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Mitigation initiatives: Korea’s experiences
Climate Policy 2 (2002) 197–209
Mitigation initiatives: Korea’s experiences Hoesung Lee a , Jin-Gyu Oh b,∗ b
a Council on Energy and Environment Korea, Seoul, South Korea Korea Energy Economics Institute, 665-1 Naeson-Dong, Euiwang-Si, Kyunggi-Do, 437-713, South Korea
Received 20 December 2001; received in revised form 14 March 2002; accepted 20 March 2002
Abstract Korea, straddled between developing and developed country status, is facing challenges and opportunities in energy use and climate change mitigation potential. Unlike other OECD countries, Korea’s greenhouse gas (GHG) emissions are expected to continue to grow for the next two decades. The responses Korea could take to lower emissions without hampering economic development have an important bearing on the global response to climate change. This paper summarizes and evaluates mitigation strategies and major options for Korea in the energy sector, a major contributor to GHG emissions. © 2002 Elsevier Science Ltd. All rights reserved. Keywords: GHG; Mitigation; Korea
1. Korea’s national GHG inventory: 19991 The total gross emissions of greenhouse gases (GHG) by Korea in 1999 are estimated to be 137.1 million tonnes of carbon (TC) equivalent, about 2% of the global total.2 Sources of these emissions are from four sectors: energy, industry, agriculture, and wastes. The uptake of GHG from forestry and land-use change is estimated to be 11.2 million TC, which makes the total net emissions equal to 125.9 million TC equivalent. The uptake is about 8% of the total gross emissions. Fig. 1 shows the relative contributions of the sectors to the total GHG emissions. The energy sector is the single most significant emitter, accounting for about 82% of the total. The contribution of the industrial processes contribution is about 11%. Wastes and agriculture sector follow with respective contributions of 4 and 3% of the total. ∗ Corresponding author. Tel.: +82-31-420-2271; fax: +82-31-420-2262. E-mail address: [email protected] (J.G. Oh). 1 The full inventory and its analysis appear in a book written in Korean (KEEI, 2000). 2 GHG reported here includes CO2 , CH4 , N2 O, HFCs, PFCs, and SF6 , and thus expressed in C equivalent terms, using 100-year global warming potential values provided by the IPCC.
1469-3062/02/$ – see front matter © 2002 Elsevier Science Ltd. All rights reserved. PII: S 1 4 6 9 - 3 0 6 2 ( 0 2 ) 0 0 0 2 6 - 8
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Fig. 1. Sectoral contribution to the total gross GHG emissions 1999.
GHG emissions from the energy sector are largely CO2 , accounting for 98.5% of that sector’s total. CH4 and N2 O from the energy sector are small, contributing the remaining 1.5%. CO2 emissions from the energy sector in 1999 were 111.3 million TC.3 The sectoral breakdown shows that the industrial sector contributes 36% of these emissions, followed by transformation (26%), transportation (21%), and the residential and commercial sector (16%). 2. Outlook for energy demand and CO2 emissions to 2020 2.1. Main assumptions As indicated in the previous section, CO2 emissions from the energy sector are the single most important contributor to GHG in Korea. Consequently, it is essential to have a long-term picture of the development of the energy sector. Recently, the Korean government published a national action plan (Prime Minister’s Office, 1999, 2000). As a basis of the action plan, the government adopted a “long-term energy outlook and carbon dioxide emissions for Korea,” which will be summarized in this section.4 This outlook is based upon a “Business-as-Usual (BAU) Scenario,” in which current trends are maintained and no new additional mitigation policies are introduced, beyond those already being implemented such as Korea’s Long Term Power Development Plan (1998–2015) and ‘10-year National Plan for Energy Technology Development’ (1997–2006). The time span of the outlook is 21 years, from 1999 to 2020. Gross domestic product (GDP) is assumed to maintain strong growth at an average annual rate of 4.8%. Economic growth will play a pervasive role affecting energy demand from all four sectors: industry, transportation, residential and commercial. It is often suggested that de-coupling of economic growth and energy use was observed in many of the developed economies over the past decades. It seems that the de-coupling is the outcome of the complex interaction of factors such as stage of economic development, industrial structure, international industrial relocation, international trade patterns, and world oil prices. 3
CO2 emissions from the energy sector are expressed in TC. The government regularly establishes long-term projections of energy use and GHG emissions in collaboration with major national research institutes, including Korea Energy Economics Institute, and major energy suppliers including Korea Electric Power Corporation and Korea Gas Corporation. 4
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Table 1 Major energy and economic indicators
Primary energy (million TOE) Per capita energy use (TOE per person) Energy/GDP (TOE per 1995 million Won) Energy/GDP elasticity GDPa Population (million)
1999
2010
2020
1999–2020
181.4 3.87 0.42 – 437 46.9
271.2 5.36 0.35 0.68 784 50.6
332.2 6.34 0.29 0.51 1160 52.4
2.9% 2.4% −1.7% 0.61 4.8% 0.5%
Note: Percentage indicates average annual growth rate; TOE indicates tonnes of oil equivalent. Source: Prime Minister’s Office (2000). a GDP has been referenced to a constant 1995 trillion Won value.
Korea’s success or failure in de-coupling the traditional relationship between economic growth and energy consumption will depend on these factors, and the way the Korean government addresses the challenges of climate change. Iron and steel is one of the most energy intensive industries. Experts in Korea have observed that the consumption of steel products is approaching its maximum level on a per capita basis. For example, the production of pig iron will probably increase at a very low growth rate of 1.0% per annum, reaching 29 million tonnes in 2020. This contrasts sharply with a rapid increase from 5.6 million tonnes in 1980 to 15.3 million tonnes in 1990. In addition, it is important to note that the share of energy-intensive manufacturing in total manufacturing is expected to decline over the next two decades, from 30% in 1999 to 25% in 2020. The energy intensive industries here include petrochemicals, non-metallic mineral, and primary metals. The most important factor in transportation energy demand is the number of vehicles. Vehicle ownership will continue to grow rapidly as personal income increases. For example, the number of passenger cars is expected to increase very rapidly, from 8 million in 1999 to 22 million in 2020, an average annual increase of 4.9%. Building floor space, a major driving force in commercial energy demand, is assumed to show a relatively high increase at an average annual growth of 3.4% over the same period. 2.2. Energy demand projection to 2020 The demand for primary energy is expected to grow more slowly than GDP through 2020 (see Table 1). Total primary energy demand is projected to increase at an annual rate of 3.7% from 1999 to 2010 and 2.0% from 2010 to 2020, with an average of 2.9% over the entire period. Annual GDP growth rates over the same periods are 5.5 and 4.0, respectively, with an average annual rate of 4.8%. Energy and GDP elasticities over the same period are 0.68, 0.51, and 0.61, respectively. Between 1990 and 1997, the energy to GDP elasticity was very high at 1.42, but the foreign currency crisis weakened the relationship between GDP and energy use. Energy use per capita is projected to increase by 2.4% per year, reaching 6.34 TOE in 2020. Energy intensity, as measured by primary energy consumption per unit of GDP, is expected to decline at 1.7% per year through 2020. Total primary energy consumption is projected to increase from 181.4 million tonnes of oil equivalent (TOE) to 332.2 million TOE between 1999 and 2020, an average annual increase of 2.9%. Total final
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Table 2 Primary energy demand by source (million TOE) 1999 Coal Anthracite Bituminous Petroleum LNG Hydro Nuclear Others Total
2010
2020
1999–2020 (%)
38.2 (21.0) 2.4 35.7 97.3 (53.6) 16.8 (9.3) 1.5 (0.8) 25.8 (14.2) 1.8 (1.0)
52.3 (19.3) 1.6 50.7 146 (53.8) 30.6 (11.3) 1.1 (0.4) 38 (14.0) 3.2 (1.2)
58.7 (17.7) 0.8 57.9 169.5 (51.0) 42.2 (12.7) 1.1 (0.3) 55.6 (16.7) 4.7 (1.4)
2.1 −5.1 2.3 2.7 4.5 −1.5 3.7 4.7
181.4 (100.0)
271.2 (100.0)
332.2 (100.0)
2.9
Note: (1) Percentage indicates average annual growth rate; (2) Values in parentheses indicates share of the total. Source: Prime Minister’s Office (2000). Table 3 Major indicators on carbon dioxide
CO2 emissions (million TC) Per capita CO2 emissions (TC) CO2 /GDP (TC/million Won) CO2 /energy (TC/TOE)
1999
2010
2020
1999–2020 (%)
111.3 2.38 0.25 0.61
173.2 3.42 0.22 0.64
204.4 3.90 0.18 0.62
2.9 2.4 −1.7
Note: GDP is referenced to a constant 1995 Won value. Source: Prime Minister’s Office (2000).
energy consumption5 is projected to increase from 143.1 million TOE in 1999 to 257.9 million TOE in 2020, an average annual increase of 2.8%. Petroleum use dominates the energy mix in Korea, representing 54% of primary energy demand in 1999 (see Table 2). Petroleum continues to claim the largest share. Liquefied natural gas (LNG) is the fastest growing fuel source, increasing at an average rate of 4.5% per year, and is projected to meet 13% of total primary energy supply in 2020. Demand for natural gas is projected to increase by almost three times, from 16.8 million TOE in 1999 to 42.2 million TOE in 2020. Nuclear power is expected to double from 25.8 million TOE to 55.6 million TOE in 2020. Consumption of bituminous coal is expected to nearly double over the same period due to a large increase in use for power generation. 2.3. Projection of carbon dioxide emissions from energy use Carbon dioxide emissions from energy consumption are projected to increase from 111.3 million TC to 204.4 million TC between 1999 and 2020, an average annual increase of 2.9% (see Table 3). The average 5
The difference between total primary energy demand and total final energy demand is due to the losses occurring during the conversion process from primary energy to final energy, especially the losses associated with the generation of electricity. Thus, figures for final energy are always less than the primary energy. For the calculation of CO2 , primary energy is the more important figure.
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Table 4 Carbon dioxide emissions by sector (million TC)
Industry Transportation Residential Commercial Transformation Total
1999
2010
2020
1999–2020 (%)
40.1 23.2 11.8 7.6 28.7
57.5 40.2 20.4 8.7 46.4
67.3 47.4 24.8 10.3 54.6
2.5 3.5 3.6 2.3 3.1
111.3
173.2
204.4
2.9
Source: Prime Minister’s Office (2000).
annual growth rate is relatively high at 4.1% between 1999 and 2010, and then drops sharply to 1.7% from 2010 to 2020. Emissions per capita increase from 2.38 TC in 1999 to 3.42 in 2010 and 3.90 in 2020. Carbon intensity of fuel, defined as total carbon dioxide emissions divided by total primary energy use, is expected to remain unchanged at around 0.61 or 0.62 TC per TOE. Carbon intensity per GDP, defined as total carbon dioxide emissions divided by total national GDP, declines from 0.25 TC per million Korean Won value added to 0.18 between 1999 and 2020, decreasing at an average rate of 1.7% a year. This indicates that less carbon is being emitted in producing the same amount of economic value over the period. Table 4 shows carbon dioxide emissions by sector. 3. Framework of mitigation strategies in Korea For an effective response to climate change, the Korean government established the Inter-Ministerial Committee on the Framework Convention on Climate Change in 1998 under the chairmanship of the Prime Minister, comprised of related ministries, national research institutions, and industries. This committee declared in 1998 its official negotiation position that Korea would consider a mandatory commitment for the 2018–2022 period, and for the interim period would consider establishing a non-binding voluntary target and accomplishing it. As for domestic mitigation strategies, the committee adopted the ‘Comprehensive National Action Plan for the Framework Convention on Climate Change’ in 1999 (Prime Minister’s Office, 1999). It also formulated a detailed action plan in 2000 (Prime Minister’s Office, 2000) and began its implementation. The national action plan is to be reviewed and revised every 3 years. Even before the adoption of these two government action plans, the Korean government has long been implementing a wide range of energy conservation policies that result in a considerable reduction of GHG emissions. These initiatives are undertaken because of Korea’s extremely high dependency on energy imports, currently 83% of energy consumption excluding nuclear energy. These measures form an integral part of the mitigation strategies and are included in the national action plan above. The plan employs a range of policies and measures aiming at limiting future emissions of carbon dioxide and other GHG gases from various sources including the industrial, transportation, residential and commercial sectors, electricity generation, agriculture, waste management, and forestry. Drawing
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Table 5 Summary of VA action plan (1999–2004) Number of companies Energy conservation (million TOE) CO2 reduction (million TC) Investment (billion US$)
212 4.05 3.36 2.04
Source: Ministry of Trade, Industry, and Energy (1999).
mostly upon the government plans and complemented by existing programmes,6 this paper will present Korea’s mitigation strategies in four energy-related sectors targeted mainly at carbon dioxide emissions, the most important greenhouse gas in Korea. 4. Mitigation strategies 4.1. Industry sector The industrial sector contributed 36% of CO2 emissions from energy in 1999. The Korean government has long implemented policies targeted at the energy-intensive industries. A special feature of the Korean industrial structure is that three energy intensive industries, i.e. petro-chemicals, non-metallic mineral, and primary metals, contributed only 30% to value-added in manufacturing, while contributions to energy consumption and CO2 emissions were extremely high at around 78 and 76%, respectively, in 1999. Consequently, the industrial sector is faced with many challenges and opportunities. 4.1.1. Voluntary agreement (VA) for general industry As a new form of partnership program with industry, the government introduced a voluntary agreement (VA) program in 1998. The agreement stipulates voluntary targets in excess of 8% for energy efficiency or carbon dioxide reduction for the 5-year period. Participating firms are provided with low-interest loans, tax credits, and technical support. VA plans to target factories that consume 5000 TOE or more per year. Currently, there are 800 factories that fall under this category. Table 5 shows the 5-year VA action plan, anticipated to save 4 million TOE of energy, and 3.4 million TC of carbon dioxide. From 1998 to 2000, 210 factories contracted voluntary agreements with the government. These factories in total consumed 77.8 million TOE which is 74% of energy consumption in the industrial sector. Interim evaluation of the VA program in 2000 (KEMCO, 2001) showed that these 210 factories invested 280 million dollars, and saved 1.6 million TOE which was equivalent to 2.1% of total energy consumption of these factories in 2000. Savings in carbon emissions amounted to 1.3 million TC. The energy costs saved amounted to 313 million dollars so that the payback period is 0.9 year. This indicates that there are many low-cost options in the factories. Energy-use facilities for efficiency improvement under the VA are diverse, including boilers, kilns, furnaces, heat use facilities, and electricity-use facilities. Technical options utilized by these factories include operation and management improvement, waste heat recovery, introduction of new processing technology, retrofits of existing plants, and process improvement. 6
Further details can be found in KEMCO (1999), SRI Consulting and KEEI (1999), and the Ministry of Commerce, Industry, and Energy (2001).
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4.1.2. Management of energy intensive industries The government, with the consultation of the private sector, formulates a ‘5-year Energy Conservation Plan’ covering energy intensive factories. The first plan was for the period of 1992–1996, and the second one is being implemented for the period of 1997–2001. Two major strategies of the plan are to provide energy management guidance, and to establish energy intensity targets for industries and products. The energy intensity target on products, however, is not mandatory but serves as guidance for firms to follow. The second 5-year plan covers 190 factories, which consume 30,000 TOE or more a year. The second plan aims for conserving 10% of energy (4.1 million TOE), in comparison to energy used in 1996, with the planned investment of 3097 billion Won. 4.1.3. Industrial energy audit Industrial energy audits are conducted to identity inefficiencies and to provide energy-efficient measures to manufacturers. Major activities in industrial energy audits include evaluation of energy efficiencies of fuel- and electricity-using facilities, consulting assistance for efficiency enhancement, and recommendation of comprehensive energy efficiency measures. 4.1.4. Promotion of combined heat and power (CHP) in industrial complexes The government has long promoted the use of CHP at industrial complexes. CHP could increase energy efficiency up to 87%. Currently, CHP provides heat and power to more than 500 factories in 18 industrial complexes over the country. In developing a new industrial complex, the government evaluates the feasibility of constructing co-generation plants. 4.1.5. Promotion of energy service company (ESCO) Energy service companies were introduced to extend government-led energy conservation programs to private-led energy conservation. It aims to utilize fully the creativity of the private sector in energy conservation. The ESCO business started with three companies and now number more than 100 in 2000. The coverage of ESCOs expanded from investment in lighting systems in the early period to investment in process improvements and waste heat utilization. Investment in ESCOs amounted to 66 million dollars in 2000. The government has provided low-interest loans for ESCO investment, repayment in 5 years with a 5-year grace period. In addition, tax reduction is provided to both ESCOs and their customers. 4.1.6. Demand side management (DSM) program The government encourages energy supply companies to develop DSM programs. DSM programs promote efficient utilization of energy through load management, a DSM tariff system, and a rebate system for high-efficient electricity appliances. Currently, electricity companies, gas companies, and district heating companies are implementing DSM programs. 4.1.7. Financial assistance to energy efficiency investment Financial assistance to energy efficiency investment amounted to US$ 343 million in 1999. Low-interest loans are provided to the installation of energy saving facilities, district heating facilities, and ESCOs. 4.1.8. Energy technology R&D activities The government established the ‘10-year National Plan for Energy Technology Development’ in 1997, which covers energy conservation technology, new and renewable energy technology, and clean energy. The goal of the plan is to reduce total national energy consumption by 10%, and to supply 2% of total
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energy demand with new and renewable energy in 2006. The plan identified priority R&D areas, and seeks to promote early commercialization and dissemination of technologies developed. 4.2. Transportation sector Considering the important role of the transportation sector in mitigation measures, the government newly enacted the Transportation System Rationalization Law in 1999 and established the Transportation Policy Council chaired by the Prime Minister. The Council is expected to take into account climate concerns in the development of nation-wide transportation infrastructure. 4.2.1. Improvement of fuel economy of vehicles The government has introduced a fuel-efficiency rating and labeling program. It also established a fuel-mileage target. The purpose is to encourage car manufacturers to produce more fuel-efficient vehicles and to provide the consumers with better information on the relative fuel efficiency of vehicles. In regard to a fuel-efficiency rating, vehicles are categorized into one of eight groups based on engine capacity. Five fuel-mileage rankings are developed within each category. The government plans to expand the coverage of the fuel-mileage rating system from gasoline engine passenger cars to all vehicles. For the fuel-mileage target, the government declared its intention to take measures to improve average fuel economy by 5%, from 12.6 km/l in 1997 to 13.2 km/l in 2003. Currently, the fuel-mileage target is voluntary. However, the government is considering mandatory regulation of the fuel-mileage target. 4.2.2. Promotion of small car use The government adopted measures to promote the use of mini passenger cars below 800 cm3 of engine capacity, which accounted for 7.5% of the roughly 8 million passenger cars in 1999. The measures include tax exemptions, tax deductions, and parking and toll fee discounts. 4.2.3. Development of environmentally friendly vehicles The government encourages the development of alternative vehicles powered by compressed natural gas (CNG), electricity, and liquefied petroleum gas (LPG). The government plans to deploy 5000 CNG buses for the 2002 World Cup in Seoul. The government supports funds for development of hybrid vehicles. 4.2.4. Promotion of mass transit system Eight subway lines currently serve the Seoul metropolitan area. The government promotes integration of the subway and bus lines. The government is also expanding bus-only lanes in the major metropolitan areas. 4.3. Commercial and residential sector 4.3.1. Management of energy-intensive buildings As urbanization continues, buildings in the city center become larger and more energy intensive, requiring special energy management. Large existing buildings using more than 10 million kWh of electricity per year are subject to special audits and supervision. Currently, the owners of 84 such buildings, including large department stores, hospitals, and hotels, are required to submit a ‘5-year energy use plan’.
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Technical and financial assistance is provided for evaluation of the energy saving opportunities and installation of the energy saving facilities. 4.3.2. Promotion of high-efficiency household appliances The government adopted various programs that encourage households and firms to purchase energyefficient appliances. Firstly, there are energy efficiency rating and labeling programs for various household appliances. Currently, eight appliances are covered under this program: refrigerators, air conditioners, clothes washers, incandescent bulbs, fluorescent lamps, ballasts for fluorescent lamps, compact fluorescent lamps, and household gas boilers. This program has altered the behavior of residential consumers. For refrigerators, more than 90% sold are grade one and two. Secondly, the Korean government established minimum energy efficiency standards for several classes of household appliances, plus automobiles. Appliances under this program include refrigerators, air conditioners, washers and lamps. The minimum energy efficiency standards are mandatory. If manufacturers do not conform to the requirements, the government can order manufacturers to correct deficiencies within 6 months. Thirdly, the government gives certifications to high-efficiency products, such as induction motors and gas boilers. The manufacturers are provided with incentives such as low-interest loans and preferential government procurement. 4.4. Electricity sector Sustainable energy policies from the supply side can play a significant role in reducing CO2 emissions. Especially, the expansion of nuclear and natural gas in the power sector are regarded as important options in Korea. The transformation sector, composed mainly of power generation, accounted for 26% of CO2 emissions from energy in 1999. The power sector is expected to remain a major contributor of CO2 emissions over the next two decades. The total installed capacity of 47 GW generated 214 TWh of power in 1999. Nuclear plant provided the largest share of power generated at 43%, followed by coal (34%), LNG (13%), and oil (7%). Hydro electric plants provided only 2.5% in 1999. Thus, the carbon intensity of the power generation in Korea is very low. Power demand is expected to increase from 214 TWh in 1999 to 382 TWh in 2015, an average annual increase of 4.3%. In order to meet this demand, the government plans to build additional generation capacity of 42 GW by 2015, nearly doubling current capacity. As part of its mitigation measures, the government is trying to maintain a balanced share of nuclear, coal, and LNG power supply. Consequently, the government plans to build 12 new nuclear, 21 units of LNG power and 20 units of coal power plants by 2015. In addition, the government promotes DSM programs, whose target is to reduce peak load by 10%. This program is expected to avoid 7.5 GW of capacity by 2015. 5. The way forward Despite the large portfolio of mitigation measures discussed in the previous section, growth in energy consumption has been occurring very rapidly (more than 9% per year over the last 10 years), as shown in Tables 6–8.
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Table 6 Energy and CO2 saving from VA program in 2000 Number of items Energy saved (million TOE per year) CO2 avoided (million TC per year) Money saved (million US$ per year)
2353 1.64 1.33 313
Investment (million US$) Loan Self financing
64 216
Total
280
Payback period (year)
0.9
Source: KEMCO, 2001.
Table 7 Rate of change in energy and GDP (%)
Primary energy Real GDP Energy/GDP elasticity
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
11.2 9.2 1.21
12.0 5.4 2.21
9.4 5.5 1.71
8.2 8.3 0.99
9.6 8.9 1.08
9.8 6.8 1.45
9.3 5.0 1.86
−8.1 −6.7 –
9.3 10.9 0.85
6.4 8.8 0.73
Note: (1) Foreign currency crisis occurred in December 1997; (2) Energy/GDP elasticity is defined as the rate of change in energy consumption divided by the rate of change in GDP. Source: KEEI (2001).
Table 8 Overview of the price of electricity (Won/kWh) 1982
1985
1990
1995
1996
1997
1998
Lighting use Power use
75.4 68.8
73.6 66.6
68.1 49.5
85.3 55.6
87.7 57.3
90.7 59.6
95.3 66.6
Total
69.9
67.9
52.9
61.3
63.0
65.3
72.1
Note: Lighting use includes residential use, and power use includes industrial use. Source: Korea Electric Power Corporation (2000).
Considering the inertia in recovery of energy consumption after the effects of the foreign currency crisis, some experts in Korea believe that energy consumption may far exceed the energy projections given by the government in Section 2, especially for the period 1999–2010.7 The continued increase in Korea’s CO2 emissions is certainly not sustainable from the perspective of global climate change. 7
During the 1999–2010 period, the government projected energy demand to increase by 3.7% per year while GDP would grow by 5.5% per year.
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The Government’s strategies need to be reevaluated to provide a more effective way forward. The first task is to consider the maximum technical mitigation potential in Korea. Some implications could be drawn from two studies. The Asian Least Cost Greenhouse Gas Abatement Strategy (ALGAS)8 Korea9 study (1998) conducted by the Asian Development Bank evaluated 25 mitigation technology options. The range of annual CO2 mitigation potentials is wide, from 5000 TC with industrial condensing boilers to 6.6 million TC with efficient motors. Some of the technology options show negative marginal costs. Developing baseline and abatement scenarios to 2020, the ALGAS KOREA study concluded that an abatement scenario could limit CO2 emissions by 12.5% in 2010 and by 14.4% in 2020 compared to the baseline. The study by the economists at the University of Delaware evaluated the mitigation potential through energy efficiency upgrades (John Byrne, et al., 2002).10 Constructing a comprehensive energy technology database, the study developed alternative scenarios for a sustainable energy and environmental future for Korea. The study concluded that implementation of cost effective measures could reduce CO2 emissions by 25% relative to BAU emissions in 2020 in the industrial sector, 28% in the transportation sector, 35% in the residential sector, and 36% in the commercial sector. The study also concludes that an overall reduction of CO2 emissions by 29% is technically feasible in 2020. The two studies showed wide difference in the technical mitigation potential. An important issue, however, is not the exact figures of mitigation potential per se, but the indication that there is a variety of technological options that a country could utilize. The second issue for the way forward is to evaluate the barriers for materializing these potentials, and to identify the most decisive measure to overcome them. Most of mitigation measures summarized in Section 4rely on institutional and regulatory approaches, such as energy audits, fuel-mileage targets, and appliance efficiency standards. While institutional measures could play an important role in reducing emissions, the government should focus more attention on the power of market mechanisms, including prices for energy and taxation. Over the last three decades, energy prices have been highly regulated by the government and kept as low as possible. Currently, the government sets all energy prices with the exception of petroleum products.11 The objectives of low energy price are to support the international competitiveness of industries and to lower inflationary pressure. For example, the price of electricity increased in nominal term from 69.9 Won/kWh in 1982 to only 72.1 Won/kWh in 1998. During same period, the consumer price index increased 210%, making the real price of electricity decline by 55%. The electricity price for some use, for example industrial use, is set below the cost of service. The low price of electricity makes investment in electricity saving technology much less rewarding. 8 The ALGAS study (ADB, 1998) was conducted from 1995 through 1998 by the Asian Development Bank, the United Nations Development Programmes, and the Global Environment Facility, and 12 Asian countries, including the Republic of Korea (South Korea). 9 The authors were associated with the ALGAS study as a member of the steering committee and Korean participating researcher, respectively. 10 The study was the outcome of the collaborative research efforts by the Center for Energy and Environment Policy of the University of Delaware and various environment studies group in Korea. 11 For example, the price of electricity should be reviewed by the Cabinet and finally approved by the President.
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Moreover, energy taxation in Korea does not incorporate energy conservation and environmental concerns. The primary purpose of energy taxation is to raise government revenues. While gasoline is heavily taxed, some energy such as heavy fuel oil and bituminous coal, which have direct environmental implications, are all but tax-exempt. We believe that government regulation of energy prices is the most important factor regarding the continued increases in energy consumption in the past and will remain so in the future. It is also believed that Korea’s low energy price policy was one of the reasons to contributing to the establishment of energy intensive industry over the 1980s and the early 1990s. With low energy prices, many of the energy conserving measures of an institutional nature will have a limited success. Thus, Korea’s energy price mechanism needs to be de-regulated so that it incorporates the true cost of providing energy services. Also, the energy taxation system needs to be re-directed toward incorporating energy conservation and GHG mitigation potential. 6. Conclusions This paper provided an overview of the mitigation strategies the Korean government is implementing. The spectrum of mitigation measures is wide, ranging from voluntary agreement programs with industry to the promotion of alternative vehicles. However, measures drawing mainly existing no-regrets technological potential and regulatory schemes may not provide sufficient mitigation of GHG in Korea. The Korean government needs to move from micro institutional measures toward macro market measures. By utilizing the full power of market mechanisms, mitigation efforts in Korea could be more successful. Energy pricing and energy tax systems should be appropriately re-designed to incorporate GHG mitigation efforts. It should be noted that the Korean energy sector has benefited and been modernized by the appropriate responses to the two external oil shocks in the 1970s and 1980s. The challenges that global climate change is putting forward should act as a third opportunity for an efficiency revolution and sustainable development in Korea. Acknowledgements The authors would like to thank anonymous referees, Ron Sands and Jeffrey Logan of the Pacific Northwest National Laboratory (U.S.A.) for the helpful comments and suggestions. References Asian Development Bank, 1998. Asia Least-cost Greenhouse Gas Abatement Strategy, Republic of Korea, Manila, Philippines. Byrne, J. et al., 2002. Energy Revolution: An Energy Conservation Revolution for Korea, The Maeil Business News Paper, Seoul, South Korea, in press. Korea Energy Economics Institute, 2000. Study on Strategies to Address the United Nations Framework Convention on Climate Change and the Kyoto Protocol, Seoul, South Korea. Korea Energy Economics Institute, 2001. Yearbook of Energy Statistics, Seoul, South Korea. Korea Energy Management Corporation, 1999. Energy Conservation White-Paper 1999, Seoul, South Korea. Korea Energy Management Corporation, 2001. Evaluation of Voluntary Agreement: Year 2000, Seoul, South Korea.
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Ministry of Commerce, Industry, and Energy, 2001. White-Paper on Commerce, Industry and Energy 2000, Seoul, South Korea. Prime Minister’s Office, 1999. Comprehensive National Action Plan for the Framework Convention on Climate Change, Seoul, South Korea. Prime Minister’s Office, 2000. Comprehensive National Action Plan for the Framework Convention on Climate Change: Detailed Implementation Plan, Seoul, South Korea. SRI Consulting and Korea Energy Economics Institute, 1999. Energy Conservation Study for Korea: Phase II, Task 3 Evaluate Additional Energy Conservation Programs, Seoul, South Korea.
Mitigation initiatives: Korea’s experiences Hoesung Lee a , Jin-Gyu Oh b,∗ b
a Council on Energy and Environment Korea, Seoul, South Korea Korea Energy Economics Institute, 665-1 Naeson-Dong, Euiwang-Si, Kyunggi-Do, 437-713, South Korea
Received 20 December 2001; received in revised form 14 March 2002; accepted 20 March 2002
Abstract Korea, straddled between developing and developed country status, is facing challenges and opportunities in energy use and climate change mitigation potential. Unlike other OECD countries, Korea’s greenhouse gas (GHG) emissions are expected to continue to grow for the next two decades. The responses Korea could take to lower emissions without hampering economic development have an important bearing on the global response to climate change. This paper summarizes and evaluates mitigation strategies and major options for Korea in the energy sector, a major contributor to GHG emissions. © 2002 Elsevier Science Ltd. All rights reserved. Keywords: GHG; Mitigation; Korea
1. Korea’s national GHG inventory: 19991 The total gross emissions of greenhouse gases (GHG) by Korea in 1999 are estimated to be 137.1 million tonnes of carbon (TC) equivalent, about 2% of the global total.2 Sources of these emissions are from four sectors: energy, industry, agriculture, and wastes. The uptake of GHG from forestry and land-use change is estimated to be 11.2 million TC, which makes the total net emissions equal to 125.9 million TC equivalent. The uptake is about 8% of the total gross emissions. Fig. 1 shows the relative contributions of the sectors to the total GHG emissions. The energy sector is the single most significant emitter, accounting for about 82% of the total. The contribution of the industrial processes contribution is about 11%. Wastes and agriculture sector follow with respective contributions of 4 and 3% of the total. ∗ Corresponding author. Tel.: +82-31-420-2271; fax: +82-31-420-2262. E-mail address: [email protected] (J.G. Oh). 1 The full inventory and its analysis appear in a book written in Korean (KEEI, 2000). 2 GHG reported here includes CO2 , CH4 , N2 O, HFCs, PFCs, and SF6 , and thus expressed in C equivalent terms, using 100-year global warming potential values provided by the IPCC.
1469-3062/02/$ – see front matter © 2002 Elsevier Science Ltd. All rights reserved. PII: S 1 4 6 9 - 3 0 6 2 ( 0 2 ) 0 0 0 2 6 - 8
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Fig. 1. Sectoral contribution to the total gross GHG emissions 1999.
GHG emissions from the energy sector are largely CO2 , accounting for 98.5% of that sector’s total. CH4 and N2 O from the energy sector are small, contributing the remaining 1.5%. CO2 emissions from the energy sector in 1999 were 111.3 million TC.3 The sectoral breakdown shows that the industrial sector contributes 36% of these emissions, followed by transformation (26%), transportation (21%), and the residential and commercial sector (16%). 2. Outlook for energy demand and CO2 emissions to 2020 2.1. Main assumptions As indicated in the previous section, CO2 emissions from the energy sector are the single most important contributor to GHG in Korea. Consequently, it is essential to have a long-term picture of the development of the energy sector. Recently, the Korean government published a national action plan (Prime Minister’s Office, 1999, 2000). As a basis of the action plan, the government adopted a “long-term energy outlook and carbon dioxide emissions for Korea,” which will be summarized in this section.4 This outlook is based upon a “Business-as-Usual (BAU) Scenario,” in which current trends are maintained and no new additional mitigation policies are introduced, beyond those already being implemented such as Korea’s Long Term Power Development Plan (1998–2015) and ‘10-year National Plan for Energy Technology Development’ (1997–2006). The time span of the outlook is 21 years, from 1999 to 2020. Gross domestic product (GDP) is assumed to maintain strong growth at an average annual rate of 4.8%. Economic growth will play a pervasive role affecting energy demand from all four sectors: industry, transportation, residential and commercial. It is often suggested that de-coupling of economic growth and energy use was observed in many of the developed economies over the past decades. It seems that the de-coupling is the outcome of the complex interaction of factors such as stage of economic development, industrial structure, international industrial relocation, international trade patterns, and world oil prices. 3
CO2 emissions from the energy sector are expressed in TC. The government regularly establishes long-term projections of energy use and GHG emissions in collaboration with major national research institutes, including Korea Energy Economics Institute, and major energy suppliers including Korea Electric Power Corporation and Korea Gas Corporation. 4
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Table 1 Major energy and economic indicators
Primary energy (million TOE) Per capita energy use (TOE per person) Energy/GDP (TOE per 1995 million Won) Energy/GDP elasticity GDPa Population (million)
1999
2010
2020
1999–2020
181.4 3.87 0.42 – 437 46.9
271.2 5.36 0.35 0.68 784 50.6
332.2 6.34 0.29 0.51 1160 52.4
2.9% 2.4% −1.7% 0.61 4.8% 0.5%
Note: Percentage indicates average annual growth rate; TOE indicates tonnes of oil equivalent. Source: Prime Minister’s Office (2000). a GDP has been referenced to a constant 1995 trillion Won value.
Korea’s success or failure in de-coupling the traditional relationship between economic growth and energy consumption will depend on these factors, and the way the Korean government addresses the challenges of climate change. Iron and steel is one of the most energy intensive industries. Experts in Korea have observed that the consumption of steel products is approaching its maximum level on a per capita basis. For example, the production of pig iron will probably increase at a very low growth rate of 1.0% per annum, reaching 29 million tonnes in 2020. This contrasts sharply with a rapid increase from 5.6 million tonnes in 1980 to 15.3 million tonnes in 1990. In addition, it is important to note that the share of energy-intensive manufacturing in total manufacturing is expected to decline over the next two decades, from 30% in 1999 to 25% in 2020. The energy intensive industries here include petrochemicals, non-metallic mineral, and primary metals. The most important factor in transportation energy demand is the number of vehicles. Vehicle ownership will continue to grow rapidly as personal income increases. For example, the number of passenger cars is expected to increase very rapidly, from 8 million in 1999 to 22 million in 2020, an average annual increase of 4.9%. Building floor space, a major driving force in commercial energy demand, is assumed to show a relatively high increase at an average annual growth of 3.4% over the same period. 2.2. Energy demand projection to 2020 The demand for primary energy is expected to grow more slowly than GDP through 2020 (see Table 1). Total primary energy demand is projected to increase at an annual rate of 3.7% from 1999 to 2010 and 2.0% from 2010 to 2020, with an average of 2.9% over the entire period. Annual GDP growth rates over the same periods are 5.5 and 4.0, respectively, with an average annual rate of 4.8%. Energy and GDP elasticities over the same period are 0.68, 0.51, and 0.61, respectively. Between 1990 and 1997, the energy to GDP elasticity was very high at 1.42, but the foreign currency crisis weakened the relationship between GDP and energy use. Energy use per capita is projected to increase by 2.4% per year, reaching 6.34 TOE in 2020. Energy intensity, as measured by primary energy consumption per unit of GDP, is expected to decline at 1.7% per year through 2020. Total primary energy consumption is projected to increase from 181.4 million tonnes of oil equivalent (TOE) to 332.2 million TOE between 1999 and 2020, an average annual increase of 2.9%. Total final
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Table 2 Primary energy demand by source (million TOE) 1999 Coal Anthracite Bituminous Petroleum LNG Hydro Nuclear Others Total
2010
2020
1999–2020 (%)
38.2 (21.0) 2.4 35.7 97.3 (53.6) 16.8 (9.3) 1.5 (0.8) 25.8 (14.2) 1.8 (1.0)
52.3 (19.3) 1.6 50.7 146 (53.8) 30.6 (11.3) 1.1 (0.4) 38 (14.0) 3.2 (1.2)
58.7 (17.7) 0.8 57.9 169.5 (51.0) 42.2 (12.7) 1.1 (0.3) 55.6 (16.7) 4.7 (1.4)
2.1 −5.1 2.3 2.7 4.5 −1.5 3.7 4.7
181.4 (100.0)
271.2 (100.0)
332.2 (100.0)
2.9
Note: (1) Percentage indicates average annual growth rate; (2) Values in parentheses indicates share of the total. Source: Prime Minister’s Office (2000). Table 3 Major indicators on carbon dioxide
CO2 emissions (million TC) Per capita CO2 emissions (TC) CO2 /GDP (TC/million Won) CO2 /energy (TC/TOE)
1999
2010
2020
1999–2020 (%)
111.3 2.38 0.25 0.61
173.2 3.42 0.22 0.64
204.4 3.90 0.18 0.62
2.9 2.4 −1.7
Note: GDP is referenced to a constant 1995 Won value. Source: Prime Minister’s Office (2000).
energy consumption5 is projected to increase from 143.1 million TOE in 1999 to 257.9 million TOE in 2020, an average annual increase of 2.8%. Petroleum use dominates the energy mix in Korea, representing 54% of primary energy demand in 1999 (see Table 2). Petroleum continues to claim the largest share. Liquefied natural gas (LNG) is the fastest growing fuel source, increasing at an average rate of 4.5% per year, and is projected to meet 13% of total primary energy supply in 2020. Demand for natural gas is projected to increase by almost three times, from 16.8 million TOE in 1999 to 42.2 million TOE in 2020. Nuclear power is expected to double from 25.8 million TOE to 55.6 million TOE in 2020. Consumption of bituminous coal is expected to nearly double over the same period due to a large increase in use for power generation. 2.3. Projection of carbon dioxide emissions from energy use Carbon dioxide emissions from energy consumption are projected to increase from 111.3 million TC to 204.4 million TC between 1999 and 2020, an average annual increase of 2.9% (see Table 3). The average 5
The difference between total primary energy demand and total final energy demand is due to the losses occurring during the conversion process from primary energy to final energy, especially the losses associated with the generation of electricity. Thus, figures for final energy are always less than the primary energy. For the calculation of CO2 , primary energy is the more important figure.
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Table 4 Carbon dioxide emissions by sector (million TC)
Industry Transportation Residential Commercial Transformation Total
1999
2010
2020
1999–2020 (%)
40.1 23.2 11.8 7.6 28.7
57.5 40.2 20.4 8.7 46.4
67.3 47.4 24.8 10.3 54.6
2.5 3.5 3.6 2.3 3.1
111.3
173.2
204.4
2.9
Source: Prime Minister’s Office (2000).
annual growth rate is relatively high at 4.1% between 1999 and 2010, and then drops sharply to 1.7% from 2010 to 2020. Emissions per capita increase from 2.38 TC in 1999 to 3.42 in 2010 and 3.90 in 2020. Carbon intensity of fuel, defined as total carbon dioxide emissions divided by total primary energy use, is expected to remain unchanged at around 0.61 or 0.62 TC per TOE. Carbon intensity per GDP, defined as total carbon dioxide emissions divided by total national GDP, declines from 0.25 TC per million Korean Won value added to 0.18 between 1999 and 2020, decreasing at an average rate of 1.7% a year. This indicates that less carbon is being emitted in producing the same amount of economic value over the period. Table 4 shows carbon dioxide emissions by sector. 3. Framework of mitigation strategies in Korea For an effective response to climate change, the Korean government established the Inter-Ministerial Committee on the Framework Convention on Climate Change in 1998 under the chairmanship of the Prime Minister, comprised of related ministries, national research institutions, and industries. This committee declared in 1998 its official negotiation position that Korea would consider a mandatory commitment for the 2018–2022 period, and for the interim period would consider establishing a non-binding voluntary target and accomplishing it. As for domestic mitigation strategies, the committee adopted the ‘Comprehensive National Action Plan for the Framework Convention on Climate Change’ in 1999 (Prime Minister’s Office, 1999). It also formulated a detailed action plan in 2000 (Prime Minister’s Office, 2000) and began its implementation. The national action plan is to be reviewed and revised every 3 years. Even before the adoption of these two government action plans, the Korean government has long been implementing a wide range of energy conservation policies that result in a considerable reduction of GHG emissions. These initiatives are undertaken because of Korea’s extremely high dependency on energy imports, currently 83% of energy consumption excluding nuclear energy. These measures form an integral part of the mitigation strategies and are included in the national action plan above. The plan employs a range of policies and measures aiming at limiting future emissions of carbon dioxide and other GHG gases from various sources including the industrial, transportation, residential and commercial sectors, electricity generation, agriculture, waste management, and forestry. Drawing
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Table 5 Summary of VA action plan (1999–2004) Number of companies Energy conservation (million TOE) CO2 reduction (million TC) Investment (billion US$)
212 4.05 3.36 2.04
Source: Ministry of Trade, Industry, and Energy (1999).
mostly upon the government plans and complemented by existing programmes,6 this paper will present Korea’s mitigation strategies in four energy-related sectors targeted mainly at carbon dioxide emissions, the most important greenhouse gas in Korea. 4. Mitigation strategies 4.1. Industry sector The industrial sector contributed 36% of CO2 emissions from energy in 1999. The Korean government has long implemented policies targeted at the energy-intensive industries. A special feature of the Korean industrial structure is that three energy intensive industries, i.e. petro-chemicals, non-metallic mineral, and primary metals, contributed only 30% to value-added in manufacturing, while contributions to energy consumption and CO2 emissions were extremely high at around 78 and 76%, respectively, in 1999. Consequently, the industrial sector is faced with many challenges and opportunities. 4.1.1. Voluntary agreement (VA) for general industry As a new form of partnership program with industry, the government introduced a voluntary agreement (VA) program in 1998. The agreement stipulates voluntary targets in excess of 8% for energy efficiency or carbon dioxide reduction for the 5-year period. Participating firms are provided with low-interest loans, tax credits, and technical support. VA plans to target factories that consume 5000 TOE or more per year. Currently, there are 800 factories that fall under this category. Table 5 shows the 5-year VA action plan, anticipated to save 4 million TOE of energy, and 3.4 million TC of carbon dioxide. From 1998 to 2000, 210 factories contracted voluntary agreements with the government. These factories in total consumed 77.8 million TOE which is 74% of energy consumption in the industrial sector. Interim evaluation of the VA program in 2000 (KEMCO, 2001) showed that these 210 factories invested 280 million dollars, and saved 1.6 million TOE which was equivalent to 2.1% of total energy consumption of these factories in 2000. Savings in carbon emissions amounted to 1.3 million TC. The energy costs saved amounted to 313 million dollars so that the payback period is 0.9 year. This indicates that there are many low-cost options in the factories. Energy-use facilities for efficiency improvement under the VA are diverse, including boilers, kilns, furnaces, heat use facilities, and electricity-use facilities. Technical options utilized by these factories include operation and management improvement, waste heat recovery, introduction of new processing technology, retrofits of existing plants, and process improvement. 6
Further details can be found in KEMCO (1999), SRI Consulting and KEEI (1999), and the Ministry of Commerce, Industry, and Energy (2001).
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4.1.2. Management of energy intensive industries The government, with the consultation of the private sector, formulates a ‘5-year Energy Conservation Plan’ covering energy intensive factories. The first plan was for the period of 1992–1996, and the second one is being implemented for the period of 1997–2001. Two major strategies of the plan are to provide energy management guidance, and to establish energy intensity targets for industries and products. The energy intensity target on products, however, is not mandatory but serves as guidance for firms to follow. The second 5-year plan covers 190 factories, which consume 30,000 TOE or more a year. The second plan aims for conserving 10% of energy (4.1 million TOE), in comparison to energy used in 1996, with the planned investment of 3097 billion Won. 4.1.3. Industrial energy audit Industrial energy audits are conducted to identity inefficiencies and to provide energy-efficient measures to manufacturers. Major activities in industrial energy audits include evaluation of energy efficiencies of fuel- and electricity-using facilities, consulting assistance for efficiency enhancement, and recommendation of comprehensive energy efficiency measures. 4.1.4. Promotion of combined heat and power (CHP) in industrial complexes The government has long promoted the use of CHP at industrial complexes. CHP could increase energy efficiency up to 87%. Currently, CHP provides heat and power to more than 500 factories in 18 industrial complexes over the country. In developing a new industrial complex, the government evaluates the feasibility of constructing co-generation plants. 4.1.5. Promotion of energy service company (ESCO) Energy service companies were introduced to extend government-led energy conservation programs to private-led energy conservation. It aims to utilize fully the creativity of the private sector in energy conservation. The ESCO business started with three companies and now number more than 100 in 2000. The coverage of ESCOs expanded from investment in lighting systems in the early period to investment in process improvements and waste heat utilization. Investment in ESCOs amounted to 66 million dollars in 2000. The government has provided low-interest loans for ESCO investment, repayment in 5 years with a 5-year grace period. In addition, tax reduction is provided to both ESCOs and their customers. 4.1.6. Demand side management (DSM) program The government encourages energy supply companies to develop DSM programs. DSM programs promote efficient utilization of energy through load management, a DSM tariff system, and a rebate system for high-efficient electricity appliances. Currently, electricity companies, gas companies, and district heating companies are implementing DSM programs. 4.1.7. Financial assistance to energy efficiency investment Financial assistance to energy efficiency investment amounted to US$ 343 million in 1999. Low-interest loans are provided to the installation of energy saving facilities, district heating facilities, and ESCOs. 4.1.8. Energy technology R&D activities The government established the ‘10-year National Plan for Energy Technology Development’ in 1997, which covers energy conservation technology, new and renewable energy technology, and clean energy. The goal of the plan is to reduce total national energy consumption by 10%, and to supply 2% of total
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energy demand with new and renewable energy in 2006. The plan identified priority R&D areas, and seeks to promote early commercialization and dissemination of technologies developed. 4.2. Transportation sector Considering the important role of the transportation sector in mitigation measures, the government newly enacted the Transportation System Rationalization Law in 1999 and established the Transportation Policy Council chaired by the Prime Minister. The Council is expected to take into account climate concerns in the development of nation-wide transportation infrastructure. 4.2.1. Improvement of fuel economy of vehicles The government has introduced a fuel-efficiency rating and labeling program. It also established a fuel-mileage target. The purpose is to encourage car manufacturers to produce more fuel-efficient vehicles and to provide the consumers with better information on the relative fuel efficiency of vehicles. In regard to a fuel-efficiency rating, vehicles are categorized into one of eight groups based on engine capacity. Five fuel-mileage rankings are developed within each category. The government plans to expand the coverage of the fuel-mileage rating system from gasoline engine passenger cars to all vehicles. For the fuel-mileage target, the government declared its intention to take measures to improve average fuel economy by 5%, from 12.6 km/l in 1997 to 13.2 km/l in 2003. Currently, the fuel-mileage target is voluntary. However, the government is considering mandatory regulation of the fuel-mileage target. 4.2.2. Promotion of small car use The government adopted measures to promote the use of mini passenger cars below 800 cm3 of engine capacity, which accounted for 7.5% of the roughly 8 million passenger cars in 1999. The measures include tax exemptions, tax deductions, and parking and toll fee discounts. 4.2.3. Development of environmentally friendly vehicles The government encourages the development of alternative vehicles powered by compressed natural gas (CNG), electricity, and liquefied petroleum gas (LPG). The government plans to deploy 5000 CNG buses for the 2002 World Cup in Seoul. The government supports funds for development of hybrid vehicles. 4.2.4. Promotion of mass transit system Eight subway lines currently serve the Seoul metropolitan area. The government promotes integration of the subway and bus lines. The government is also expanding bus-only lanes in the major metropolitan areas. 4.3. Commercial and residential sector 4.3.1. Management of energy-intensive buildings As urbanization continues, buildings in the city center become larger and more energy intensive, requiring special energy management. Large existing buildings using more than 10 million kWh of electricity per year are subject to special audits and supervision. Currently, the owners of 84 such buildings, including large department stores, hospitals, and hotels, are required to submit a ‘5-year energy use plan’.
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Technical and financial assistance is provided for evaluation of the energy saving opportunities and installation of the energy saving facilities. 4.3.2. Promotion of high-efficiency household appliances The government adopted various programs that encourage households and firms to purchase energyefficient appliances. Firstly, there are energy efficiency rating and labeling programs for various household appliances. Currently, eight appliances are covered under this program: refrigerators, air conditioners, clothes washers, incandescent bulbs, fluorescent lamps, ballasts for fluorescent lamps, compact fluorescent lamps, and household gas boilers. This program has altered the behavior of residential consumers. For refrigerators, more than 90% sold are grade one and two. Secondly, the Korean government established minimum energy efficiency standards for several classes of household appliances, plus automobiles. Appliances under this program include refrigerators, air conditioners, washers and lamps. The minimum energy efficiency standards are mandatory. If manufacturers do not conform to the requirements, the government can order manufacturers to correct deficiencies within 6 months. Thirdly, the government gives certifications to high-efficiency products, such as induction motors and gas boilers. The manufacturers are provided with incentives such as low-interest loans and preferential government procurement. 4.4. Electricity sector Sustainable energy policies from the supply side can play a significant role in reducing CO2 emissions. Especially, the expansion of nuclear and natural gas in the power sector are regarded as important options in Korea. The transformation sector, composed mainly of power generation, accounted for 26% of CO2 emissions from energy in 1999. The power sector is expected to remain a major contributor of CO2 emissions over the next two decades. The total installed capacity of 47 GW generated 214 TWh of power in 1999. Nuclear plant provided the largest share of power generated at 43%, followed by coal (34%), LNG (13%), and oil (7%). Hydro electric plants provided only 2.5% in 1999. Thus, the carbon intensity of the power generation in Korea is very low. Power demand is expected to increase from 214 TWh in 1999 to 382 TWh in 2015, an average annual increase of 4.3%. In order to meet this demand, the government plans to build additional generation capacity of 42 GW by 2015, nearly doubling current capacity. As part of its mitigation measures, the government is trying to maintain a balanced share of nuclear, coal, and LNG power supply. Consequently, the government plans to build 12 new nuclear, 21 units of LNG power and 20 units of coal power plants by 2015. In addition, the government promotes DSM programs, whose target is to reduce peak load by 10%. This program is expected to avoid 7.5 GW of capacity by 2015. 5. The way forward Despite the large portfolio of mitigation measures discussed in the previous section, growth in energy consumption has been occurring very rapidly (more than 9% per year over the last 10 years), as shown in Tables 6–8.
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Table 6 Energy and CO2 saving from VA program in 2000 Number of items Energy saved (million TOE per year) CO2 avoided (million TC per year) Money saved (million US$ per year)
2353 1.64 1.33 313
Investment (million US$) Loan Self financing
64 216
Total
280
Payback period (year)
0.9
Source: KEMCO, 2001.
Table 7 Rate of change in energy and GDP (%)
Primary energy Real GDP Energy/GDP elasticity
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
11.2 9.2 1.21
12.0 5.4 2.21
9.4 5.5 1.71
8.2 8.3 0.99
9.6 8.9 1.08
9.8 6.8 1.45
9.3 5.0 1.86
−8.1 −6.7 –
9.3 10.9 0.85
6.4 8.8 0.73
Note: (1) Foreign currency crisis occurred in December 1997; (2) Energy/GDP elasticity is defined as the rate of change in energy consumption divided by the rate of change in GDP. Source: KEEI (2001).
Table 8 Overview of the price of electricity (Won/kWh) 1982
1985
1990
1995
1996
1997
1998
Lighting use Power use
75.4 68.8
73.6 66.6
68.1 49.5
85.3 55.6
87.7 57.3
90.7 59.6
95.3 66.6
Total
69.9
67.9
52.9
61.3
63.0
65.3
72.1
Note: Lighting use includes residential use, and power use includes industrial use. Source: Korea Electric Power Corporation (2000).
Considering the inertia in recovery of energy consumption after the effects of the foreign currency crisis, some experts in Korea believe that energy consumption may far exceed the energy projections given by the government in Section 2, especially for the period 1999–2010.7 The continued increase in Korea’s CO2 emissions is certainly not sustainable from the perspective of global climate change. 7
During the 1999–2010 period, the government projected energy demand to increase by 3.7% per year while GDP would grow by 5.5% per year.
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The Government’s strategies need to be reevaluated to provide a more effective way forward. The first task is to consider the maximum technical mitigation potential in Korea. Some implications could be drawn from two studies. The Asian Least Cost Greenhouse Gas Abatement Strategy (ALGAS)8 Korea9 study (1998) conducted by the Asian Development Bank evaluated 25 mitigation technology options. The range of annual CO2 mitigation potentials is wide, from 5000 TC with industrial condensing boilers to 6.6 million TC with efficient motors. Some of the technology options show negative marginal costs. Developing baseline and abatement scenarios to 2020, the ALGAS KOREA study concluded that an abatement scenario could limit CO2 emissions by 12.5% in 2010 and by 14.4% in 2020 compared to the baseline. The study by the economists at the University of Delaware evaluated the mitigation potential through energy efficiency upgrades (John Byrne, et al., 2002).10 Constructing a comprehensive energy technology database, the study developed alternative scenarios for a sustainable energy and environmental future for Korea. The study concluded that implementation of cost effective measures could reduce CO2 emissions by 25% relative to BAU emissions in 2020 in the industrial sector, 28% in the transportation sector, 35% in the residential sector, and 36% in the commercial sector. The study also concludes that an overall reduction of CO2 emissions by 29% is technically feasible in 2020. The two studies showed wide difference in the technical mitigation potential. An important issue, however, is not the exact figures of mitigation potential per se, but the indication that there is a variety of technological options that a country could utilize. The second issue for the way forward is to evaluate the barriers for materializing these potentials, and to identify the most decisive measure to overcome them. Most of mitigation measures summarized in Section 4rely on institutional and regulatory approaches, such as energy audits, fuel-mileage targets, and appliance efficiency standards. While institutional measures could play an important role in reducing emissions, the government should focus more attention on the power of market mechanisms, including prices for energy and taxation. Over the last three decades, energy prices have been highly regulated by the government and kept as low as possible. Currently, the government sets all energy prices with the exception of petroleum products.11 The objectives of low energy price are to support the international competitiveness of industries and to lower inflationary pressure. For example, the price of electricity increased in nominal term from 69.9 Won/kWh in 1982 to only 72.1 Won/kWh in 1998. During same period, the consumer price index increased 210%, making the real price of electricity decline by 55%. The electricity price for some use, for example industrial use, is set below the cost of service. The low price of electricity makes investment in electricity saving technology much less rewarding. 8 The ALGAS study (ADB, 1998) was conducted from 1995 through 1998 by the Asian Development Bank, the United Nations Development Programmes, and the Global Environment Facility, and 12 Asian countries, including the Republic of Korea (South Korea). 9 The authors were associated with the ALGAS study as a member of the steering committee and Korean participating researcher, respectively. 10 The study was the outcome of the collaborative research efforts by the Center for Energy and Environment Policy of the University of Delaware and various environment studies group in Korea. 11 For example, the price of electricity should be reviewed by the Cabinet and finally approved by the President.
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Moreover, energy taxation in Korea does not incorporate energy conservation and environmental concerns. The primary purpose of energy taxation is to raise government revenues. While gasoline is heavily taxed, some energy such as heavy fuel oil and bituminous coal, which have direct environmental implications, are all but tax-exempt. We believe that government regulation of energy prices is the most important factor regarding the continued increases in energy consumption in the past and will remain so in the future. It is also believed that Korea’s low energy price policy was one of the reasons to contributing to the establishment of energy intensive industry over the 1980s and the early 1990s. With low energy prices, many of the energy conserving measures of an institutional nature will have a limited success. Thus, Korea’s energy price mechanism needs to be de-regulated so that it incorporates the true cost of providing energy services. Also, the energy taxation system needs to be re-directed toward incorporating energy conservation and GHG mitigation potential. 6. Conclusions This paper provided an overview of the mitigation strategies the Korean government is implementing. The spectrum of mitigation measures is wide, ranging from voluntary agreement programs with industry to the promotion of alternative vehicles. However, measures drawing mainly existing no-regrets technological potential and regulatory schemes may not provide sufficient mitigation of GHG in Korea. The Korean government needs to move from micro institutional measures toward macro market measures. By utilizing the full power of market mechanisms, mitigation efforts in Korea could be more successful. Energy pricing and energy tax systems should be appropriately re-designed to incorporate GHG mitigation efforts. It should be noted that the Korean energy sector has benefited and been modernized by the appropriate responses to the two external oil shocks in the 1970s and 1980s. The challenges that global climate change is putting forward should act as a third opportunity for an efficiency revolution and sustainable development in Korea. Acknowledgements The authors would like to thank anonymous referees, Ron Sands and Jeffrey Logan of the Pacific Northwest National Laboratory (U.S.A.) for the helpful comments and suggestions. References Asian Development Bank, 1998. Asia Least-cost Greenhouse Gas Abatement Strategy, Republic of Korea, Manila, Philippines. Byrne, J. et al., 2002. Energy Revolution: An Energy Conservation Revolution for Korea, The Maeil Business News Paper, Seoul, South Korea, in press. Korea Energy Economics Institute, 2000. Study on Strategies to Address the United Nations Framework Convention on Climate Change and the Kyoto Protocol, Seoul, South Korea. Korea Energy Economics Institute, 2001. Yearbook of Energy Statistics, Seoul, South Korea. Korea Energy Management Corporation, 1999. Energy Conservation White-Paper 1999, Seoul, South Korea. Korea Energy Management Corporation, 2001. Evaluation of Voluntary Agreement: Year 2000, Seoul, South Korea.
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Ministry of Commerce, Industry, and Energy, 2001. White-Paper on Commerce, Industry and Energy 2000, Seoul, South Korea. Prime Minister’s Office, 1999. Comprehensive National Action Plan for the Framework Convention on Climate Change, Seoul, South Korea. Prime Minister’s Office, 2000. Comprehensive National Action Plan for the Framework Convention on Climate Change: Detailed Implementation Plan, Seoul, South Korea. SRI Consulting and Korea Energy Economics Institute, 1999. Energy Conservation Study for Korea: Phase II, Task 3 Evaluate Additional Energy Conservation Programs, Seoul, South Korea.