Analyzing the role of power sector under Korea ETS using CGE model

Abstract

Korea implemented a nation-wide emission trading scheme (ETS) since 2015. In designing the policy, there were many discussions regarding how to fairly allocate emission certificates across sectors while keep the cost-effectiveness of carbon mitigation. Even if emissions from the power sector take large portion in national emissions, it is not easy to decarbonize the power sector due to the regulated price system. This study will identify the role of power sector under the Korea ETS using a computable general equilibrium model. The relative cost-effectiveness of the power sector emission abatement will be assessed by deriving the sectoral marginal abatement cost curve. Also macro-economic impact such as GDP and welfare changes after the introduction of the ETS policy will be quantified. The result shows that the FULL ETS policy minimizes the GDP and welfare loss compared with that of a partial ETS policy. Between the two partial ETS scenarios, regulating the power sector emission was more cost effective than regulating the all industries other than power sector. Since Korea’s power sector carbon intensity is high, the price of electricity was sensitive to the carbon permit price. For cost-effective emission abatement, it is necessary for Korea to design a mechanism that can decarbonize the power sector.