[Reading Science] Spotlight on the Carbon Tax: Who Pays the Price for Climate?

With the debate over the introduction of a carbon tax reignited under the Lee Jaemyung administration, the direction of climate crisis response has once again become a focal point of national attention.

The carbon tax is an environmental tax that aims to reduce greenhouse gas emissions by imposing a tax on emissions and to encourage a shift from fossil fuels to renewable energy.

Greenhouse gases are emitted in all aspects of our daily lives and industrial activities-using electricity and gas, driving cars, heating buildings, manufacturing, and consuming goods. The sum of these emissions is known as the "carbon footprint."

Mitigating the climate crisis is a global challenge, and converting the social costs of greenhouse gas emissions into taxes is not an unfamiliar concept. As of 2024, 39 countries worldwide have already implemented such systems.

President Lee, during a cabinet meeting in June, stated, "In Switzerland, a carbon tax is imposed on raw materials that emit carbon, with half of the tax revenue used for industrial preservation and the other half distributed to the public." He instructed officials to "examine how this could be applied in Korea." The plan is to achieve both carbon reduction and increased tax revenue, addressing environmental and fiscal concerns simultaneously.

In fact, the National Assembly Budget Office analyzed that "if a portion of the fuel tax is converted to a carbon tax, it could generate approximately 13.7 trillion won in tax revenue over the next ten years."

While Korea has not yet introduced a carbon tax, it has operated an Emissions Trading System (ETS) since 2015. As of 2024, 36 countries have adopted ETS, and in Europe, the carbon tax is sometimes operated in parallel with ETS.

The ETS is a market-based reduction system that sets a total cap on greenhouse gas emissions for major sources such as power plants and manufacturing companies, allowing emission permits to be traded within that cap. Companies that exceed their allocation must purchase additional permits, thereby creating a structure aimed at reducing overall emissions. However, the system is criticized for its complex design and operation, which makes it difficult to create effective incentives for actual emission reductions.

Currently, Korea's Emissions Trading System has a generous total allowance and low trading prices. As a result, companies tend to rely more on purchasing permits in the market than on making efforts to reduce emissions. Rather than investing in renewable energy or innovating processes, they meet their targets through short-term "permit purchases." These limitations are precisely why President Lee mentioned strengthening the Emissions Trading System during the cabinet meeting.

To enhance the effectiveness of the system, the design must be revised to ensure that companies genuinely fulfill their reduction obligations, rather than simply activating trading. From the government's perspective, supplementing the existing system alone is insufficient to achieve the 2030 Nationally Determined Contribution (NDC) greenhouse gas reduction targets. This is why introducing a carbon tax-simple to implement and broadly applicable-has emerged as an attractive option, alongside overhauling the overall emissions structure.

However, at this point, we must consider: "Who will bear the burden of the carbon tax?"

While the carbon tax is based on the "polluter pays principle," meaning those who emit more carbon should pay more, in practice, it is a consumption-based tax. Companies pass on the emission costs to product prices, and consumers must bear the resulting price increases.

If the carbon tax leads to higher fuel taxes or electricity rates, low-income households will face immediate financial pressure. While the rationale for responding to the climate crisis is clear, the cost burden can be much harsher for lower-income groups.

The Korea Energy Economics Institute (KEEI) has warned that "if the carbon tax is introduced as a separate system from existing energy and environmental taxes, the overall tax burden will surge, impacting both industrial competitiveness and consumer prices."

It is unavoidable that everyone must share the costs of climate action. Therefore, trust in how the burden is distributed and how the revenue is redistributed is essential.

It is desirable to reinvest carbon tax revenue in expanding energy vouchers for low-income households, supporting the transition to high-efficiency heating, cooling, and electric vehicles, and strengthening climate adaptation infrastructure at the local level. When the carbon tax functions not as a "penalty" but as a "reward," society will be more willing to shoulder the costs of addressing the climate crisis.