Simulated effects of carbon pricing on industrial sector energy use

Abstract

The aim of this paper is to analyze the simulated effects of carbon pricing on South Korea's industrial sector by using carbon pricing scenarios. The estimation results show that carbon taxation is highly effective to reduce carbon emissions of industrial sector only when the changes of energy mix take place. If the energy mix remain unchanged, the level of carbon tax should be higher than 60,000 Korean won (USD 54.55) to achieve the NDC goal of 14 % emissions reduction in industrial sector. In addition, the reduction in industrial production due to the carbon tax is estimated to be relatively small when substitution between energy and other production factors is possible. This paper proposes policies that can induce changes in the energy mix are very necessary in order to decarbonize and strengthen the competitiveness of industrial sector.