Abstract

The primary question of this dissertation is what form fossil fuel taxation should take in the case of South Korea, in order to meet environmental problems of fossil fuel use, especially global climate change. Recognizing the limitations of the question, this study poses the sub-questions of what might become of Korea in the future in terms of climate change, if current fossil fuel taxation were to remain as it is? How much taxation on fossil fuels is required to mitigate climate change within ecologically sustainable levels? What economic cost will be incurred by imposing that level of taxes on fossil fuels? What conclusions can be reached from research on those questions regarding fossil fuel taxation in Korea? This study pays special attention to the implications and appropriateness of two contrasting economic paradigms, mainstream economics and ecological economics.

The study examines the issues of sustainability, future energy prospects, climate change, and environmental taxation as theoretical bases for addressing the research questions. The difference between the views of mainstream economics and ecological economics on the issue of sustainability is examined. The questions of what will become of the fossil fuel energy system in the future, what is an appropriate policy response to global climate change, and what is the proper way to impose environmental taxes are investigated. The weaknesses of mainstream economics in dealing with environmental issues including climate change are also critiqued.

After reviewing the previous modeling studies on climate change on the global level and for Korean cases, the study builds a model that explores the relationship of the economy, fossil fuel taxes, and CO₂ emissions, mainly referring to Nordhaus' RICE model. Two contrasting scenarios, the mainstream world scenario and the ecological world scenario are set up as reference cases, and policy simulations are conducted for the period up to 2100 to address the research questions.

The simulation results reveal that, barring unimagined developments, the economic welfare of Korea will increase continuously in any case. If the world takes the ecological pathway, sustainable climate future is achieved with possibly a higher level of economic well-being for Korea. The taxation level for Korea that is required to limit CO₂ emissions within an ecologically sustainable level in the event the world follows the mainstream way turned out to be around $400 to $500 per ton of carbon at most. The cost involved with that taxation was less than 10% of GDP in any scenario. If nations of the world collaborate to reach that goal, the economic cost could be minimal or negative. The hypothesis that the level of taxation required for climate sustainability will be prohibitively high seems to turn out to be wrong. Based on those findings as well as the theoretical discussions, it is recommended that Korea take an ecological pathway in dealing with climate change, and reform its fossil fuel taxation policy accordingly.