Is carbon neutrality feasible for Korean manufacturing firms?: The CO2 emissions performance of the Metafrontier Malmquist-Luenberger index

Abstract

To achieve carbon neutrality, the Korean government has promoted regulatory policies on the transition toward a carbon free economy in 2050. Unfortunately, these policies face strong complaints from industries with respect to losing international competitiveness owing to extra cost burdens. Is it feasible to achieve a carbon neutral economy with these regulatory policies? This study tries answering the question by evaluating the CO₂ emissions performances of the Korean manufacturing industry for feasible solutions toward a carbon neutral economy. For this purpose, we adopted the metafrontier Malmquist-Luenberger (MML) index to reflect group heterogeneity at the technology level. Forty subsectors of manufacturing industrial data were collected from 2012 to 2017, which were classified under four technological levels: high, middle-high, middle-low, and low. The CO₂ emissions performance showed a poor effect from the policies, with an overall 0.8% deterioration (-0.8%) in the CO₂ emissions. Under the group heterogeneity, the middle-high and middle-low technology groups showed a significantly slower upward trend, implying that the environmental regulatory regime did not have a strong effect on these groups. To obtain a feasible solution for this fine tuning, MML decomposition was implemented in the second stage. As the efficiency change is the main driver that influences the CO₂ emissions performance, the Korean government should encourage the catching-up effect in industries via a green cultural revolution, as well as provide strong incentives to avoid negligible performance in the innovation effect, supported by more market-oriented emissions trading schemes (ETSs).

Keywords: Carbon-neutrality; Emissions trading scheme; Green innovation; Metafrontier Malmquist–Luenburger (MML) index.