Controlling emissions under rapid economic growth

Jul 17, 2019

How South Korea can meet its Paris climate pledge at low cost

South Korea’s Nationally Determined Contribution (NDC) to the Paris Agreement on climate centers on a pledge to reduce its greenhouse gas emissions by 37 percent in 2030 from levels projected for that year under business-as-usual policies. To reach that target, the government has launched two main climate policy instruments: a cap-and-trade system (South Korean Emissions Trading System, or KETS) and a fuel economy standard for light-duty vehicles. But according to projections by the independent Climate Action Tracker, South Korea’s current policies are insufficient to fulfill its Paris pledge, and by 2030 would result in more than double the national emissions level set in 1990.

To better understand the emissions and economic impacts of South Korean climate policies, and how they can be optimally deployed to meet the 37-percent emissions reduction goal, researchers at the MIT Joint Program on the Science and Policy of Global Change have developed and applied a customized economy-wide model of the country. The study appears in the journal Climate Change Economics.

Using the model, the MIT researchers projected that under KETS with fuel economy standards, the country would require a 2030 carbon price of $88 per metric ton of carbon dioxide-equivalent emissions to meet its NDC target. Excluding economic benefits from avoided climate damages, the combined policies would reduce the 2030 GDP by $21.5 billion (1.0 percent) and household consumption by 8.1 billion (0.7 percent). The fuel economy standard accounts for $1.1 billion of the GDP loss and $4.2 billion of the household consumption loss.

While the South Korean NDC is among the most ambitious in terms of carbon price, the country can nonetheless achieve the target while keeping GDP and welfare costs below one percent. This relatively low cost of imposing such a high carbon price stems from the country’s rapid economic growth, which is fueled by a relatively new and energy-efficient industrial sector.

“In addition to estimating sectoral and macroeconomic impacts of climate policies, the study determines the ETS cap on carbon emissions, which is only applied to certain sectors, consistent with South Korea's economy-wide emissions target,” says Niven Winchester, the study’s lead author, principal research scientist at the MIT Joint Program, and senior fellow at Motu Economic and Public Policy Research. “The results provide important insights for other nations that plan to use an ETS as the main policy to meet national emission targets pledged under the Paris Agreement.”   

The study was funded in part by the General Motors Company.