Simulation results

A simulation was conducted for each of the four scenarios presented above using a CGE model. The simulation sought to identify the impact of the energy tax scenarios—calling for varying levels of taxes on bituminous coal used for power generation—on the macro economy, industries nationwide, and carbon dioxide emissions.

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1) Changes in major economic indicators and carbon dioxide emissions The economic impact of tax hikes on bituminous coal by scenario is as follows.

Table 4-5. Changes in Major Economic Indicators and CO² Emissions (Unit: %) Indicators Scenario 1 Scenario 2 Scenario 3 Scenario 4

GDP -0.08 -0.17 -0.11 -0.21

Consumer price

index 0.07 0.15 0.09 0.18

CO2 emissions -1.34 -2.71 -1.79 -3.29

Figure 4-3. Changes in Major Economic Indicators

원문 번역문

단위 Unit

소비자물가지수 Consumer price index

CO2 배출량 CO2 emissions

시나리오 1/2/3/4 Scenario 1/2/3/4

According to the model, the greater the tax hike on bituminous coal, the more the GDP decreased. An additional individual consumption tax on bituminous tax (KRW 17/kg) (Scenario 1) reduced the GDP by 0.08% and increased the Consumer Price Index (CPI) by 0.07%. An additional KRW 36/kg tax on bituminous coal (Scenario 2) reduced the GDP by 0.17%, and increased the CPI by 0.15%. The tax increase of Scenario 2 is about double that of Scenario 1, and the economic impact increased proportionally. An additional KRW 23/kg individual consumption tax on bituminous coal (Scenario 3) reduced the GDP by 0.11%, and increased the CPI by 0.09%.

An additional KRW 44/kg tax on bituminous coal (Scenario 4) reduced the GDP by 0.21% and increased the CPI

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by 0.18%. The size of the tax increase in Scenario 4 is about double twice that of Scenario 3, and the economic impact increased proportionally.

A tax hike on bituminous coal for power generation results in increased electricity prices, which reduces the demand for electricity and the consumption of bituminous coal. The increased electricity rates under each scenario are listed in Table 4-6. A decrease in electricity demands also decreases the consumption of fuel for power generation and greenhouse gas emissions. Greenhouse gas emissions decreased by 1.3% in Scenario 1, 2.7% in Scenario 2, 1.8% in Scenario 3, and 3.3% in Scenario 4. The greater the tax hike on bituminous coal, the greater the reduction of greenhouse gas emissions.

Tax increases on bituminous coal used for power generation aim to internalize external costs by reflecting some of these costs in the price of fuel use; this type of tax helps correct distortions in resources allocation. As the results of the simulation show, a tax hike on bituminous coal reduced the GDP, but also decreased electricity generation (which in real life is overproduced due to low coal prices), ultimately leading to reduced greenhouse gas emissions.

Table 4-6. Percent Increase in Electricity Prices by Scenario

(Unit: %) Energy source

Scenario

S1 S2 S3 S4

Electricity 1.86 3.88 2.51 4.77

2) Impact on industrial production and prices

Changes in industrial production resulting from proposed tax increases on bituminous coal for power generation are listed in Figure 4-4. Since a tax hike on bituminous coal for power production increases the price of electricity, and since electricity is a factor of production across all industries, production in all industries decreased. Industries using large amounts of electricity were affected even more than other industries. Under all the proposed scenarios, industries consuming a lot of energy, such as textiles and leather (S04), chemical production (S06), and metals (S08), experienced significant decreases.

Changes in product pricing caused by tax increases on bituminous coal for power generation are shown in Figure 4-5. According to the results, all industries except for renewable energy industries, saw an increase in the price of their products. A tax hike on bituminous coal for power generation led to higher electricity prices; as electricity is a production factor in all industries, this also led to an increase in product pricing. In all industries, except for the energy industry, production decreased significantly. Production decreases were particularly

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apparent in the textile and leather (S04), lumber and paper, printing (S05), and metal products (S08) industries, which consume a lot of electricity.

Figure 4-4. Changes in Production by Industry

Figure 4-5. Changes in Product Pricing

56 3) Impact on energy supply and demand

The effects of a tax hike on bituminous coal for power generation on energy supply and demand are shown in Table 4-7 and Figure 4-6. According to the simulation results, out of all the energy sources, the demand for coal decreased the most. In Scenario 4, in which an additional 44/kg tax is levied on bituminous coal, the demand for coal dropped by 5.1%. Since the tax hike on bituminous coal increased the cost of electricity generation, electricity prices rose. As a result, the demand for electricity decreased by 2.5%, which is less than the decreased demand for coal. The decreased electricity demand led to reduced demands for other fuels for power generation. Thus, in Scenario 4, the demand for LNG also decreased by 1.9%.

Table 4-7. Changes in Energy Demand by Scenario

(Unit: %) Energy source

Scenario

S1 S2 S3 S4

Coal -2.1 -4.2 -2.8 -5.1

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Petroleum for transport -0.1 -0.2 -0.1 -0.2 Other fuel oil -0.6 -1.2 -0.8 -1.5 Non-energy oil -0.2 -0.4 -0.2 -0.4

LNG -0.7 -1.5 -1.0 -1.9

Electricity -1.0 -2.1 -1.3 -2.5

Crude oil -0.2 -0.5 -0.3 -0.6

Renewable energy 0.0 -0.1 0.0 -0.1

Figure 4-6. Changes in Energy Demand by Scenario

원문 번역문

석탄 수송석유 연료유 비에너지유 가스 전력 원유 신재생

Coal

Petroleum for transport Fuel oils

Non-energy oils Gas

Electricity Crude oil

Renewable energy