GREEN GROWTH: FROM RELIGION TO REALITY - Sustainia

Chapter 6vehicle (PHEV) model next year and a fuel cell car modelin 2013, strengthening its environmentally friendly automobilesline up (Cho 2011).The electricity and smart grid businesses also representa major business opportunity for Korea. Accordingto the International Energy Agency (IEA), 13.6 trilliondollars are expected to be spent worldwide on the electricityindustry by the year 2020. In addition to leveraginga significant domestic market, Korea can also hopeto export to developed countries, as well as to Chinaand Asia, where the markets for smart grid are expectedto grow exponentially in the near future (qtd. in MKE2010a, 96). In the best-case scenario, Korea would see anannual increase of 50,000 jobs, 74 trillion won (67 billionUSD) increase in domestic demand, and 49 trillion won(44.5 billion USD) in exports of smart grid related productsby the year 2030 (MKE 2010c, 33).With an industrial sector that is prepared and eagerto take advantage of the market opportunities inherentin capturing this new industry, Korea appears tohave the commercial drive necessary to achieve themajor transformations in energy systems, industrialstructure, and life-style changes that the governmenthas promised.With an industrial sector that is prepared and eagerto take advantage of the market opportunities inherentin capturing this new industry, Korea appears to have thecommercial drive necessary to achieve the major transformationsin energy systems, industrial structure, andlife-style changes that the government has promised.2.2.1 Challenges – restructuring the marketHowever, significant challenges must be overcome to realizeKorea’s vision of a green economic engine. Some ofthese center around providing the right set of incentivesin the domestic market and energy system. One majorchallenge is introducing the carbon pricing system suchas the ETS and carbon taxes. In 2009, the governmentannounced its plans to implement cap and trade policiesstarting 2013. Last year, the Federation of Korean Industries(FKI), representing Korea’s top conglomerate firms,strongly advised the government against the implementation,and implementation was delayed until 2015. ThisApril, the bill was submitted to the National Assembly.The government hopes to see its passage before the endof the year. Carbon tax is currently under study.Delays in implementation have to do with concernsabout the potential economic effects. According to theFKI, the proposed carbon trading schemes will raiseproduction costs for Korean firms and erode their pricecompetitiveness in global markets, especially becauseKorea’s major trading partners like America, China, andJapan are also delaying the implementation of similarcarbon pricing systems. Also, the FKI argued that Koreanfirms, except for a few conglomerate ones, are lacking theappropriate tools to measure their own greenhouse gasemissions, and the government should first construct anational carbon measurement, report, and managementsystem. It acknowledged that introducing the greenhousegas target management system (starting 2012) which allowedthe collection of data on carbon emissions wasthe right step towards national carbon emissions management,and a sufficient one. On the other hand, theproposed ETS bill visualizes the parallel running of thesystems, with graduation clauses for the emitters in thetarget management system with emission above a certainamount required to move into ETS while to the othersthis would be optional.Yet another change that the government must superviseis the restructuring of the electricity market. Whilethe restructuring of electricity markets is a complex andoften controversial challenge in most settings (see for instanceour discussion of the deeply troubled and largelyfailed deregulation attempt in the California system inour California State Case report (Green Growth Leaders2011a), some rearrangement of the market dynamicsmay be necessary for two reasons. First, better priceincentives could drive domestic efficiency, reducing consumptionand emissions. Second, it would make Korea amore suitable nursery for refining and commercializingeffective new products in these areas, by providing theappropriate structure and market incentives for the developmentand use of energy efficiency and smart gridproducts. Responsiveness within the energy system islikely necessary to support the kind of green transformationof the economy and society that Korea seeks.In 1999, the government recognized the need for amore open and competitive market for electricity. Consequently,KEPCO’s generation has been divided intofive separate power generation firms (excluding nuclear).However, while the government guarantees certainamounts of profits to independent power with PowerPurchase Agreements (PPA), generation capacity of theprivate sector has not been increasing since 2001 (Kimand Kim 2010, 13). Also, further restructuring of themarket has stopped since 2004, and significant improvementsin efficiency have not been observed. Accordingto Kyung Hoon Kim and Hye Soon Kim, the Koreanelectricity market is currently structured so that KEPCOmonopolizes transmission and distribution of electricity,while 93.3% of generation is also produced by KEPCOand its six subsidiary firms. Transactions of electricityover 20MW are required to go through the Korea PowerExchange (KPX), where wholesale price is determined bythe actual variable costs of the generators and not by amarket mechanism (Kim and Kim 2010, 13)."In Korea, electricity usage is classified into six types—residential, general, educational, agricultural, industrial,and streetlight—and each type pays differentrates."Green Growth: From religion to reality 71