On the views of carbon tax in Korea

American Journal of Applied Sciences, Nov, 2008 by Heon-Goo Kim

INTRODUCTION

UNFCCC (United Nations Framework Convention on Climate Change) has been agreed upon in Rio in 1992. This led to the Kyoto Protocol in 1997 by establishing a goal to reduce greenhouse gas among countries. It has been an important issue since the mid-1980s. The purpose of this agreement is to reduce the consumption of fossil fuels which causes the greenhouse effects. Because of this, global warming has become a serious matter to be solved by m andatory controls to use less fossil fuels. According to this agreement, the developed countries should reduce the emission of greenhouse gas from 2008 to 2012 by 5.2% average to maintain the emission level of 1990. The greenhouse gas to be reduced in Kyoto Protocol is comprised of carbon dioxide (C[O.sub.2]), methane (C[H.sub.4]), nitrous oxide ([N.sub.2]O), hydro fluorocarbon(HFCs), sulfur fluoridation (SF6) and perfluorocarbon (PFCs).

Out of these six gases, C[O.sub.2] is the most important greenhouse gas to be controlled because it is more than 80 % of all of the six gas emissions in the world. The carbon tax imposition on fossil fuel usage is regarded as the most efficient scheme to reduce the greenhouse gases among many many environmentalists. This methodology is a very simplistic way to control greenhouse emission compared with others and does not incur an international conflict. Furthermore, the revenue from this tax can be used as a source of financing environmental improvements. For these reasons, carbon tax is a highly recommendable.

Carbon tax is an excise tax which is levied according to the quantity of carbon dioxide in energy source, while energy tax is also an excise tax levied according to the energy content in energy source. In general, carbon tax is one of the environmental taxes along with energy tax. The carbon tax, however, is believed to yield a substitution effect because it brings a negative incentive in using energy source containing carbon dioxide.

In the early 1990s, the northern European countries, Denmark, Norway, Sweden and Finl and decreased the tax rates including personal income tax while they introduced or exp anded environment related taxes to compensate the reduced tax revenue. These countries have something in common to pursue a plan to initiate a carbon tax system as a tax reform. The carbon tax is now being implemented in Denmark, Finl and, Italy, Norway, Netherl ands and Sweden.

THE CHARACTERISTICS OF CARBON TAX and ITS IMPLEMENTATION DEBATE

Characteristics: The carbon tax is considered to be an indirect tax imposed on the use of fossil energy source, which is different from the direct imposition on the C[O.sub.2] emission (1). Yoo (2) categorized the energy tax into two aspects, a production tax and an excise tax. The excise tax is imposed indirectly on the energy consumed in non energy sectors as the final energy. The excise tax as scheme to be levied on the consumption of the final energy is a means of reducing the use of petroleum and coals.

Cho (3) interprets the carbon tax as an environmental tax leading to decreases in contamination and waste. and it is as an efficient policy to change the production quality and induce the environmental protection. This policy leads to not only technological improvement but also energy efficient production process. As an energy tax, it induces the polluting producers to switch to the production of environmentally less harmful commodities. Thus, this tax is to give the producers opportunities to develop less harmful substitutes and make the production process less dependent on fossil fuel.

As a source of the investment on environment and a means of pollution restriction, the introduction of the carbon tax is actively debated in Korea. Seol (4) introduces contents from Welfare Economics written by Pigou that the tax levy on the polluting materials to protect environment is justifiable.

Debate: The initial international debate on environment tax including carbon tax began with OECD's evaluation of various tax schemes concerned with excise tax, value added tax and automobile related taxes. During this process, four countries (Norway, Netherl ands, Sweden and Finl and) focused mainly on carbon tax. In Korea, there is no environment related tax law as a national tax law but only a transportation tax related to air pollution as a local tax. To reduce the air pollution, people think the best way is to levy the tax according to the emission quantity if it can be measurable. This method, however, is unable to measure accurately and requires a lot of cost related to administration and information. Thus, the simple method is to levy the tax on the fuel containing pollution material, which can satisfy the PPP(Polluter Pays Principle). This method is represented as a carbon tax law which should be introduced in Korea.

In Korea, Kim (5) argues for indirect tax scheme rather than direct method on the basis of PPP(Polluter Pays Principle) to internalize the external cost caused by C[O.sub.2] emission. Shin (6) also agrees with the introduction of carbon tax to reduce the C[O.sub.2] emission efficiently, in spite of the debates such as JI(Joint Implementation), CDM(Clean Development Mechanism) and IET(Internal Emission Trading).