The Korean Journal of Economic Studies
Economic Impacts of Climate Change in Korea: Accounting for Climate Damage and Carbon Abatement Costs
Jonghyun Yoo (University of Seoul), Yohan Choi (University of Seoul) and Jinho Oh (Hanbat National University)Year 2024Vol. 72No. 2
This study evaluates the economic impacts of climate change on the Korean economy, encompassing both climate-related damages and the costs of carbon abatement. Employing a probabilistic approach, the analysis incorporates uncertainty across three significant factors identified in the literature: long-term population and GDP forecasts, climate damage functions, and the social discount rate. The findings show that the overall impact of climate change on the Korean economy amounts to 503 trillion Korean Won (KRW) when implementing optimal economic and climate policies. Furthermore, the ambitious carbon reduction targets set by the Korean government, such as the 2030 Nationally Determined Contributions (NDC) and the 2050 Net Zero goals, significantly escalate economic costs by three to five times (to 1,539 and 2,517 trillion KRW, respectively), primarily due to substantial short-term carbon abatement expenses. However, the extensive uncertainty surrounding these estimates suggests that one cannot definitively label the rapid carbon reduction targets as inefficient. This highlights the necessity of fostering discussions on optimal climate policies that are in harmony with economic growth amidst significant uncertainty. The study also underscores the crucial role of supporting research on climate change to reduce this uncertainty. The analysis employs the RICE model, a widely recognized climate-economy integrated assessment model based on optimal growth theory.