The Bank of Korea: "2050 Carbon Neutrality Achievement Scenario, Annual Growth Rate Decreases by 0.32%P"

BOK Issue Note - The Impact of Climate Change Response on the Macroeconomy

[Asia Economy Reporter Kim Eunbyeol] To achieve '2050 Carbon Neutrality' and keep the global average temperature rise below 1.5℃ compared to pre-industrial levels, the economic growth rate is expected to decline by an average of 0.32 percentage points annually by 2050. The consumer price inflation rate is projected to rise by an average of 0.09 percentage points per year.

On the 16th, the Bank of Korea (BOK) released an analysis in 'BOK Issue Note - The Impact of Climate Change Response on the Macroeconomy,' stating that "the imposition of a carbon tax (carbon pricing policy) is estimated to have a significant long-term impact on growth and prices if not complemented by effective eco-friendly technologies and policies." The report estimated and announced the effects on economic growth and inflation under various scenarios.

Assuming a scenario where '2050 Carbon Neutrality' is achieved by reducing carbon dioxide emissions by 100% compared to the base year (2020) around 2050 to keep the global average temperature rise below 1.5℃ compared to pre-industrial levels, and imposing a carbon tax on any excess emissions, the gross domestic product (GDP) growth rate is estimated to decline by an average of 0.32 percentage points annually. In this case, carbon capture, utilization, and storage technologies will gradually be commercialized from 2035 onward, removing approximately 110 million tons by 2050. Consumer price inflation is estimated to increase by an average of 0.09 percentage points annually under this scenario.

If the degree of carbon dioxide emission reduction is lessened, the impact on growth and prices decreases. Assuming a scenario where the global average temperature rise is limited to between 1.5℃ and 2.0℃ compared to pre-industrial levels by reducing carbon dioxide emissions from 670 million tons in 2020 to 200 million tons in 2050, a reduction of about 70%, the economic growth rate is projected to decline by an average of 0.08 percentage points annually. Inflation is expected to rise by an average of 0.02 percentage points per year.

The Bank of Korea stated, "To keep the global average temperature rise below 1.5℃, the negative effects are about four times greater compared to the scenario limiting it to within 2℃," adding, "Lowering the global average temperature rise target by an additional 0.5°C (from 2°C to 1.5°C) implies considerable sacrifices."

To keep the global average temperature rise lower, regulations are essential in the process, which leads to reductions in consumption, investment, and exports. Climate change response policies such as carbon tax imposition and carbon emissions trading systems can increase production costs for companies, thereby raising prices.

However, the Bank of Korea noted, "It is necessary to consider that substitution with carbon-free fuels such as solar power, wind power, and green hydrogen, as well as technological advancements, which are not covered in the model, could mitigate the negative impacts caused by the imposition of a carbon tax (carbon pricing policy)."

Furthermore, it emphasized, "It is necessary to prepare measures to minimize the impact on growth and prices in response to the implementation risks expected to arise from the government's ‘2050 Carbon Neutrality Scenario’."

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