Tax Reform for the Energy Transition in Korea’s Power Generation Sector

Sung-Jin Cho and Yoon Kyung Kim
Additional contact information
Sung-Jin Cho: Electriticy Policy Research Team, Korea Energy Economics Institute, Ulsan 44543, Korea
Yoon Kyung Kim: Department of Economics, Faculty of College of Social Science, Ewha Womans University, Seoul 03760, Korea

Energies, 2020, vol. 13, issue 19, 1-15

Abstract: The tax structure capable of achieving an energy transition in the power sector was analyzed by applying the Pigouvian tax on generation fuels. Under the 2018 Tax Act Amendment, the tax rate criteria for the excise tax on power generation fuels changed from the calorific value to environmental externalities of the fuel. However, to reverse the merit order of bituminous coal generation with liquefied natural gas (LNG) generation, reflecting only some external costs of the environment as a tax is not enough. In this paper, we established four tax reform scenarios for bituminous coal and LNG considering environmental externalities, and we analyzed the reversal of dispatch priority using the electricity system unit commitment and M-Core economic dispatch model. According to the analysis results, the share of bituminous coal generation will be reduced to 10–20% depending on the scenario, reflecting the relative tax rate equalizing the fuel costs of bituminous coal and LNG power. To achieve an energy transition by reversing the merit order of bituminous coal and LNG generation, the tax rate of bituminous coal must be more than twice that of LNG. Moreover, to achieve an eco-friendly generation mix through tax reform, the external costs of the environment by fuel source should be accurately estimated and efficient taxation that can adequately reflect these external costs of the environment while considering tax fairness, neutrality and simplicity should be established.

Keywords: energy transition; Pigouvian tax; merit order; economic dispatch model (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/1996-1073/13/19/5233/pdf (application/pdf)
https://www.mdpi.com/1996-1073/13/19/5233/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:13:y:2020:i:19:p:5233-:d:425018

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().