(The) industry impact of the emission accounting mechanism in the Korean ETS

Abstract

Unlike other market mechanism, emissions trading scheme is an artificially structured market. Thus, total allowance quantity as well as its allocation mechanism serves a critical role in effective market operation. Current allowance computation mechanism of Korean emission trading scheme(KETS) is based on both direct and indirect emissions of industry sector, which brings concern that this “double counted” cap allowance is likely to damage industry competitiveness. Thus, the paper aims to analyze the expected industry impact under current KETS computation versus standard direct emission based computation mechanism by composing hybrid input output account of Korea. The results show industry’s unique emissions characteristics particularly focusing on economy-wide emissions distributional impact. Moreover, scenario analysis allows quantitative representation of industry specific economic burden measured in terms of increase in final product price. This can be a useful reference for KETS policy design currently facing strong industry opposition.