem, and especially the greenhouse effect caused by carbon dioxide emissions, has worsened in the 21st century
We assume a power plant F is located in the production technology set P(x), which is bound by the curve OAC and the horizontal axis OC, the latter of which is not included due to its null-joint property
Korea launched its emissions-trading scheme (ETS) in 2015, but we found that from 2015 to 2016, the carbon market did not positively impact the efficiency of coal-fueled power plants, which are major players in the carbon market
Summary
The global environmental problem, and especially the greenhouse effect caused by carbon dioxide emissions, has worsened in the 21st century. To shoulder more of its various responsibilities—from curtailing global carbon emissions to relieving burdens on the domestic environment—the Korean government established its “low carbon-green growth” national carbon-reduction policy in 2009, passed a law mandating decreased national CO2 emissions by 30% below business as usual (BAU) levels by 2020 Under this framework, the Korean government in 2012 established a “Management of Targets for GHGs (greenhouse gases) and Energy” system to set goals for reducing GHGs and energy use among industries and power generators, and to manage and support their implementation. We collect a recent dataset that includes information before and after the Korean ETS’ establishment to conduct longitudinal time-series study This will reveal the ETS policies’ effectiveness on the participating coal-power industry.
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