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Title Evaluation of Public Climate Finance Policies in Korea

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Evaluation of Public Climate Finance Policies in Korea

18 November 2016
Economic Program Evaluation Division of the Program Evaluation Bureau

   As the Paris Agreement came into force on 4 November 2016, each country’s Nationally Determined Contributions (NDCs) to reduce net Greenhouse Gas (GHG) emissions by 2030 is shifting from the planning stage to the implementation stage. Many developed economies have considered the climate change action plan as a new growth opportunity, strived for mobilizing and scaling up climate finance via active interventions by government. Yet in Korea, public climate finance has yielded immature results and there has been a lack of private climate finance. There are many obstacles to get a social consensus for implementing the climate change policies and mobilizing climate finance in Korea: low achievements in the Green Growth policy, failures in the resource diplomacy policy, and uncertainty about the short-term changes in domestic and international politics.
   However, rational and well-designed environmental policies can facilitate market maturity and strengthen competitiveness of the country. They also acknowledge that a shift toward a new era of implementing actions on climate change is an unstoppable and irreversible global momentum, as demonstrated at the recent UN Climate Change Conference in Marrakech. Based on such awareness, this report analyzed the mid-to-long term fiscal spending necessary to implement the Paris Agreement, and identified the potential scope of domestic climate finance required. The report also assessed matters related to the leverage of public climate finance, integration of public climate finance and private sector acceptance of climate finance, which set the foundation for facilitating the resources needed.
   Over the past three years, the fiscal programs related to the 2020 National Greenhouse Gas (GHG) Emissions Reduction Roadmap amount to an annual average of approximately KRW3.1 trillion (about USD2.6 billion). Drawing on the relationship between fiscal balance and national GHG emissions in OECD and BRIICS countries, this report estimated the necessary fiscal spending for Korea to implement its reduction target. As a result, additional fiscal investment needed to implement the 2030 reduction target (by 37% from the Business as Usual) was estimated to be a cumulative total of approximately KRW31.2 trillion (about USD25.9 billion) over 10 years (2021-2030).
   To find potential ways for closing the climate finance gap, this report evaluated the leverage of public climate finance, the integration of public climate finance and private sector acceptance of climate finance. The results showed that there is little leverage for public climate finance because the policies, plans, programs and projects are not attractive enough to induce the private sector to participate in climate finance. Integration level of public climate finance was evaluated as low due to conflicts between climate and energy policies and weak cohesion among main climate policies. In addition, it appeared that private sector acceptance of climate finance is low because sufficient means to mitigate relevant risks and reduce transaction costs are not efficiently provided.
   If private financing is facilitated up to the leverage of public climate finance, which has been recently shown in the global market (about 5 times, KRW26 trillion), fiscal spending for climate finance could be reduced to around KRW5.2 trillion. Therefore, it is necessary to consider policy measures for creating public funds to attract climate finance resources, operating a Private Sector Facility (PSF) to increase the leverage of public climate finance, aligning policy governance toward integrated public climate finance, and providing more sophisticated safety-net to improve private sector acceptance of climate finance.
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