South Korea will be launching its emission trading scheme (ETS) in January 2015. The Korean ETS draws inspiration from the European Union (EU) ETS, and is being launched with the expectation of significantly reducing the GHG emission within South Korea. In the process, however, there has been substantial apprehension
about the risk of carbon leakage. It is important, therefore, to assess the risk of carbon leakage ex-ante so that appropriate policies can be designed to mitigate this risk. This policy brief is a an attempt to assess the risk of carbon leakage in South Korea following from implementation of the ETS, drawing on available data. The paper uses the methodology advocated by the EU ETS Directive, and is based on secondary data. The analysis is carried out at an aggregate level due to paucity of data. Still, it reveals that there are certain sectors within the South Korean economy which are indeed exposed to a moderate to high degree of risk of carbon leakage, due more to trade intensity than carbon intensity. Korea can borrow from the experiences made in other countries regarding policies to mitigate leakage risk, but further analysis with a more detailed data breakdown is needed for a refined assessment.
Type: Working papers