CO2, energy and economy interactions: A multisectoral, dynamic, computable general equilibrium model for Korea
While vast resources have been invested in the development of computational models for cost-benefit analysis for the "whole world" or for the largest economies (e.g. United States, Japan, Germany), the remainder have been thrown together into one model for the "rest of the world." This study presents a multi-sectoral, dynamic, computable general equilibrium (CGE) model for Korea. This research evaluates the impacts of controlling CO$\sb2$ emissions using a multisectoral CGE model. This CGE economy-energy-environment model analyzes and quantifies the interactions between CO$\sb2,$ energy and economy. This study examines interactions and influences of key environmental policy components: applied economic instruments, emission targets, and environmental tax revenue recycling methods. The most cost-effective economic instrument is the carbon tax. The economic effects discussed include impacts on main macroeconomic variables (in particular, economic growth), sectoral production, and the energy market. This study considers several aspects of various CO$\sb2$ control policies, such as the basic variables in the economy: capital stock and net foreign debt. The results indicate emissions might be stabilized in Korea at the expense of economic growth and with dramatic sectoral allocation effects. Carbon dioxide emissions stabilization could be achieved to the tune of a 600 trillion won loss over a 20 year period (1990-2010). The average annual real GDP would decrease by 2.10% over the simulation period compared to the 5.87% increase in the Business-as-Usual. This model satisfies an immediate need for a policy simulation model for Korea and provides the basic framework for similar economies. It is critical to keep the central economic question at the forefront of any discussion regarding environmental protection. How much will reform cost, and what does the economy stand to gain and lose? Without this model, the policy makers might resort to hesitation or even blind speculation. With the model, the policy makers gain the power of prediction. This model serves as a tool for constructing the most effective strategy for Korea.
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