8. Application of AIM/Enduse Model to Korea
Tae Yong Jung1, Dong Kun Lee2, and Song Woo Jeon3
Summary. The AIM-Korea Model has been developed to analyze global
environmental policies together with local ones in Korea. Various scenarios are
considered for analyzing policy options to reduce CO2 emissions. The major
findings of this study can be summarized in terms of three aspects. Firstly, CO2
emissions will continue to increase as long as energy demand increases. It could
be difficult to introduce in the market by 2020 energy savings or devices with low
CO2 emissions in every sector without implementing any climate policy measures.
Secondly, the policy implications of the mitigation of CO2 emissions in Korea isthat the adoption of energy-saving devices should be further encouraged, which isindicated by the simulation results showing that the scenario of providing
subsidies leads to the most effective reduction in CO2 emissions, as opposed to
imposing only a carbon tax. Thirdly, the marginal cost of mitigating CO2
emissions varies according to the sector. Hence, it is important to identify thepotential sectors where CO2 emissions reductions might be achievable at relatively
low cost. According to the simulation results, the transportation, residential andcommercial sectors could be potential candidates.

8.1 Introduction
In this study, the energy consumption patterns and the projection of these for the
residential, commercial, transportation and industrial sectors were analyzed for
Korea, and through this an attempt was made to find relevant CO2 mitigation
policies and measures for every end-use sector. For this purpose, AIM (AsiaPacific Integrated Model), which was developed by the National Institute forEnvironmental Studies (NIES), Japan (Morita et al. 1994, 1995, 1996), was used.
The present AIM-Korea Model is an application of the original AIM/End-use
model. The application of a Mini-AIM in the residential sector is included. For thetransport sector, further simulation was carried out to verify the possibility of
introducing CNG buses into the market, which is one of the major climate policiesof the Korean Ministry of the Environment. For the industrial sector, the businessas-usual (BaU) scenario was set up for other industries, such as food andbeverages, pulp, and so forth. AIM-Korea is now run simultaneously for all
sectors including power generation.

1

Institute for Global Environmental Strategies, Hayama 240-0198, Japan
Sangmyung University, San 98-20, An So-Dong, Chonan, Chung Nam, 330-180, Korea
3
Office of Planning and Coordination, Korea Environment Institute, 613-2 BulkwangDong Eunpyung-Gu, Seoul, 122-706, Korea
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In Section 8.2, AIM-Korea Model and its data requirement are briefly
described. In Section 8.3, the energy consumption patterns for every end use
sector in Korea are analyzed according to various scenarios. The business-as-usual(BaU) CO2 emissions projection and possible policy simulations are conducted todetermine the potential mitigation of CO2 emissions in Korea. A detailed analysisof the residential sector and the transportation sector is also presented in thissection. Section 8.4 includes a discussion on policy implications.

8.2 AIM-Korea Model and Data
Table 1 summarizes the sectors and fields in the AIM-Korea Model. All end use
sectors are included; residential, commercial, transport and industrial. Mini-AIM,
which is a convenient tool for analyzing action programs to mitigate CO2
emissions, is applied to the residential sector. The transport sector is classified into
two fields; passenger and freight transport. In each field, the technicalspecifications for every specific transport mode are analyzed. The Korean
Ministry of the Environment is particularly interested in introducing CNG vehicles
into the market, which will contribute to mitigating CO2 emissions: as well as SO2
emissions. Further simulations are being made in this sector to assess theconditions that would allow the penetration of CNG vehicles in the transport
market. In the industrial sector, energy intensive industries such as iron and steel,cement, and the petrochemical industry have been separated out. In this study,
other industries, such as food and beverages, pulp, machinery, construction, andagriculture, so forth are also separated out for the BaU projections for CO2
emissions. Since this model is an end use model, the CO2 emissions from theenergy conversion sectors, such as electric power generation and district heating,are distributed to each end use sector. This energy conversion sector is integrated
into each end use sector, so that the AIM-Korea Model runs all sectors
simultaneously. This model also reflects the unique circumstances of each end use
sector. For example, in the residential sector, energy demand for primary heatingand hot water are combined and account for almost 80% of all energy demand,since the winter in Korea is very cold and historically Koreans have had highlevels of heating in winter. Hence, the combination of primary heating and hot
water supply are separated out in the AIM-Korea Model.
The data for the AIM-Korea Model is quite detailed. Since this model assesses
the selection of technologies, detailed data is required on energy sources, thecalorific value of various types of fuel, the price of these fuels, and their CO2
emission factors. Energy services represent the utility resulting from energy
consumption and the units are defined according to the type of energy used.
Energy services technologies indicate the equipment and appliances that
actually consume energy. In order to determine the dynamics of energy services, itis necessary to have detailed information. Two types of data are necessary. Firstly,
basic data is required, such as the initial cost (purchase price) of energy services,
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saved. Secondly, qualitative data is also required, such as the useful life ofequipment (replacement period), market share, the introduction of specific typesof equipment and appliances in the market, and the obsolescence of different
technologies.
In the residential sector, one of the characteristics of the AIM-Korea Model isthe separation of auxiliary heating from primary heating and the combination ofprimary heating with hot water supply. This change reflects the different situationin Korea compared with that of Japan, since the specific energy consumption
patterns of any country are determined by the cultural and historical background,lifestyles and practices, as well as the weather conditions. The AIM-Korea Model
therefore allows for more than one service to be included in the model from morethan one service source simultaneously. For example, a kerosene pan heater
provides auxiliary heating that requires both kerosene and electricity as energy
sources. For example, Table 2 summarizes the factors that modify the requirement
for energy services in the residential sector.
Table 1. Sectors and fields of the AIM-Korea model
Sectors
Residential

Commercial

Transportation
Industrial

Field• Cooling• Primary heating and hot water• Auxiliary heating• Electricity/town gas• Cooling• Primary heating and hot watersupply• Auxiliary heating• Electricity/town gas• Passenger transport• Iron and steel industry• Cement• Cooking• Lighting• Home appliances• Cooking• Lighting• Electrical appliances• Freight transport• Petrochemical industry• Other industries

Table 2. Factors that modify the requirement for energy services in the residential sector
Service
CoolingPrimary heating/Hot watersupplyAuxiliary heating
CookingLighting
Televisions
Refrigerators
Washing machines
Vacuum cleaners
Microwave ovens
Personal computers
Other end uses

Factors
Number of households × Floor area × Cooling intensity
Number of households × Floor area × Heating/Hot water
intensity
Number of households × Floor area × Heating intensity
Number of households × Floor area × Cooking intensity
Number of households × Lux
Number of households × Penetration × High technology
Number of households × Penetration × High technology
Number of households × Penetration × High technology
Number of households × Penetration × High technology
Number of households × Penetration × High technology
Number of households × Penetration × High technology
Number of households

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Table 3. Future energy services in the residential sector
Service
Number of households (thousand)Number of households (1995=1.0)
CoolingPrimary heating/Hot water supply
Auxiliary heating
CookingLighting
Televisions
Refrigerators
Washing machines
Vacuum cleaners
Microwave ovens
Personal computers
Other end uses

1995
12501
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0

2000
13967
1.117
1.919
1.150
1.111
1.156
1.253
1.297
1.251
1.195
1.532
1.704
1.598
1.316

2010
16561
1.325
4.491
1.490
1.333
1.390
1.961
1.843
1.709
1.586
2.359
2.752
2.465
3.214

2020
18733
1.490
8.317
2.002
1.651
1.651
2.991
2.318
2.138
1.958
2.974
3.520
3.079
3.572

Table 3 shows the future energy services in the residential sector. Obviously,
the most important factor determining the scale is the number of households,
which will increase by more than 50% by 2020. The growth rate for this variable
is much faster than that of the population, reflecting changing lifestyles. It is
worthwhile noting that the intensity of cooling is becoming much greater due tothe rapid diffusion of air conditioners, as family incomes rise.
In addition, primary heating and auxiliary heating will more than double,
which is a greater increase than that of the number of households. Both coolingand heating services increase faster than the increase in the number of households,
which implies that the cooling and heating intensity will increase as family
incomes rise. As a home appliance, the personal computer will become more
widely available, which is in accordance with one of the government's major
policies so that Korea can become an ‘Information Society’ early in the new
century.
Table 4 shows future energy services in the commercial sector, where thebuilding floor area is the main factor determining the scale of energy consumption
patterns. This variable will more than double by 2020, compared with the 1995
level.
Table 5 presents the transport sector. In this sector, various transport modes are
considered. In particular, types of passenger vehicles are divided according to size.
As per capita income rises, the demand for private vehicles will increase fasterthan other transport modes.
In Table 6, the data requirements are listed for the three energy intensive
industries; iron and steel, cement and petrochemicals. In the iron and steel
industry, the proportion of steel production using electric arc furnaces isimportant, besides the total production of crude steel, since the energy intensity ofintegrated steel making is much higher than that of the electric arc furnace. By thesame token, in the cement industry, the proportion of ready mixed cement isimportant. In the petrochemical industry, ethylene production is the factor

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determining the scale of the various petrochemical products, for which the market
is almost saturated.
Table 4. Future energy services in the commercial sector
Services
Building floor area (million m2)
Building floor area (1995=1.0)
CoolingPrimary heating/Hot water supply
Auxiliary heating
CookingLighting
Electrical appliances
Other end uses

1995
251.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0

2000
302.0
1.203
1.203
1.203
1.203
1.203
1.203
1.203
1.203

2010
449.0
1.790
1.790
1.790
1.790
1.790
1.790
1.790
1.790

2020
613.0
2.444
2.444
2.444
2.444
2.444
2.444
2.444
2.444

Table 5. Future energy services in the transport sector (person km, ton km)
Service
Private passenger cars < 1500cc
Private passenger cars < 2000cc
Private passenger cars > 2000cc
Taxis < 1500cc (private)
Taxis < 1500cc (company)
Taxis > 1500cc (private)
Taxis > 1500cc (company)
Jeeps
Buses < 16 persons (private)
Buses > 16 persons (private)
Buses > 16 persons (company)
Inter urban railways (passenger)
Subways
Coastal water transport (passenger)
Air transport (domestic passenger)
Trucks < 1.0 ton
Trucks < 3.0 tons
Trucks < 5.0 tons
Trucks < 8.0 tons
Trucks < 12.0 tons
Trucks > 12.0 tons
Railway (freight)
Coastal water transport (freight)
Air transport (domestic freight)

Base Year
1.06×1011
4.57×1010
5.52×1009
5.09×1007
2.25×1009
3.15×1010
4.63×1010
8.92×1009
6.21×1010
2.85×1010
2.98×1011
2.03×1010
2.47×1010
4.69×1008
4.56×1010
4.81×1009
3.56×1010
7.24×1009
6.49×1009
5.14×1009
1.17×1009
1.38×1010
4.38×1010
8.18×1008

1995
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

2000
1.274
1.278
1.277
1.202
1.204
1.203
1.203
0.980
1.129
1.130
1.128
0.709
1.522
0.974
1.180
1.006
1.006
1.006
1.005
1.004
1.009
1.174
1.132
1.169

2005
1.925
1.928
1.920
1.424
1.427
1.425
1.425
1.233
1.444
1.446
1.446
0.685
1.721
1.151
1.496
1.206
1.205
1.204
1.203
1.204
1.205
1.254
1.288
1.443

2010
2.453
2.451
2.464
1.542
1.542
1.543
1.542
1.413
1.610
1.614
1.614
0.719
2.142
1.377
1.853
1.341
1.340
1.340
1.339
1.339
1.342
1.312
1.429
1.724

2020
3.075
3.085
3.080
1.554
1.556
1.556
1.555
1.379
1.626
1.625
1.621
0.818
2.696
1.959
2.982
1.372
1.371
1.370
1.370
1.370
1.376
1.377
1.751
2.274

Table 6. Future energy services in the industrial sector
Iron and steel industry
Crude steel production (1,000 tons)
Crude steel production (1995=1.0)
Proportion using the electric arc furnace (%)
Furnace (1,000 tons)

1995

2000

2010

2020

36,772
1.000
37.8
22871

39,200
1.066
38.8
24000

42,700
1.161
35.6
27500

42,700
1.161
35.6
27500

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Jung, T. et al.

Electric arc (1,000 tons)
13901
15200
Table 6. Future energy services in the industrial sector (continued)
Cement industry
Cement production (1,000 tons)
Cement production (1995=1.0)
Proportion of ready mixed cement (%)
Petrochemical Industry
Ethylene production (1,000 tons)
Ethylene production (1995=1)
Low density polyethylene
High density polyethylene
VCM
Polypropylene
PP
OctaneIPA
AA
BTX
Butadiene
Other petrochemicals

15200

15200

1995

2000

2010

2020

51893
1.000
6.2

49310
0.950
8.7

63000
1.214
8.7

66200
1.276
8.7

4,340
1.000
1,428
1,503
660
2,602
2,105
235
30
160
5,114
601
2,012

4,670
1.076
1,569
1,617
1,033
3,176
2,276
253
32
172
5,518
687
2,436

4,920
1.134
1,653
1,704
1,088
3,347
2,398
266
34
181
5,813
932
3,971

4,920
1.134
1,653
1,704
1,088
3,347
2,398
266
34
181
5,813
932
5,722

8.3 Simulation using AIM-Korea Model
8.3.1 Simulation setting and the BaU scenario
Based on the data for the year 1995, the simulations are set for up to the year
2020. The reason for setting the year 1995 as the base year is the availability ofdata. The Report on the Energy Census by the KEEI provides the most appropriate
data for the present simulation and the most recent survey for this report is for theyear 1995. (Ministry of Trade, Industry and Energy 1996). The year 2020 was
selected as the end year for the simulation since the development of energy-saving
technology could be predicted at least until this year.
The BaU scenario is one in which the current trends in energy consumption
patterns will continue without any attempt to mitigate CO2 emissions (KEEI
1998). However, expected new technologies, energy-saving, fuel switching, andexisting plans are reflected in this scenario.
In Table 7 and Figure 1, CO2 emissions by end use sector are shown. The total
CO2 emissions in 1995 amounted to 104.76 million tons of carbon (Mt-C),
reaching 177.62 Mt-C in 2020 under the BaU scenario, which is a little higher
than that of the previous study (Jung and Lee 1999), since the previous study
reflected the financial crisis of Korea that occurred in December 1997. The GDP
growth rate for 1998 was -5.9%. However, by 1999 the Korean economy had
recovered with a more than 7% GDP growth rate. In this study, the current
economic situation of Korea is considered, which results in a higher BaU

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projection for CO2 emissions in this study. The proportion accounted for by theresidential sector continues to increase from 17.4% in 1995 to 18.1% in 2020. The
commercial sector shows the same trend. The proportion accounted for by this
sector in 1995 was 8.3%, but it will reach 11.1% in 2020. It seems that the
proportion of CO2 emissions accounted for by the transport sector will be more orless stable after 2010, reflecting the saturation of the market for vehicle
ownership. The transport sector will account for 22.1% of total CO2 emissions in
2010.
In the industrial sector, CO2 emissions are continuously increasing, but the
proportion accounted for by this sector will decrease due to structural changes
towards less carbon intensive industries. The proportion of CO2 emissions
accounted for by the industrial sector was 55.1% in 1995, while it will be 48.7% in
2020, which will be the lowest level. This trend is mainly due to the decrease inproportion of energy intensive industries. For example, the proportion accounted
for by the iron and steel industry will drop from 17.8% in 1995 to 12.9%. The
main reasons for the declining trend in this industry are production saturation andthe change in the technology from the integrated process to the electric arc
furnace. Obviously, energy efficiency improvements are also expected to occur. A
similar trend is also observed in the cement and petrochemical industries. Hence,the share of CO2 emissions accounted for by other industries will increase by morethan 3% in 2020, compared with that of 1995. This type of industrial structuralchange in particular is rapidly developing in Korea. Among of the groups ofbooming industries in Korea are information technology (IT) related industries
and the semiconductor industry, including computer parts, most of which are notenergy intensive industries.

Table 7. Total CO2 emissions by sector in Korea (BaU) (Mt-C, % in parentheses)
SectorResidential
Commercial
Transport
Industry
Iron and steel
CementPetrochemical
Other industries
Total

1995
2000
2010
2020
18.21 (17.4) 20.39 (17.4) 25.73 (16.9) 32.16 (18.1)
8.72(8.3) 10.38(8.9) 15.12(9.9) 19.73 (11.1)
20.10 (19.2) 22.50 (19.2) 33.70 (22.1) 39.30 (22.1)
57.73 (55.1) 63.79 (54.5) 77.81 (51.1) 86.44 (48.7)
18.60 (17.8) 20.28 (17.3) 22.62 (14.8) 22.95 (12.9)
11.59 (11.1) 11.17(9.5) 14.26(9.4) 14.99(8.4)
11.80 (11.3) 13.68 (11.7) 15.55 (10.2) 16.07(9.0)
15.75 (15.0) 18.67 (15.9) 25.38 (16.7) 32.43 (18.3)
104.76 (100) 117.06 (100) 152.36 (100) 177.62 (100)

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Jung, T. et al.

200
180
160
Transportation

Mt-C

140

Commercial

120

Residential

100

Other industries
Industries

80

Petrochemical
Cement60

Iron & Steel

40
20
0
1995

2000

2005

2010

2015

2020

Year

Fig. 1. Total CO2 emissions by sector in Korea (BaU)

8.3.2 Policy scenarios and simulation results
Various scenarios on future energy consumption can be set up for the model
simulation and the scenario sets for the present analysis are as follows.
The scenario for no technological changes (Scenario 1) is considered, whichmeans that the current available technologies will continue to be used. This
scenario seems to be unrealistic, but is necessary to calculate the upper bounds of
CO2 emissions. In Scenario 2 the introduction of a carbon tax (30,000Won/t-C)
from 2000 is considered. In Scenario 3 a carbon tax (30,000Won/t-C) is collected,
but is returned as subsidies to accelerate the introduction of solar energy for hot
water or insulation, which is basically a form of tax recycling, starting from 2001.
Since in AIM-Korea, the criteria for selecting technology is cost minimization, byextending the payback period, it is possible to reduce the annualized costs ofenergy-saving equipment, which usually requires high installation costs. These
scenarios are applied to every end use sector. The scenarios mentioned above aresummarized in Table 8. The results for these scenarios for all the end use sectors
are presented next.
Table 8. Scenarios for all sectors
Scenario
Scenario 0
Scenario 1

Description
Business as Usual
No technological change

Short name
BaU
FIX

130

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Scenario 2

Carbon tax: 30,000 Won/t-C from 2000
(1$ = 1,200 Won)
Subsidy: 30,000 Won/t-C from 2001

Scenario 3

131

TAX
SUBSIDY

Residential sector
Since the marginal costs of mitigating CO2 emissions: in this sector are relatively
low compared with the options in other sectors, it is concluded that mitigating
options in this sector are feasible. Therefore, policy measures, such as energy
labeling systems, rebates, and other incentives to encourage energy savings arehighly recommended.
Figure 2 shows the projection of CO2 emissions in this sector with the BaU
scenario and others. In the BaU scenario, CO2 emissions have an average annual
growth rate of 2.3% (Table 7). By imposing a carbon tax of 30,000Won/t-C (about$25/t-C), CO2 emissions mitigation is not expected in this sector (TAX). If acarbon tax of 30,000Won/t-C is imposed and returned as subsidies (SUBSIDY),
further CO2 emissions reductions would be feasible, in which case, 2.3 Mt-C in2010 and 7.4 Mt-C in 2020 would be possible. Hence, it is found that carbon tax
recycling is more effective than a simple increase in the carbon tax rate in this
sector.
Commercial sector
The main driving force for energy services in this sector is obviously the increasein building floor area, which is expected to more than double by 2020 compared tothat in 1995. Especially in Korea, the structural shift from the manufacturingsector to the services sector is now occurring especially rapidly in Korea. At thesame time, the contribution of this sector to the GDP is consistently increasing.

38.0

Mt-C

34.0
30.0
26.0
22.0
18.0
1995

2000

2005

2010

2015

2020

Year
BaU

FIX

SUBSIDY

TAX

Fig. 2. CO2 emissions projections in the residential sector

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23.0

Mt-C

19.0
15.0
11.0
7.0
1995

2000

2005

2010

2015

2020

Year
BaU

FIX

SUBSIDY

TAX

Fig. 3. CO2 emissions projections in the commercial sector

Figure 3 shows CO2 emissions projections for this sector with the BaU scenario
and others. CO2 emissions in 2020 with the BaU scenario would be 19.73 Mt-C,
which is more than double that in 1995. In 2020, the proportion of CO2 emissions
accounted for by this sector will be 11.1% with the highest average annual growthrate of 3.3% between 1995 and 2020. By imposing a carbon tax of 30,000 Won/tC (TAX), imposition of mitigation measures for CO2 emissions in this sector ishardly effective, as with the residential sector. The introduction of a carbon tax is
not sufficient to change technology selection in this sector. However, if the sameamount of carbon tax is i mposed and then returned to this sector in the form ofsubsidies (SUBSIDY), further CO2 emissions reductions would be expected, sinceenergy efficient devices or LNG technologies, such as LNG boilers or cogeneration, can be cost-effectively installed. It is expected that CO2 emissions canbe reduced by 1.9 Mt-C in 2020. Hence, the conclusion is that carbon tax
recycling is more effective in this sector than increasing the tax rate. On the other
hand, if current technologies are still in use in 2020, there will be an increase of
1.6 Mt-C in CO2 emissions over the level under the BaU scenario.
Transportation sector
In the transportation sector, the demand for vehicles, especially passenger cars,
has increased rapidly, as per capita income has increased. It is expected that thistrend in increasing car ownership will continue, since it is projected that saturationof the passenger car market will not occur until around 2020. It is noted that due tothe economic crisis, the energy demand and the demand for new passenger cars in1998 temporarily declined, but in 1999 it rebounded with the recovery of theeconomy. Hence, in the long run, the trend towards increasing new car ownership133

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Mt-C

134

46.0
40.0
34.0
28.0
22.0
16.0
10.0
1995
BaU

2000

2005
2010
2015
Year
FIX
SUBSIDY

2020
TAX

Fig. 4. CO2 emissions projections in the transport sector

will continue until around 2020. Therefore, fuel substitution from carbon intensive
to less carbon intensive fuels is an important option for mitigating CO2 emissions
in this sector. Also the secondary ben efits of reducing CO2 emissions in this
sector are important, since by reducing CO2 emissions, it is also expected that SO2
and other pollutants will be reduced, thus improving air quality, reducing
congestion, and lowering related social costs.
Figure 4 shows CO2 emissions projections in this sector with the BaU scenario
and others. CO2 emissions in 2020 for the BaU scenario would be 39.3 Mt-C,
which is almost double than of 1995. The average annual growth rate of CO2
emissions in this sector is 2.7% between 1995 and 2020. Again, the scenarios
considered for this sector are to introduce a carbon tax and accelerate theintroduction of new types of vehicles such as hybrid vehicles, as well as electriccars in the future. However, with a carbon tax of 30,000 Won/t-C (TAX), there
can be no expectation of much reduction in CO2 emissions in this sector, since theeffect of this tax is not sufficient to change the cost structure, which is divided into
fixed and variable costs. In other words, this tax scheme cannot ensure that new
vehicles compete in the market, where the fixed costs of a new vehicle are stillhigh. By imposing a carbon tax and providing subsidies (SUBSIDY), it is possible
to mitigate CO2 emissions by 5.9 Mt-C in 2020. It is found that the potential for
CO2 emissions reductions in this sector seems to be much greater than in othersectors. Therefore, policy measures in this sector should focus on how to slow
down the trend towards car ownership, as well as to instigate fuel substitution andensure that energy efficient vehicles are available in the market.
Industrial sector
In the industrial sector, the iron and steel, cement and petrochemical industries are
examined. Since these three industries are energy-intensive and account for mostof the CO2 emissions in this sector, specific technologies in production processesof these industries are focused on. The share of the total CO2 emissions accounted

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for by these three industries was about 40% for Korea in 1995. In this study, theBaU scenario was only included for other industries. The other industries are foodand beverages, textiles, pulp, rubber, equipment assembly, machinery, electricalmachinery, television production, automobiles, mining, construction andagriculture. The services included are boilers, district heating, electric power, andself-generated power.
Iron and steel industry. In the iron and steel industry, CO2 emissions in 1995
were 18.6 Mt-C, which accounted for 17.8% of total CO2 emissions in Korea.
Figure 5 shows the CO2 emissions projections for this industry for the BaU
scenario and other scenarios. CO2 emissions in 2020 with the BaU scenario would
be 23.0 Mt-C, which is 1.2 times the level in 1995 with an average annual growthrate of 0.85%.
The results from the TAX scenario or the SUBSIDY scenario, assuming the
introduction of a carbon tax from 2000, do not seem to be effective, since thefacilities in this industry are too expensive for tax revenues to compensate forcosts. Only 0.2 Mt-C of CO2 emissions can be reduced in 2020. This finding
implies that it is very difficult to reduce CO2 emissions in this industry, as long as
crude steel production keeps increasing and the share of production using theelectric arc furnaces and integrated steel making processes is not reversed.
According to the projections for crude steel production, the market will besaturated at around 47 Mt in 2010. Hence, after 2010, CO2 emissions in thisindustry will be more or less stabilized.
Cement industry. In the cement industry, CO2 emissions in 1995 were 11.59 MtC, which accounted for 11.1% of total CO2 emissions in Korea. Compared withother sectors, various scenarios do not seem to be effective in mitigating CO2
emissions in this industry, as long as cement production keeps increasing, which issimilar to the situation for the iron and steel industry.
Figure 6 shows the CO2 emissions projections in this industry for the BaU
scenario and other scenarios. CO2 emissions in 2020 with the BaU scenario would
be 14.99 Mt-C, which would account for 8.4% of total CO2 emissions in Korea.
The average annual growth rate is 1.03% between 1995 and 2020. Like the ironand steel industry, the share of CO2 emissions in this industry will be declining
steadily, mainly due to the saturation of production. Figure 13 shows that with the
SUBSIDY scenario, 1.18 Mt-C of CO2 emissions can be reduced in 2020.
Petrochemical industry. In the petrochemical industry, the CO2 emissions in
1995 were 11.8 Mt-C, which accounted for 11.3% of total CO2 emissions in
Korea. The CO2 emissions in 2030 will be 16.07 Mt-C with an average annual
growth rate of 1.24%. Scenarios such as a carbon tax of 30,000 Won/t-C (TAX)
and carbon tax recycling (SUBSIDY) do not seem to be workable in reducing CO2
emissions in this industry, compared with other sectors. For example, only 0.07
Mt-C of CO2 can be reduced using subsidies in 2020. Figure 7 shows the CO2
emissions projections in this industry for the BaU scenario and other scenarios. In
the petrochemical industry as long as the production keeps increasing, there islittle room for reducing CO2 emissions, as in other energy-intensive industries.

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25.0
Mt-C

23.0
21.0
19.0
17.0
1995
BaU

2000

2005
2010
Year

FIX

2015

SUBSIDY

2020
TAX

Fig. 5. CO2 Emissions projections in the iron and steel industry

16.0
Mt-C

14.0
12.0
10.0
8.0
1995

2000

BaU

FIX

2005 2010
Year

2015

SUBSIDY

2020
TAX

Fig. 6. CO2 emissions projections in the cement industry

19.0
Mt-C

17.0
15.0
13.0
11.0
1995
BaU

2000

2005
2010
2015
2020
Year
FIX
SUBSIDY
TAX

Fig. 7. CO2 emissions projections in the petrochemical industry

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8.3.3 Special scenarios for the sectors
Actions to reduce CO2 emissions in the residential sector
Especially in the residential sector, there is a potential for CO2 emissions
reductions with changes in behavior and life style practices and the use of home
appliances. This type of qualitative assessment can be applied to the Mini-AIM
model∗, which freezes technology selection in the BaU scenario and calculates themarginal change in CO2 emissions due to possible action programs. For example,
energy for cooking rice may be saved if pressure cookers are used to save cooking
time. For dinner, if the whole family gets together, this also saves cooking time.
The CO2 emissions reduction potential of this type of action program is listed inTable 9. In Table 9, two cases are assumed, one in which the whole household
undertakes the action program (100% action) and the other where 50% ofhouseholds do (50%) so. This is compared with no action (0%, BaU scenario). For
example, if the cooling temperature is increased by one degree or the filter iscleaned, a reduction of 34,000 t-C is possible with the full participation ofhouseholds, which amounts to a reduction of 2.1% of CO2 emissions for cooling
services in the residential sector. It is worthwhile noting that for auxiliary heating,
if insulation is installed, 20% of CO2 emissions can be reduced, which is morethan 60,000 tons of carbon. The marginal costs of these action programs are not sohigh, and most of them require minor changes to our behavior and practices.
Specific simulations in the transport sector
As pointed out, the transport sector is one of fastest growing sectors in terms of
CO2 emissions. Not only CO2 emissions, but also other air pollutants cause local
environmental problems. The Korean Ministry of the Environment has a special
interest in mitigating emissions in this sector. Hence, in this study, more

Table 9. Actions in the Mini-AIM in the residential sector (Unit thousand t-C)
ActionCooking
Cooling
Refrigeration
Auxiliary heating
TV
Lighting
Primary heating∗

50% Action
-69
-17
-22
-307
-27
-263
-74

100% Action
-138
-34
-44
-614
-54
-525
-149

Mini-AIM is a part of AIM to assess the outcome of exogenously introducing certain
technologies which are otherwise not chosen according to least-cost criteria. This model
can simulate CO2 emissions by changing the proportion accounted for by various
technologies.

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Table 10. Special scenarios for the transport sector
Scenario
Scenario 0
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 5

Description
Business as Usual
Extension of the Payback Period to 5 Years
Extension of the Payback Period to 8 Years
Carbon Tax - 300,000 Won/t-C from 2000
Subsidy - 15,000,000 Won per CNG Bus
Subsidy - 20,000,000 Won per CNG Bus

Abbreviation
BaU
Sc1
Sc2
Sc3
Sc4
Sc5

simulations were set up in this sector to take into consideration the environmental
policies of the Korean government. The scenarios considered for this simulation
are different from the general scenarios, reflecting the particular features of thetransport sector.
The BaU scenario is the same as the general one that assumes a payback periodof three years. The next scenarios are extensions of the payback period to five
years and eight years for all transport modes. These scenarios assume lower fixed
costs for purchasing vehicles, which allows energy efficient vehicles to penetrate
the market. Vehicles with advanced technologies are usually expensive, so theextension of the payback period can encourage consumers to select the new typesof vehicles. The next scenario is to impose a carbon tax of 300,000 Won/t-C,
which seems to be too high, but it is intended to be compared with a carbon tax of
30,000 Won/t-C. The last two scenarios are to apply a subsidy only for CNG busesof 15,000,000 Won per bus and then one of 20,000,000 Won. These scenarios areincluded to measure the effectiveness of the policy of the Koran Ministry of theEnvironment, which has a strong interest in introducing CNG buses as a form of
mass transport with lower emissions. The scenarios mentioned above aresummarized in Table 10.
Scenario 1 results in a reduction of CO2 emissions by 5.02 Mt-C in 2020 which
is a 12.7% reduction over the BaU scenario. This scenario allows all types of newvehicles into the market, as well as CNG buses. Scenario 2 makes an even further
reduction possible. In 2020, the CO2 emissions projection for this scenario is 3.30
Mt-C, which is a 16.0% reduction over the BaU scenario. The scenario involving
imposition of a carbon tax of 300,000 Won/t-C (Sc 3) does not seem to beeffective. As in the case of the 30,000 Won/t-C (TAX), the CO2 emissions
reductions do not occur.
Scenarios to provide subsidies for CNG buses (Sc4, Sc5) do not seem to beeffective in reducing CO2 emissions in this sector. These scenarios provide
subsidies for CNG buses that carry more than 15 persons, which do not accountfor such a high proportion of transport modes. Hence, it is more critical to increase
the actual proportion of CNG buses that meet passenger demand for this policy tobe effective. Even with a subsidy of 20,000,000 Won, CO2 emissions are only
reduced by 0.64 Mt-C in 2020. However, in this scenario, the aspect of GHG
emissions only was considered. If the benefits of reducing air pollutants are
considered, this policy might be effective. In Figure 8, the CO2 emissions
projection of the further simulation is shown.

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139

41
36

Mt-C

31
BaU
Sc1
Sc2
Sc3
Sc4
Sc5

26
21
16
1995

2000

2005

Year

2010

2015

2020

Fig. 8. CO2 emissions projections in the transport sector (further simulation)
Note: For scenario names in the legend refer to Table 10.

8.4 Discussion
In this study, the CO2 emissions projections for every end use sector in the Korean
scenarios are conducted for the various scenarios, based on the AIM-Korea
Model. Also, the conditions for the selection of new energy-saving technologies
are assessed under the various scenarios in relation to the imposition of carbon
taxes, the introduction of subsidies and all possible options. This process includes
the estimation of the abated volume of CO2 emissions due to the introduction of
new energy-saving technologies into the market. This study is a further extensionof research condu cted in fiscal 1998. The application of Mini-AIM in theresidential sector is added. For the transport sector, further simulation was
conducted to check the possibility of introducing CNG buses into the market,
which is one of the major climate policies of the Korean Ministry of theEnvironment. For the industrial sector, a business-as-usual (BaU) scenario forother industries, such as food and beverages, pulp, and so forth has been set up.
For every sector, power generation is included, which implies that AIM/Korea is
now run simultaneously for all sectors.
The major findings of this study can be summarized from three aspects. Firstly,
as shown in Section 8.3, in Korea, CO2 emissions will continue to increase as longas the energy demand increases. Energy savings or low CO2 emitting devices
could be difficult to introduce into the market in every sector by 2020 without any
climate policy measures. The marginally higher cost of new low CO2 emitting
devices is too large for them to penetrate the market. This finding holds only if
consumers actually behave according to the assumption that they will follow theleast cost principle.
Secondly, the policy implications of mitigating CO2 emissions in Korea is toencourage the adoption of more energy-saving devices, which, as is shown fromthe simulation results, indicates that the scenario including subsidies ensures the

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most effective reduction of CO2 emissions rather than imposition of a carbon tax
alone. However, this involves a huge financial burden, and even moderate carbon
tax rates cannot provide all the necessary funds. Furthermore, subsidies are
considered to be incompatible with the polluter-pays-principle. Thus, it isrecommended that subsidies for research and development on low emissions
devices and other CO2 abatement technologies, which would require a lower
financial burden than direct payments to the consumers, are preferable to thesector. Hence, it is important to identify the sectors where CO2 emissions
reductions might be achievable at relatively low cost. Transport, residential andcommercial sectors could be candidates, according to the simulation results, since
not only is it possible to adopt new energy-saving technologies, but also the fuelswitching may be possible in these sectors. The introduction of new devices alone
is not effective in terms of climate policy as is shown in the case of the transport
sector.
Finally, this study obviously has some limitations, which will require extensive
CO2 abatement devices and low emissions devices have not been assessed in thisstudy. The analysis on these types of subsidies may provide more interesting
insights into the issue of technological selection. Furthermore, this study does notcover the estimation of social costs incurred by implementing policy measures tomitigate CO2 emissions. The AIM-Korea Model should be integrated into the topdown model in the future to identify the social costs of policy measures andprovide more reliable information for policy formulation.

References
Jung TY, Lee DK (1999) Activities in Fiscal Year 1999 and Policy Design in Korea,
National Institute for Environmental Studies, Japan
Korea Energy Economics Institute (1998) Action Plan for Mitigating GHG Emissions
Ministry of Trade, Industry and Energy (1987) Report on the Energy Census, Korea
Ministry of Trade, Industry and Energy (1990) Report on the Energy Census, Korea
Ministry of Trade, Industry and Energy (1993) Report on the Energy Census, Korea
Ministry of Trade, Industry and Energy (1996) Report on the Energy Census, Korea
Morita T, Matsuoka Y, Kainuma M, Lee DK, Kai K, Yamabe K, Yoshida M, Hibino G(1994) An Energy-technology Model for Forecasting Carbon Dioxide Emissions inJapan, F-64-'94/NIES, National Institute for Environmental Studies, Japan.
Morita T, Kainuma M, Harasawa H, Kai K, Lee DK, Matsuoka Y (1995) An energy
technology model for forecasting carbon dioxide emissions in Japan. AIM Interim
Paper, National Institute for Environmental Studies, Japan
Morita T, Kainuma M, Harasawa H, Kai K, Matsuoka Y (1996) A guide to the
AIM/ENDUSE model. AIM Interim Paper, National Institute for Environmental
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