Sustainability of Overlapped Emission Trading and Command-And-Control CO2 Regulation for Korean Coal Power Production: A DEA-Based Cost-Benefit Analysis

Regulatory policies are indispensable to efficiently curbing anthropogenic CO2 emissions and sustainably producing emission-intensive goods. Though previous modelling practice has studied the cost and benefit of different regulatory policies, such as command-and-control (CAC) and emission trading scheme (ETS), little is known about that for overlapped emission regulation policies. Here, we built up a Data Envelopment Analysis model to study the losses and gains from the overlapped implementation of CAC and ETS for Korean coal-fired power plants during 2011-2015. We showed that the initial phase of CAC in 2012 caused a sudden loss in power plants' output, but that the loss was gradually eliminated in 2013 and 2014. Upon promulgation in 2015, ETS is expected to increase only 0.990% of output compared to CAC, yet it largely failed to deliver the potential benefit in its first year. The overlapped implementation of CAC and ETS contributes to a small share (5.567%) of the unrealized benefit. Nonetheless, we showed that implementing CAC and ETS in parallel tends to disproportionately affect less efficient power plants by restricting their strategies to meet regulatory measures. Therefore, we suggest that the integration of CAC and ETS can be a transitory measure as ETS provides only marginal welfare benefits, but ETS must be fully adopted and strengthened in the near future to economically and equitably mitigate CO2 emissions.

Automated summary

This study examines the impact of the overlapped implementation of command-and-control (CAC) and emission trading scheme (ETS) policies on Korean coal-fired power plants. The results show that the initial phase of CAC led to a reduction in power plants' output, but this loss was gradually eliminated in the following years. ETS was expected to have only a marginal increase in output compared to CAC, and it failed to deliver the potential benefit in its first year. The overlapped implementation of CAC and ETS contributed to a small share of the unrealized benefit, while disproportionately affecting less efficient power plants' strategies to meet regulatory measures. The integration of CAC and ETS is suggested as a transitional measure, with the need for the full adoption and strengthening of ETS in the near future to mitigate CO2 emissions economically and equitably.