The growing importance of carbon productivity in green growth
According to national statistics released last November, greenhouse gases are forecasted to be reduced by 30% by 2020. This is based on a reduction of 4% based on greenhouse gas emissions in 2005, and an average annual reduction of 0.85% during 2008~2020. If GDP increases by around 4% during the period 2008~2020, carbon productivity* should increase by 4.85%.
* Carbon productivity is the inverse of carbon intensity (GDP to CO2 emissions), and indicates the CO2 emissions per unit of GDP. Carbon productivity is an increasingly important factor in GDP to offset a reduction in GDP caused by greenhouse gas reductions, and this is an important concept to be observed in the green growth era. In green growth era, carbon emissions, as well as labor and capital, in the production function, based on value-added, are regarded as a production factor.
- If a carbon tax or cap and trade scheme is introduced to reduce greenhouse gas emissions, the costs of emissions and carbon pricing should be charged.
-Therefore, in order to offset its cost and decreased profit, the necessity to improve carbon productivity has emerged.
Korea's carbon productivity in 2007 was higher than the worldwide average and non-OECD countries at $2.18/kg CO2, however, it was lower than the OECD average.
-This figure is ranked as 31st among 40 OECD and G20 countries.
Considering that Korea's carbon productivity is below the OECD average, ranked 31st out of 40 countries, and with a reduction of greenhouse gas emissions in 2020, the rate of increase in carbon productivity is needed for sustainable growth.
Korea's carbon productivity has fluctuated significantly, which is quite different from the worldwide average or other OECD countries.
- The factor showed a downward trend in the 1970s, upward in the early 1980s, and downward after the latter half of the 1980s.
However, after the latter half of the 1990s, it rebounded and the increase rate during 2001~2007 was higher than the worldwide, OECD, and non-OCED average at 2.8%.
- It was at the average OECD level and surpassed the worldwide average in the latter half of the 2000s.
Korean manufacturing's CO2 emissions in 2004 accounted for 43.0% of the total of all industries, and 37.4% of total emissions including households. Regarding CO2 emissions per industry in 2007, first metal products were the highest as 34.1%. Chemical and oil products were 10% respectively, nonmetallic mineral products were 9.7%, and electronics equipment was 5.4%.In terms of carbon productivity for each industry in 2007, metals, oil, nonmetallic minerals, paper, chemicals, and textile products were lower than the manufacturing average.
- During 2004~2007, there were 16 industries with lower average annual increase in carbon productivity than the manufacturing average among 21 industries, not including paper products, nonmetallic mineral products, machinery, computers, and other products.
When considering both CO2 emissions and carbon productivity, the carbon productivity of oil, chemical, nonmetallic mineral and metal products was lower than the manufacturing average despite high CO2 emissions.
The McKinsey Global Institute (2008) emphasized the necessity of drastic improvements in carbon productivity to achieve two objectives, a reduction of greenhouse gases and economic growth.
- They insisted the increase of energy efficiency, decarbonization of energy sources, development of new technologies.
- In particular, for the development of new technologies, 1. next generation technology development related to matured technologies, 2. development, commercialization of new technologies, 3. reduction in the capital cost of high-cost technologies through a learning effect, 4. construction of dynamic and innovative portfolio for promising technologies.
Carbon productivity needs to be increased at an annual average of 4.85% (assuming a 4% increase in GDP) to attain the objectives of 2020.
- This is corresponding to 1.7 times of 2.8%, an average annual increase of carbon productivity in the 2000s.
2008 and 2009 were significant in advocating green growth and arrangement of its strategies, and 2010 can be a step to practice those strategies.
- However, the 'basic law of green growth in low carbon' passed by the National Assembly last year, and institutional foundation to promote green growth strategies is still insufficient. In the future, since reductions in greenhouse gas emissions and the role of manufacturing as a growth engine are significant, green manufacturing should be actively promoted.
- Policies to improve industries with low carbon productivity are needed. For example, introducing a cap and trade scheme and increased carbon productivity for each industry when the emission rights are distributed.
- Industries with low carbon productivity suffer from disadvantages when emission rights are allocated. On the contrary, industries which introduce new technologies for increased value-added or green technologies which reduce greenhouse gas emissions should receive support.
* This article was contributed by Kim Won-kyu, a researcher at the Korea Institute for Industrial Economics and Trade (KIET), a Korea's leading economic think tank.