Overview
This study employs a Computable General Equilibrium (CGE) model to analyze the economic impacts of increasing the share of auctioned allowances in the Korea Emissions Trading Scheme (K-ETS) while achieving the country’s 2030 emissions reduction target.
Executive Summary
- This study employs a Computable General Equilibrium (CGE) model to analyze the economic impacts of increasing the share of auctioned allowances in the Korea Emissions Trading Scheme (K-ETS) while achieving the country’s 2030 emissions reduction target. The analysis differentiates between scenarios where auctioned allowances are applied only to the power sector and those where they are applied across all industries. We utilized various indicators, including GDP, employment, and sectoral production to evaluate the economic impacts.
- The analysis yielded several key findings: First, increasing the auctioned allowances share can affect positively on GDP. These effects are more significant when the increase applies to all industries, compared to targeting only the power generation sector. Second, for the same target year, a higher paid share results in a lower carbon price. Third, raising the auctioned allocation ratio and reallocating emission allowance revenues to reduce labor taxes effectively lowers the overall unemployment rate. Fourth, for the same target year, an increase in the auctioned allocation percentage reduces the carbon price. This reduction, in turn, leads to higher coal consumption in the power sector—an unintended consequence of the policy. Fifth, increasing the proportion of auctioned allowances appears to cause a relative decrease in the output of GHG-intensive industries.
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