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Economic Perspective on Discontinuing Fossil Fuel Subsidies and Moving toward a Low-Carbon Society

Author

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  • Kyungwon Park

    (Global Sustainable Development Economic Institute, Sunmoon University, Asan 31460, Korea)

  • Yoon Lee

    (Department of International Economics and Trade & Global Sustainable Development Economic Institute, Sunmoon University, Asan 31460, Korea)

  • Joon Han

    (Urban Infrastructure Research Division, The Incheon Institute, Incheon 22711, Korea)

Abstract

In Korea, multiple efforts, including subsidies to energy industries, have been made to increase renewable energy use and strengthen the competitiveness of renewable energy industries. Ironically, a considerable number of subsidies have also been provided for fossil fuels, drawing criticism both within Korea and overseas that these subsidies increase not only fossil fuel consumption and greenhouse gas emissions, but also energy market distortion. Thus, the Korean government announced a plan to discontinue some fossil fuel subsidies in 2020. Based on Korea’s policy orientation to expand renewable energy and strengthen its competitiveness, various scenarios to phase out fossil fuel subsidies and increase renewable energy subsidies can be examined. This study used the computable general equilibrium model to subdivide the energy sector and analyze the influence of changes in subsidies on the Korean economy and CO 2 emissions based on three scenarios. The results show that phasing out fossil fuel subsidies causes a significant reduction in domestic CO 2 emissions by −6.9 to −8.5%, depending on our scenarios. Implementing energy policy in Korea may have minimum impacts on its economy when fossil fuel subsidies transfer to renewable energy industries. The real gross domestic product could be only decreased by −0.04 to −0.14%.

Suggested Citation

  • Kyungwon Park & Yoon Lee & Joon Han, 2021. "Economic Perspective on Discontinuing Fossil Fuel Subsidies and Moving toward a Low-Carbon Society," Sustainability, MDPI, vol. 13(3), pages 1-17, January.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:3:p:1217-:d:486321
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