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Market Mechanisms for Addressing Climate Change and Air Pollution in Seoul

In Chang HwangㆍJong-Rak Baek

Climate change and air pollution are related to each other in multiple ways, though the relationship remains complex and evolving. The two environmental issues’ most common factor stems from the fact that the main source of carbon emissions and air pollutants is the rising consumption of fossil fuels in the building and transport sector (including electricity consumption related to indirect emissions). The Seoul Metropolitan Government has implemented various measures for addressing climate change and air pollution, including the deployment of renewable sources, the improvement of energy efficiency, and demand control since the late 2000s. The approach of Seoul’s policy, centering around mainly a ‘command and control’ style, was, to some extent, successful in reducing carbon emissions and air pollutants. However, the trend has reversed recently, and the level of emissions has slightly increased since the mid-2010s. External forces such as weather conditions (e.g., heat waves, cold snaps) remain the key factors for the recent increase in emissions. Additionally, the command and control approach has a limit for the further deep reduction of carbon emissions and air pollutants. Private sector actors, including corporations and the general public, are important players for the management of energy-related emissions. It is necessary to introduce flexible mechanisms which allow stakeholders and citizens to actively respond to a common future mission (e.g., carbon neutrality by 2050, sustainable development goals). Market mechanisms can assist in adjusting the actions of stakeholders and citizens, mainly through the internalization of externalities through market price adjustments.  As a result, well-designed market mechanisms can lead to a deep reduction of emissions, as these price adjustments can dramatically influence the decision-making process of both individual actors and corporations. 
This report reviews market mechanisms implemented worldwide for the purpose of emissions reduction in the building and transport sector, and discusses the findings that were gathered over the course of the study’s duration. Most significantly, we recommend a cap and trade scheme for the management of carbon emissions in the building sector. For the transport sector, we recommend the introduction of an emissions-based vehicle tax, with the tax rate being based on the level of carbon emissions and air pollutants. This report presents basic principles and strategies for the introduction of the two schemes in Seoul, and proposes a tentative road-map for the future. The issue of acceptability is also discussed within the survey results.