American Journal of Applied Sciences 5 (11): 1558-1561, 2008

ISSN 1546-9239
2008 Science Publications

On the Views of Carbon Tax in Korea

Heon-Goo Kim
Legislative Research Bureau, Korea National Assembly, No. 1 Yoido dong,
Young deung po-ku, Seoul 150-703, South Korea

Abstract: To comply with the UNFCCC agreement, many countries are expected to make efforts to
reduce the greenhouse gas emission level down to 1990 by the year of 2012. The agreement is
intended to reduce the consumption of fossil fuel that causes the greenho use effect. The global
warming has been accelerated by the greenhouse effect resulted from the CO emission 2 and has
become a serious global issue requiring a fundamental solution. Many environmentalists regard the
carbon tax imposition o n fossil fuel consumption as an efficient measure to reduce the greenhouse gas,
i.e., CO 2 . Environmentalists and scholars in Korea are generally showing p ositive attitudes to ward this
tax scheme.

Key words: UNFCCC, greenhouse effect, CO 2 emission, carbon tax

INTRODUCTION reasons, carbon tax is a highly recommendable.

Carbon tax is an excise tax wh ich is levied
UNFCCC (United Nations Framework Convention according to the quantity of carbon dioxide in energy
on Climate Change) has been agreed upo n in Rio insource, while energy tax is also an excise tax levied
1992. This led to the Kyoto Protocol in 1997 by according to the energ y co ntent in energy source. In
estab lishing a goal to reduce greenhouse gas amonggeneral, carbon tax is one of the environmental taxes
countries. It has been an important issue since the mid- along with energy tax. The carbon tax, ho wever, is
1980s. The purpose of this agreement is to reduce the believed to yield a substitution effect b ecause it brings a
consumption of fossil fuels which causes the negative incentive in using energy source containing
greenhouse effects. Because of this, global warming has carbon dioxide.
become a serious matter to be solved by m andatory In the early 1990s, the northern European countries,
controls to use less fossil fuels. According to this Denmark, Norway, Sweden and Finl and decreased the
agreement, the developed countries should reduce the tax rates including personal inco me tax while they
emission of greenhouse gas from 2008 to 2012 by 5.2% introduced or exp and ed environment related taxes to
average to maintain the emission level of 1990. Theco mpensate the reduced tax reven ue. These countries
greenhouse gas to be reduced in Kyoto Protocol is have something in common to pursue a plan to initiate a
co mprised of carbon dioxide (CO 2
), methane (CH
carbon4 ),
tax system as a tax reform. The carbon tax is
nitrous oxide (N 2 O), hydro fluorocarbon(HFCs), sulfur now being implemented in Denmark, Finl and, Italy,
fluoridation (SF6) and perfluorocarb on (PFCs). Norway, Netherl ands and Sweden.
Out of these six gases, CO 2
is the most impo rtant
greenhouse gas to b e contro lled because it is more than THE CHARACTERISTICS OF CARBON TAX and
80 % of all of the six gas emissions in the world. The ITS IMPLEMENTATION DEBATE
carbon tax imposition on fossil fuel usage is regarded as
the most efficient scheme to reduce the greenhouse Characteristics:
The carbon tax is considered to be an
gases among many many environmentalists. This indirect tax imposed on the use of fossil energy source,
methodology
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not
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 Am. J. App lied Sci., 5 (11): 1558-1561, 2008

a scheme to be levied on the consumption of the final lower substitutability of other inputs for energy input,
energy is a mean s of reducin g the use of petroleum and the substitutability will increase in the long ru n. The
coals. carbon tax system will stimulate the substitution effect,
[3]
Cho interprets the carbon tax as an environmental which will transform our economic structure through
tax leading to decreases in contamination and waste. energy saving pro duction technology [7 .]
and it is as an efficient policy to change the production asserts that[8the
Choi ]
lower the carbon tax rate is,
quality and induce the environmental protection. This the lower the price change effect will be. At the high
policy leads to not only technological improvement but carbon tax rate, the big fluctuation in price changes by
also energy efficient productio n process. As an energy industry o ccurs. This will yield a large tax revenue to
tax, it induces the polluting producers to switch to the the go vernment. He suggests to apply a dem and
production of environmentally less harmful management policy to carbon tax in the industries
co mmodities. Thus, this tax is to give the producers having big price changes.
[9 ]
opportunities to develop less harmful substitutes and maintains
Shin that the Korean policy in response
make the production process less dependent onto UNFCCC should be to reduce the greenhouse gas
fossil fuel. through the development o f energy efficient technology.
As a source of the investment on environment and This policy will be effective when it is implemented
a means of pollu tion restriction, the introduction of the with market oriented strategies under carbon tax system.
[4]
carbon tax is actively debated in Korea. Seol
introduces contents from Welfare Economics written by EXPECTED ECONOMIC EFFECT
Pigou that the tax levy on the polluting materials to FROM CARBON TAX
protect environment is justifiable.
[1 0]
Chung and expect
Rhee th at the carbon tax will
Debate: The initial international debate on environmentincrease the energ y price which will affect the chan ge
tax including carbo n tax began with OECDs evaluation in production cost structure. The increase in production
of various tax schemes concerned with excise tax, value cost will increase in prices of commodities of relatively
add ed tax and auto mobile related taxes. During this energy intensive using industries, which will change the
process, four countries (Norway, Netherl ands, Swed en whole economic structure. This change in domestic
and Finl and) focused mainly on carbon tax. In Korea, prices will ultimately decrease the countrys
there is no environment related tax law as a national tax co mpetitiveness in the international market. The price
law but only a transportation tax related to air pollution increase due to the implementation of carbon tax is
as a local tax. To reduce the air pollution, p eople thinkfrom our co untrys price-inelastic energy dem and. In
other words, there is a low substitutability of fossil fuel
the best way is to levy the tax acco rding to the emission
input for another kind of inp ut emitting less CO2.
quantity if it can be measurable. This method, ho wever,
The far reaching effect from the energy price
is unable to measure accurately and requires a lo t of
increase induces burd ens to the industries using fossil
cost related to administration and information. Thu s,
fuel as raw materials and intermediate inputs.
the simple method is to levy the tax on the fuel
Especially the sectors such as primary metal products,
containing pollu tion material, which can satisfy the
cement, warehouse, chemical p roducts and petroleum
PPP(Polluter Pays Principle). This method is products are showing a disbenefit, cost increase
represented as a carb on tax law which should be relatively to other sectors using less fossil fuel input.
introduced in Korea. These sectors having disbenefit, however, will also
[5 ]
In Korea, Kim argues for indirect tax scheme affect negatively other sectors through overall price
rather than direct method on the basis of PPP(Polluter increases in the end.
Pays Principle) to internalize the external cost caused In case of adoption of carbon tax in the develop ed
[6 ]
by CO 2 emission. Shin also agrees with the countries, our countrys export to those countries will
introduction of carbon tax to reduce the CO 2 emission
be negatively affected. The developed countries will set
efficiently, in sp ite of the debates such as JI(Joint up a st andard level of energy efficiency in the
Implementation),
Mechanism)
Even if our andcountrys
IET(Internal
CDM(Clean
production
Emission
Development
structure
Trading).
has a barrier
production
will
1559beprocess.
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askedtoto
These
those
otherstdevelo
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andards
pedThewhich
ascountries.
adevelop
non-tariff
want [11]
ed
to
 Am. J. App lied Sci., 5 (11): 1558-1561, 2008

countries introduction of it is also expected to
accompany the tariff on the product from the countries
which do not introduce it. This will hamper the price
co mpetitiveness of our commodities in the market o f
those countries.
The sectors or countries that are less affected by
carbon tax can be b enefited. For example, the R and D First, they worry about the bad effect on the national
to develop the technology for the avoidance of carbon economy such as GDP decrease and unemployment
tax can create an excessive b enefit to other producers
and sectors. This benefit also transfers to the producers the global warming is the prob lem of the world instead
in the developing countries who want to reduce cost by of confining to a certain region. This problem should be
accessing to the technolo gy less harmful to the
environment [ 12] .
About the matter of introduction o f carbon tax, Cho
explains negative or positive aspects that may arise.
The negative opinion is of the possibility of transferring
the carbon tax burden from producers to consumers.
This happens when the dem and for the product is price
inelastic as p rice increases. This price increase implies
that a part of the environmental tax burden to producers
is transferred to the consumers who cannot find a
substitute product. The dem and decrease due to the
price increase may lead to production decrease that may
yield wage decrease and unemployment.
The positive aspect is the possibility of enhancing
the co mpetitiveness of firms or industries caused by
investing in research and development projects. The
production process innovation leading to increasing
return to scale may disconnect the negative tie between
economic growth and environment. The innovation for
clean products and production facilities may
accompany the environmental protection with firms
co mpetitiveness enhancement. As a result, the
environmental regulations may lead to innovation more
than the offsetting level of cost increase. In the long run,
the initial imp act on the energy price increase can be an
economic b enefit. For this, Cho (2004) makes an
examp le o f Italys increasing export share of small
vehicles equipped with technology developed in
response to high tax on fossil fuel.
THE WORLD ATTITUDE TOWARD
CARBON TAX
The carbon tax system is the outco me of finding a
measure positively to resolve the environmental
problems without being controlled under the
environmental p olicy system of the past. This system is
of introducing this system. The United States is the
country emitting 20% of the total emission
CO 2
throughout the world.
In spite of their underst anding the necessity of
introducing the carbon tax system, there are some
reasons in hesitating the implementation of the system.
after the implementation of it. Second, they assert that
solved with JI (Joint Implementation) after setting up a
system fo r an international cooperation.
Amidst these negative and pessimistic attitudes
toward the carbon tax, we can see the optimistic
forecasts and positive results from implementing[4it.]
Denmark implemented the carbon tax system in
1995 and expected emission
3.8% of COwould be2
reduced in 200 5
The study by a Swedish environ mental bureau
showed the quantity
emittedofinCO
1994 2was 8
million to ns which was lower level than that o f
1987. They analyzed this reduction of CO2
emission was from the carbon tax, which leaded to
a great effect in a short period of time
Norway intro duced the carbon tax in 1991 and
estimated the emission oby f CO21% in2
stationary power plants in 1995. The oil that
Norwegian petroleum sector produced was
estimated to reduce the emission by of1.5%
CO2
in response to carbon tax system
In 1999, the Finnish economic committee
evaluated the effectiveness o f carbon tax. That
report estimated
emission
the COby assuming no
2
increase in carbon tax of the year 1990 level and
concluded there would be an emissio n of 7%
increase
in 199in8. CO
This 2report estimated that
the reduction in consumptio n of fossil fuel and
production structural change in industry resulted in
the reduction of emission by one million tons of
emission.CO
The reduction of 2/3 of the emission
2
was estimated from the substitution of natural gas
for petroleum and co al
CONCLUDING REMARKS
A st ud y by Kim an d Shi anal
n yzed th[ 1at3]

believedand
to be Korea d epen ds on p etrol eum and co al p rod ucts in
revenue
effective
countries and theconvenient
in reduce
aboutUnited to are
6theEuropean
o States
missionlevy, increase
countries,
ofinCO but2the taxsystem
a full deliberation
. other
This EU
and
By
p roint
the
du
is rod
cing
US
1560
uctio
incoresp
nmmo
ofondi
carbo
seties
to nmo
t he
t ax,
recarb
than
Korea
o nChtax
will
ina,
s be
yst
Japem.
t he
an
 Am. J. App lied Sci., 5 (11): 1558-1561, 2008

worst v icti m co mp ared wi th o ur main trad ing 2. Yoo, S.H., 1994. Impacts of Carbon Tax on
cou nt ri es. Th e d evelo p ed cou ntries s uch as t he Industries. Environ. Econ. Rev., 4 (1): 41-65.
US an d Japan h ave l ess v uln erab il ity to t he 3. Cho, Y., 2005, Environmental Strategy of OECD
carbo n tax th an Korea. Desp ite th eir les s Members. J. Econ. Manage., 5 (1): 153-191.
v uln erab ili ty, t hey ha ve reached at th e ad van ced4. Seol, K.K., 2006. A Study on the Introduction of
st age of de velo pmen t o f h i-tech en erg y s ource in Environmental Tax. Hankook Universtiy of
o rd er to l essen th e d epen dab ili ty o n fo ss il fuel . Foreign Studies Law Review, 22: 297-321.
The general attitude toward the carbon tax in Korea 5. Kim, S., H., 1997, A Study on the Effect of Carbon
is rather positive among the environment related Taxes on the Industrial Sector in Korea. J. Regional
scholars and specialists. Many Koreans think they have Dev., 3: 263-284.
experienced the dependency on fo ssil fuel using 6. Shin, D.C., 2000. Scale Economies and the Effects
production technologies the developed countries of a Carbon Tax on Korean Economy: A Co urnot-
developed. In order to divorce fro m the fossil energy Walrasian CGE Simulation. Environ. Resour. Econ.
using system, most of them think its necessary to Rev., 9 (5): 973 -997.
develop their own energy efficient production structure. 7. Park, J.S., 2003. An Economic Approach to
This will not make Korea repeat the possible Climate Change Policy, J. So cial Sci.,
subordination to energy saving technology the 20 (2): 233 -259.
developed countries would develop in the future 8. Choi, Y.H., W.Y. Lim and S.H. Kim, 2000. The
to come. Price Variable Effect of Carbon Tax per Industry. Q.
These people do not concern about the GDP Rev. Econ. Business, 28 (1 ): 1-17.
decrease and unemployment followed by the carbon tax 9. Shin, E.S. and H. Kim, 2003. Analysis o f the
implementation as the people in the develop ed Impacts of Carbon and Energy Taxes on Energy on
countries. The bad effect on the national economy will Energy System in Korea. Environ. Resour. Econ.
be at the initial stage, but this will make our economic Rev., 12 (2): 27 5-298.
structure improved. The effort to reduce the emission of 10. Chung, H.S. and H.C. Rhee, 1995. Changes in
CO 2 in accordance with UNFCCC will enhance the air Price Structure of Korean Industries from Carbon
quality and stimulate the development of technology. Tax Imposition. Environ. Econ. Rev.,
Ultimately, the energy efficient industrial production 4 (1): 113-1 50.
structure will be established with a sustainable growth. 11. Lee, J.W., C.S. Park and H. Kang, 1994. How the
It is highly reco mmended that we must focus on Imposition of Carbon Tax Will Affect the Korean
energy saving and efficiency especially in the energy Export to EU? (With Special Reference to the
intensive using industries. This is the way to Primary Nonferrous Metals and Motor Vehicles
co mpensate for the worsening their competitiveness d ue Industry). Korean Econ. Rev., 21 (1): 231-263.
to carbon tax implementation in the international arena. 12. Kim, H.B. and W.H. Yoo, 2002. Impact Analysis of
The policy for energy saving and efficiency should be Carbon dioxide Reduction Policy in a Regional
based on the provision of incentives to entice the firms Economy b y Multi-regional input-output Model. J.
participation. For this, there should be Korea Plann., 37 (7): 195-206.
recommendations to the firms with appropriate 13. Kim, H.G. and H.J. Shin, 2007. An Analysis of
production facilities for energy saving and efficiency Changes in Production and Trade of US, Japan,
according to the firms size and business. China and Ko rea Affected by Levy of Carbon Tax.
Int. Area Stud. Rev., 11 (1): 273-291.
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