Affordability of energy cost increases for Korean companies due to market-based climate policies: a survey study by sector

This paper estimates the affordability of energy cost increases for energy-intensive companies due to the introduction of market-based climate policies in Korea. Data were collected from 62 respondents from iron & steel, cement and petrochemical industries, over 90% of which are under control of the ‘Target Management Scheme’, an ongoing mandatory system limiting the greenhouse gases (GHG) emissions of large energy-consuming entities. The affordable energy cost increase was estimated using the multiple-bounded discrete choice (MBDC) format, results of which show that a mean energy cost increase of 2.6% is acceptable for all the entities sampled. Companies from the three sectors had similar affordability, with an average acceptable energy cost increase of 2.5–2.8%. The affordable policy-induced energy cost increases equate to carbon prices of 2500–4000 KRW/t-CO2 (about 2.3–3.5 USD/t-CO2) for the companies surveyed. Econometric analysis confirmed a strong correlation between energy price level and company ownership with cost affordability. With a view to developing carbon tax policy and a domestic GHG emissions trading scheme in Korea, this research provides a basis, from an industrial perspective, for carbon pricing.