The role of innovation in reducing South Korea's energy intensity: Regional-data evidence on various energy carriers

Abstract

We analyze the growth-energy use nexus for South Korea, considering province-level consumption data for both total energy use and the five main energy carriers from 2002 to 2017. Given the importance in the country's environmental initiatives and lack of Korea-specific empirical evidence, our focus lies on the role of technological change in reducing the corresponding energy intensities and related changes induced by the National Strategy for Green Growth launched in 2009. While we decompose the growth effect into technique and composition effects and treat income as endogenous, three additional indicators are used to measure innovation activity. We find that not only the income-induced technique effect, but also trade openness, government environmental expenditures, and in part innovation, reduce the total energy intensity. Interestingly, the effects of innovation and government expenditures have been significantly stronger since 2009, whereas the total energy intensity has not improved during the same period. At the energy carrier level, the importance of the drivers is heterogeneous. The technique effect reduces the oil and electricity consumption intensity in particular, and increases the renewables consumption intensity. Reductions in the coal consumption intensity are driven by increases in government expenditures, innovation activity, and trade openness. Decreasing the natural gas consumption intensity appears difficult to achieve.