Bank of Korea: "If Emission Permit Prices Rise, Growth Rate Could Fall by Up to 0.6%P"

BOK Report on 'Impact of Climate Change Response on Regional Economies'
"Non-capital Areas' Growth Rate Drops Significantly More Than Capital Area"

The rise in greenhouse gas emission permit prices is expected to lead to a decline in South Korea's economic growth rate, with the annual growth rate significantly decreasing in non-metropolitan areas, where high-carbon industries are more prevalent, compared to the metropolitan area.

On the 25th, the Bank of Korea stated in its report titled "The Impact of Climate Change Response on Regional Economies" that "If greenhouse gas emission permit prices increase due to climate change mitigation, the annual economic growth rate will significantly decline in the order of the Southeast region, Honam region, Chungcheong region, and Daegyeong region."

According to the Bank of Korea's decomposition of greenhouse gas emission factors, from 1990 to 2021, domestic greenhouse gas emissions increased by a total of 380 million tons (t) due to income and population growth, despite improvements in emission efficiency resulting from enhanced energy efficiency and reduced carbon intensity. Of this, 100 million tons increased due to population effects, 650 million tons due to income effects, while 370 million tons decreased due to improvements in greenhouse gas emission efficiency.

The report estimated the impact on South Korea's average annual growth rate from 2021 to 2050 under scenarios from the Network for Greening the Financial System (NGFS) for transitioning to a low-carbon economy: one achieving carbon neutrality by 2050, and another limiting the global average temperature rise to below 2 degrees Celsius compared to pre-industrial levels by 2100.

As a result, if greenhouse gas emission permit prices rise, South Korea's economic growth rate is projected to decrease by an average of 0.6 percentage points annually under the carbon neutrality scenario and by 0.4 percentage points under the below 2 degrees Celsius limitation scenario from 2021 to 2050.

NGFS is an international consortium established in December 2017 to promote climate change risk-related work among central banks and supervisory authorities, with the Bank of Korea joining in November 2019.

However, if greenhouse gas emission efficiency improves significantly due to technological advancements, the decline in growth rates is analyzed to shrink to 0.5 percentage points and 0.1 percentage points, respectively.

By region, the decline in annual growth rates is expected to be greater in non-metropolitan areas such as the Southeast, Honam, Chungcheong, and Daegyeong regions than in the metropolitan area. The Bank of Korea estimates this is because high-carbon industries, which emit large amounts of greenhouse gases, are mainly concentrated in non-metropolitan areas.

Baehan Lee, head of the Regional Economy Research Team at the Bank of Korea's Research Department, said, "There is a possibility that the imbalance between the metropolitan and non-metropolitan areas will deepen not only in economic growth but also in environmental issues," adding, "In non-metropolitan areas, urgent technological development is needed to improve the carbon emission efficiency of key industries." He further stated, "It is necessary to minimize losses caused by the transition to a low-carbon economy by encouraging voluntary participation from the private sector through incentive structures such as support for the development of carbon capture, utilization, and storage technologies."

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