Carbon pricing under electricity market constraints: analyzing rent management dynamics in the Republic of Korea
Creators: name: Barlaup, Asgeir
name: Biedenkopf, Katja
Publisher: name: Taylor & Francis
Year: 2024
Subjects: subject: Medicine
subject: Biotechnology
subject: Environmental Sciences not elsewhere classified
subject: Ecology
subject: FOS: Biological sciences
subject: Science Policy

description: How do policymakers manage the tension between enforcing a carbon price and ensuring low-cost electricity provision? This paper answers this question in two steps. First, it combines literature on electricity market design and rent management to arrive at a novel analytical framework. Carbon pricing can disrupt longstanding rent transfers between the state and electricity consumers by making it more expensive to produce and/or consume fossil fuel-based electricity. We theorize that policymakers respond to this dilemma by making incremental policy design adjustments to gradually enforce rent losses across the electricity production value chain. We apply this framework to study the implementation of the Korean emissions trading scheme (ETS) policy 2015–2022. Drawing on 20 expert interviews and policy documents we identify an initial sequence of policy design adjustments which enable, but also delay, the enforcement of the carbon price signal in the electricity system. This incremental and politically contentious process reduces the ETS policy’s ability to abate greenhouse gas emissions from the Korean electricity sector in the short term. The findings suggest that the effectiveness of carbon pricing in the electricity sector hinge on the parallel construction of supportive institutions to permit meaningful carbon cost pass-through. Enforcing a carbon price in the electricity system is an incremental and technically complex process that may involve significant political and economic risks.Complementary policies and a cohesive bureaucracy are necessary to ensure accountability and learning.Identifying specific policy outcomes such as raising revenues or advancing fuel switching may help set clear milestones for carbon pricing effectiveness in the electricity sector.The potential of climate policy to meaningfully reduce greenhouse gas emissions is conditional on national starting conditions. A carbon price may face strong political resistance in jurisdictions with a high reliance on fossil fuel-based generation and where the government has a history of controlling electricity tariffs to deliver on a range of political and economic objectives. Enforcing a carbon price in the electricity system is an incremental and technically complex process that may involve significant political and economic risks. Complementary policies and a cohesive bureaucracy are necessary to ensure accountability and learning. Identifying specific policy outcomes such as raising revenues or advancing fuel switching may help set clear milestones for carbon pricing effectiveness in the electricity sector. The potential of climate policy to meaningfully reduce greenhouse gas emissions is conditional on national starting conditions. A carbon price may face strong political resistance in jurisdictions with a high reliance on fossil fuel-based generation and where the government has a history of controlling electricity tariffs to deliver on a range of political and economic objectives.