APPLICATION OF THE CARBON EMISSION PRICING MODEL IN THE KOREAN MARKET

• Published in: Energy & environment (Essex, England) Vol. 25; no. 1; pp. 63 - 78
• Main Authors: Kim, Eunyoung, Ahn, Youngcheul, Ryu, Doojin
• Format: Journal Article
• Language: English
• Published: London, England Multi-Science Publishing Co. Ltd 01.02.2014; SAGE Publications; Multi-Science
• Subjects: Air pollution caused by fuel industries; Applied sciences; Atmospheric temperature; Carbon dioxide; Carbon dioxide emissions; Carbon trading; Climate change; Economic models; Emissions policy; Emissions reduction; Energy; Energy. Thermal use of fuels; Exact sciences and technology; General. Regulations. Norms. Economy; Marginal costs; Market prices; Asia; South Korea; Korea; Carbon emission pricing; carbon emission reduction policy; global warming; Emission permit; Pollution control; Pollution prevention; Carbon dioxide; Economic optimization; Q51; Pollutant emission; Modeling; Q54; Optimal strategy; Q56; Q58; Environment impact; Pricing; Cost analysis; Marginal cost; Environmental protection
• ISSN: 0958-305X; 2048-4070
• DOI: 10.1260/0958-305X.25.1.63

The international debate on carbon emission reduction to mitigate the global warming phenomenon has focused the attention of scholars and policy makers on finding rational solutions. The optimal level of carbon emission is determined by the equilibrium carbon emission price, where the marginal damage by climate change is equal to the marginal cost of carbon emission reduction. This study has been conducted because the international trade of carbon emission allowances requires the optimal carbon emission prices of each region to be estimated. By using the carbon emission pricing model of Nordhaus (1991), which considers both economic and environmental factors, this study estimates the optimal carbon emission prices in the Korean market, which is expected to play a crucial role in carbon emission pricing power regionally and internationally due to the passage of the "Act on the Allocation and Trading of Greenhouse-Gas Emission Permits" on May 2, 2012. We find that the marginal cost of carbon emission reduction generally increases with increasing sensitivity of temperature to concentrations of carbon emission and with increasing economic growth rate, but decreases with increasing real capital return.