Beyond Strict Regulations to Achieve Environmental and Economic Health-An Optimal PM_2.5 Mitigation Policy for Korea

Growing concern about particulate matter (PM_2.5) pressures Korea to reduce the health risks associated with its high dependency on fossil fuels. The Korean economy relies heavily on large thermal power plants-a major source of PM_2.5 emissions. Although air quality regulations can negatively impact local economies, the Korean government announced two strict air quality mitigation policies in 2019. We develop a regional static computable general equilibrium model to simulate the economic and environmental impacts of these polices under alternative hypothetical scenarios. We separate two regions, Chungcheongnam-do, the most polluted region, and the rest of the country, in our model. As policy options, we introduce a regional development tax and a tradable market for PM emission permits, similar to an air pollution tax and a carbon permits market, respectively. The results show that allowing higher tax rates and a tradable permits market gives the optimal combination, with the PM_2.5 emissions reduced by 2.35% without sacrificing economic growth. Since alternative options present, for example, a 0.04% loss of gross domestic product to reduce PM emissions by the same amount, our results here may present a new policy paradigm for managing air pollutants such as PM_2.5.