Are Emissions Trading Policies Sustainable? A Study of the Petrochemical Industry in Korea

Yongrok Choi and Hyoung Seok Lee
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Yongrok Choi: Global E-Governance Program, Inha University, Inharo100, Nam-gu, Incheon 402-751, Korea
Hyoung Seok Lee: Global E-Governance Program, Inha University, Inharo100, Nam-gu, Incheon 402-751, Korea

Sustainability, 2016, vol. 8, issue 11, 1-13

Abstract: In 2015, Korea inaugurated an emissions trading scheme (ETS). In this regard, many studies have considered the sustainable performance and efficiency of industries that emit carbon; however, few have examined ETS at company level. This paper focuses on companies’ data related to Korean ETS in the petrochemical industry. Based on the non-radial, nonparametric directional distance function (DDF), the paper evaluates the governance factors related to ETS policies and sustainable performance in terms of carbon technical efficiency (CTE), the shadow price of carbon emissions, and Morishima elasticity between the input and undesirable output of carbon emissions. Using a dual model, the paper shows that Korean ETS has huge potential for participating companies to improve CTE. If all companies consider the production possibility frontier, they could potentially improve efficiency by 52.8%. Further, Morishima elasticity shows strong substitutability between capital and energy, implying that green technology investment should bring a higher degree of energy-saving performance. Unfortunately, however, the market price of carbon emissions is far too low compared with its shadow price, suggesting that the Korean government’s price-oriented market intervention has resulted in the ETS producing poor sustainable performance. As the title suggests, ETS of Korea is not sustainable at the current stage, but with more efforts on the transition period, all the developing countries should support the governance factors of the ETS in terms of the more effective green investment with easier access to the green technology.

Keywords: ETS; emissions trading scheme; carbon technical efficiency; CTE; shadow price; Morishima elasticity of substitution; governance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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