Tax reform for the energy transition in Korea’s power generation sector

Sung Jin Cho, Yoon Kyung Kim

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

The tax structure capable of achieving an energy transition in the power sector was analyzed by applying the Pigouvian tax on generation fuels. Under the 2018 Tax Act Amendment, the tax rate criteria for the excise tax on power generation fuels changed from the calorific value to environmental externalities of the fuel. However, to reverse the merit order of bituminous coal generation with liquefied natural gas (LNG) generation, reflecting only some external costs of the environment as a tax is not enough. In this paper, we established four tax reform scenarios for bituminous coal and LNG considering environmental externalities, and we analyzed the reversal of dispatch priority using the electricity system unit commitment and M-Core economic dispatch model. According to the analysis results, the share of bituminous coal generation will be reduced to 10–20% depending on the scenario, reflecting the relative tax rate equalizing the fuel costs of bituminous coal and LNG power. To achieve an energy transition by reversing the merit order of bituminous coal and LNG generation, the tax rate of bituminous coal must be more than twice that of LNG. Moreover, to achieve an eco-friendly generation mix through tax reform, the external costs of the environment by fuel source should be accurately estimated and efficient taxation that can adequately reflect these external costs of the environment while considering tax fairness, neutrality and simplicity should be established.

Original languageEnglish
Article number5233
JournalEnergies
Volume13
Issue number19
DOIs
StatePublished - Oct 2020

Keywords

  • Economic dispatch model
  • Energy transition
  • Merit order
  • Pigouvian tax

Fingerprint

Dive into the research topics of 'Tax reform for the energy transition in Korea’s power generation sector'. Together they form a unique fingerprint.

Cite this