Articles

The Effects of Policy Portfolio for Greenhouse Gases Reduction and Renewable Energy Expansion: An Analysis Using Computable General Equilibrium

Yeong Jun Yeo, Jeong-dong Lee, Inha Oh

Abstract

South Korea has pledged to reduce its GHG (Greenhouse Gas) emissions by 30%, relative to the country’s projected levels (BAU, Business as Usual) by 2020, and has implemented and promoted various policies to meet the target. Many other countries in the world introduce various policy tools for a low-carbon economy in order to achieve both targets for economic growth and environmental sustainability. The GHG reduction policies can be roughly classified into two major policy types. One is technology-push policy, which includes the research development policy. This type of policies intends to meet the GHG reduction target based on the development of low-carbon or alternative energy technologies. The other one is the market-based policy (pulling the demand for technological innovation), such as emission trading scheme and renewable energy expansion policy (Renewable Portfolio Standard (RPS) and Feed-in Tariff (FIT)). It is important to understand the difference between the two types of policies, technology-push policy and demand-pull policy, which one is more effective to reduce GHG emissions, and to identify the ideal mix of the two. However, there are not enough relevant previous studies that theoretically and empirically analyzed these subjects. In this regard, the study analysed the effects of these two ways to reduce GHG emissions. One is supported by R&D investments on technologies in energy and environment sector, and it is the main policy instrument within the technology-push policy. The other one is supported by the implementation of emission trading scheme, Renewable Portfolio Standard, or Feed-in Tariff that are the main demand-pull policies. Also, this study drew implications for the analysis on the effects of the existing classification of the GHG reduction policies of the government. In addition, the study analysed the effects of the policy mix to reduce GHG emissions that the government of South Korea currently considers. To this end, the study designs an energy?environment computable general equilibrium model that is applied to the economic system of South Korea and conducts an empirical analysis based on the model.