ABSTRACT
The current system of energy subsidies in Korea distorts energy markets and runs counter to the country’s energy policy goals of enhancing energy security, promoting economic development and protecting the environment. Fundamental reform of energy subsidies, as well as of the system of energy taxation, is needed urgently. Coal mining and new and renewable technologies are the main recipients of direct subsidies. Subsidies to coal mining amount to around $500 million per year. There are major cross-subsidies in the electricity and gas industries, too. Differential tax rates on oil products, which are much more highly taxed than other energy sources, also distort the energy market.
Energy subsidy and tax reforms will need to minimise potential adverse social and economic effects. The benefits of reform are expected to outweigh the costs. The ques tion is how to implement reforms in a socially equitable way. Reforms that benefit mainly the rich would be difficult to justify, no matter how great the resulting gains in economic and energy efficiency.
