Ban Ki-moon Administration Proposes Diesel Price and Electricity Rate Hikes, Internal Combustion Engine Phase-Out Timeline

National Climate and Environment Council to Announce 'Public Policy Proposals' on the 23rd
Measures to Limit Demand and Supply of Internal Combustion Engine Vehicles, Major Source of Fine Dust
Attempt to Reduce Coal Power by Reflecting Environmental Costs in Electricity Rates
Last Year's 'Seasonal Management System' Proposal... "27% Reduction in Fine Dust"

Asia Economy DB=Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Kim Bo-kyung] The Presidential Committee on National Climate and Environment (Chairman Ban Ki-moon) has expressed the opinion that electricity rates should be gradually increased to reflect environmental damage costs. High-intensity measures to reduce fine dust, such as raising diesel prices and phasing out internal combustion engine vehicles, were also proposed. The final plan is scheduled to be prepared and made public to the public and submitted to the government within this month.

Last month, the National Climate and Environment Committee held a 'Comprehensive Discussion with the National Policy Participation Group' involving 500 ordinary citizens to discuss mid- to long-term tasks for solving fine dust and climate change issues. At this event, socially impactful and sensitive topics such as diesel prices and electricity rate hikes were addressed. For example, four options were presented regarding the level of diesel price increase, and opinions from the National Policy Participation Group were collected. Based on the discussion results, the National Climate and Environment Committee will announce the final plan, which has undergone expert committee reviews, various consultative bodies, advisory group discussions, and plenary session approval, as the '2nd National Policy Proposal' on the 23rd.

First, there is the adjustment of automobile fuel prices, specifically raising diesel sales prices. Diesel vehicle emissions are classified by the World Health Organization (WHO) as Group 1 carcinogens to humans, and the amount of ultrafine dust emitted per diesel vehicle is 9.7 times that of gasoline vehicles. Diesel vehicles are a major source of fine dust in large cities, yet demand remains high due to low fuel costs. Although the environmental harm is greater than gasoline, diesel is perceived as a fuel for low-income and industrial use, resulting in relatively lower taxes. As of 2018, the domestic diesel sales price was about 88% of gasoline prices. Korea’s relative diesel price (88%) ranks 28th among 35 OECD countries.

Accordingly, the National Policy Participation Group chose one option among four: ▲adjusting the relative diesel price to the OECD member average of 95%, ▲adjusting to the OECD recommended level of 100%, ▲raising it to 110-120% to reflect environmental damage and social costs, or ▲other opinions, and held discussions. They were also asked whether the diesel price adjustment should be implemented ▲all at once or ▲gradually over three years considering the public burden. If the diesel price is adjusted to be equal to gasoline (100%) at once, ultrafine dust direct emissions are expected to decrease by 247 tons and nitrogen oxides (NOx) by 18,468 tons.

Comprehensive Discussion Materials for the National Policy Participation Group

The National Climate and Environment Committee is also promoting the establishment of a roadmap for transitioning to eco-friendly vehicles. In other words, this involves setting a phase-out date for internal combustion engine vehicles. Despite being major sources of fine dust and greenhouse gases, gasoline and diesel vehicles still constitute the majority of domestic vehicles. If raising diesel prices is a demand suppression measure, restricting the sale of internal combustion engine vehicles is a supply suppression measure.

The National Policy Participation Group selected one option among five regarding the year when only eco-friendly vehicles will be allowed for new car sales domestically: ▲2035, ▲2040, ▲2045, ▲2050, or ▲other opinions. They also chose whether the allowed eco-friendly vehicles would be limited to ▲zero-emission vehicles such as electric and hydrogen cars, ▲zero-emission vehicles plus plug-in hybrid vehicles, or ▲zero-emission vehicles, plug-in hybrids, and hybrids.

Discussions were also held on reflecting environmental costs in electricity rates to reduce coal power generation. The current electricity market operates on a system where generators with lower fuel costs are prioritized. As a result, coal power, which has high environmental costs but low fuel costs, accounts for more than 40% of power generation. The National Climate and Environment Committee expects that reflecting environmental costs in electricity production will reduce the price competitiveness of coal power, change the order of generator operation, and decrease coal power generation.

Environmental costs will be calculated by converting the health and economic damages caused by air pollutants and greenhouse gas emissions into monetary values. For example, estimating the population exposed to air pollutants, assessing mortality risk, and converting this into monetary units.

The National Policy Participation Group discussed whether to reflect 50% or 100% of environmental costs in the power production cost by 2030. If only 50% is reflected, electricity rates would increase by an average of 1.45% annually, meaning that for a monthly electricity bill of 50,000 won, the monthly bill would increase by about 770 won on average each year from next year until 2030. If 100% is reflected, electricity rates would rise by an average of 4.12% annually, increasing the monthly bill by about 2,490 won each year under the same conditions.

However, a National Climate and Environment Committee official said, "The final plan is not derived solely from the decisions of the National Policy Participation Group," adding, "It is uncertain whether all the discussion points from the forum will be included in the government submission." He explained, "The plan must go through expert committees, sectoral consultative bodies including government, local governments, and industry, and senior advisory groups before being approved at the plenary session." The plenary session consists of 44 members representing political parties, government, industry, and citizens.

Meanwhile, the National Climate and Environment Committee proposed the 'Seasonal Management System' as its first national policy proposal last year to address fine dust issues, which is now being implemented as a government policy. The Seasonal Management System includes strong measures such as restricting the operation of grade 5 emission vehicles and shutting down old coal power plants from December to March, when high concentrations of fine dust occur. The committee self-assessed that the system achieved groundbreaking results, with the average concentration of ultrafine dust decreasing by 27% compared to the same period last year. Although the government is not obligated to accept policy proposals from the National Climate and Environment Committee, they are a major consideration due to the public deliberation and consensus process.

This content was produced with the assistance of AI translation services.