Economic Impacts of

Mitigation

- CGE Analyses for Korea -

2010. 3. 11.

Korea Environment Institute


ENV-Linkages Model
 Recursive dynamic computable general equilibrium model
developed by OECD

Applied for mitigation analyses for “OECD Environmental Outlook to
2030”(2008) and following analyses on Economics of climate change

 Based on GTAP DB with flexible aggregation

2 regions and 26 sectors in this study

Korean 2005 I-O table reflected

Empirical estimation of labor and capital supply for Korea

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Consumption
 Single representative consumer for each region

All the income from factor earnings, net of taxes, is spent for purchase of goods and
services and saving
saving is determined according to interest rate

 Utility maximization problem of Consumer

Equilibrium behavior of consumer

– consumption :
– saving :

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Production: Nested CES technology

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Key assumptions and characteristics
 Two kinds of capital vintages
 Zero-profit condition for firms
 Investment = saving
 Armington assumptions for domestic vs. foreign goods

Aggregate demand is CES function of imported and domestically produced goods

Domestic production is allocated to export and domestic consumption according to CET
(constant-elasticity-of-transformation) function
 Governments collects various taxes on income, intermediate and final consumption,
production, tariffs, and spend a predetermined portion of the revenue on goods and
services

Government expenditure structure is assumed to be fixed reflecting base year data

Fiscal balance of government is assumed to be fixed and income tax rate is adjusted to meet the balance

 Terms of trade are adjusted to meet predetermined trade balance

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Mitigation Scenario
Mitigation Target International Domestic
Title
Korea Foreign Emissions Trading Policy

BAU -BAU: No mitigation - -

Accumulated reduction
05kor None
of 0.5%/yr wrt BAU

Accumulated reduction
10kor None
of 1.0%/yr
Accumulated reduction None
15kor None
of 1.5%/yr
05global Accumulated reduction of 0.5%/yr Carbon Tax

10global Accumulated reduction of 1.0%/yr

15global Accumulated reduction of 1.5%/yr

05trade Accumulated reduction of 0.5%/yr

10trade Accumulated reduction of 1.0%/yr Allowed

15trade Accumulated reduction of 1.5%/yr
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Carbon Tax level ($/tCO2)
Variable Carbon tax Region kor

합계 : Valeur
180

160

140

120

100 연도
2020
2030
80 2040

60

40

20

0
BAU0 05kor 10kor 15kor 05global 10global 15global 05trade 10trade 15trade
Scenario

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Real GDP changes (% of BAU)
Variable Real GDP Region kor

합계 : Valeur
0. 00%

BAU0 05kor 10kor 15kor 05global 10global 15global 05trade 10trade 15trade

- 0. 50%

- 1. 00%
연도

2020

2030

2040
- 1. 50%

- 2. 00%

- 2. 50%

Scenario

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Real GDP changes (% of BAU)

0.80%

0.70%

0.60%

율 0.50% 2020_No-Trade
비 2020_Trade
소 0.40% 2030_No-Trade
감
PD 2030_Trade
G 0.30%
0.20%

0.10%

0.00%
0% 5% 10% 15% 20% 25% 30%
이산화탄소 감축비율

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Real GDP changes (% of BAU)

10,000

) 9,000
준8,000
1기
007,000
2,
러6,000 2020_No- Trade
달 2020_Trade
만5,000
백
( 2030_No- Trade
액4,000 2030_Trade
소
감
PD3,000
G2,000
1,000
0
0 50 100 150 200 250 300 350
이산화탄소 감축량(백만CO2톤)

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Real Consumption changes (% of BAU)
Variable HH real consum ption Region kor

합계 : Valeur
0. 00%

BAU0 05kor 10kor 15kor 05global 10global 15global 05trade 10trade 15trade

- 0. 50%

- 1. 00%
연도

2020

2030

2040
- 1. 50%

- 2. 00%

- 2. 50%

Scenario

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Real Export-Import changes (2030, % of BAU)
연도 2030 Region kor

합계 : Valeur
0. 00%

BAU0 05kor 10kor 15kor 05global 10global 15global 05trade 10trade 15trade

- 0. 50%

- 1. 00%

Variable

Real Export

Real Im port

- 1. 50%

- 2. 00%

- 2. 50%

Scenario

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Sectoral VA changes (2030, % of BAU)
Region kor Secteur (모두) Variable V. A. reelle PB 연도 2030

합계 : Valeur
2. 00%

강 업 업 학 력 스 판 차 품 조 스
0. 00%

철 어 광 화 전 가 출 동 제 제 비
림 유 시 지 자 목 타 서
- 2. 00%
농 석 도 제 품
식
기
Scenario
- 4. 00%
BAU0

05kor
- 6. 00% 10kor

15kor

- 8. 00% 05global

10global

15global
- 10. 00%
05trade

10trade
- 12. 00%
15trade

- 14. 00%

- 16. 00%

- 18. 00%

Secteur2

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Selected Korean studies
 This study

27% reduction from BAU in 2030 result in GDP change of -0.75% with C-tax $51.1/ton

 Kim & Chang (2008)

36% reduction from BAU in 2030 result in GDP change of -0.25% with C-tax $47.3/ton

 Chung and Lee (2007)

18.4% reduction from BAU in 2030 result in GDP change of -1.97% with C-tax $54.5/ton

 Cho et al (2006)

70% reduction from BAU in 2030 result in GDP change of -15 ~-20%

 KEEI (2006)

19.8% reduction from BAU in 2015 result in GDP change of -0.44% with Av. Cost of Won175,000/ton

 KEEI (2004)

4.9% reduction from BAU in 2015 result in GDP change of -0.01%

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Some implications of Korean Studies
 Significant variances of economic impacts among different models

Due to differences in model structures, BAU assumptions, labor/capital supply elasticity, baseline data, etc.

 Big adverse impact on coal industry and smaller impact on electricity

 Bigger impacts in single-region models compared to multiple-region models
 Mitigation cost burden of Korea increases when other developing countries,
particularly China, don’t take mitigation burden.
 Falling international energy prices due to global GHG mitigation efforts tend to reduce
cost burden of heavy energy importing countries, like Korea.

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