25 years of ambitious environmental reform

 Introduction

The 2017 Environmental Performance Review (EPR) praised Korea for having championed green growth at the OECD (OECD, 2017). It highlighted that the country's future prosperity rests on implementing this ambitious transition to a green, low-carbon economy. Korea's rapid economic growth has been accompanied by significant pollution and consumption of resources. Increased investment has improved access to environmental services, but disparities remain between rural and urban areas. High population density is exacerbating environmental challenges.

The 2017 EPR of Korea demonstrated the significant improvements that had been made, leading to the following results:

• An exemplary policy framework supporting green growth

• The world's second-largest emission trading scheme covering about two-thirds of national greenhouse gas emissions (GHG)

• A world-leading position in climate change mitigation technology

• A solid waste management track record and a new law to pursue a circular economy

• An enhanced liability regime for compensating environmental damage to health, property, and welfare.

The EPR process involved a constructive and mutually beneficial policy dialogue between Korea and the countries participating in the OECD Working Party on Environmental Performance. The EPR report provided 45 recommendations aiming to help Korea green its economy and improve its environmental governance and management.

Since the EPR, there has been continued collaboration between the OECD and the Korean government to improve water management, tackle air pollution, and pursue the green transition. In addition to exploring air pollution management and the green transition, this paper includes a focus section on water management.

 Pursuing the green transition

Korea has been one of the fastest-growing OECD economies over the past decade. The country has set up an exemplary policy framework for green growth and has been a leader on the international stage. Korea has increased spending on green infrastructure and R&D. However, power generation and industrial production continue to emit significant GHG despite decoupling emissions of many pollutants from economic growth. Air pollution remains a major health concern, and rapid urbanisation and infrastructure development put considerable pressure on ecosystems.

Korea's energy supply is heavily dependent on fossil fuels (Figure 1). End-2020, Korea has set a target of reaching carbon neutrality by 2050 and adopted the Carbon Neutral Strategy that aims at increasing the share of renewable energy sources, gradually phasing out coal, significantly improving energy efficiency, and fostering the country's nascent hydrogen industry (IEA, 2021). Korea's updated Nationally Determined Contribution (NDC) commitment is to reduce GHG emissions by 24% below 2017 levels by 2030 (Figure 2) (Hutfilter et al., 2020). The government plans to increase its NDC’s ambition ahead of the 2021 UN Climate Change Conference of the Parties (COP26) (Gerretsen, 2021).

Korea has championed green growth on the international stage, establishing the Global Green Growth Institute, hosting the Green Climate Fund and providing finance and know-how through the East Asia Climate Partnership. The country adopted a national strategy for green growth in 2009 with five-year implementation plans. In 2010, it passed the Framework Act on Low Carbon, Green Growth. This policy has stimulated investment in green infrastructure but had lost momentum until the government released the Green New Deal as part of its COVID-19 economic recovery package.

Korea's 2020 Green New Deal worth KRW 220 trillion (USD 188 billion) investment gives priority to green infrastructure, low-carbon and decentralised energy, and innovation in green industries (European Parliament, 2021; Government of Korea, 2021). Successfully transitioning to a low-carbon economy will require sustained political commitment and stronger price signals (OECD, 2017). Korea has made progress with carbon pricing due to increased permit prices of its broad-based emissions trading system (ETS) (Figure 3). The ETS contributes 30% to its overall carbon pricing effort, while the remaining 70% results from taxes on fuel use. Korea should continue increasing the share of allowances auctioned. It should also follow up on its commitment to phase out fossil-fuel subsidies. In April 2021, the Korean President announced that Korea will phase-out all new financing for overseas coal projects (OECD, 2021). Achieving the Green New Deal ambitions will also require addressing regulatory and institutional barriers, introducing more flexible energy markets, and using the country's expertise in advanced technologies and innovative capacity (IEA, 2020).

 

Figure 1. Korea's energy mix

Total energy supply by source, 1990-2019 (ktoe)

Source: IEA (2020), World Energy Balances 2020.

 

Figure 2. Korea’s GHG emissions and the target 2030

Note: Excluding emissions from land use, land-use change, and forestry.

Source: Government of Korea (2020), 2050 Carbon Neutral Strategy of the Republic of Korea, Towards a Sustainable and Green Society, OECD (2021), OECD Environment Statistics (database).

 

Figure 3. Korea’s progress in effective carbon pricing (ECR)

Carbon price score at EUR 60 per tonne of CO2

Note: The carbon price score (CPS) measures how countries have attained the goal of pricing all energy-related carbon emissions at specific benchmark values for carbon costs. EUR 60 per tonne of CO2 is a low-end 2030 and mid-range 2020 benchmark. Energy related carbon emissions include emissions from fossil fuel and biofuel combustion.

Source: OECD, 2021.

 Economic benefits of tackling air pollution

Korea has decoupled emissions of all major air pollutants (except for PM10) from economic growth. This achievement is due to air quality improvement plans at national and subnational levels, tightened fuel and vehicle emissions standards, and the Air Pollutant Emission Cap Management System introduced in the Seoul Metropolitan Area in 2008. Nevertheless, some challenges remain, and, for instance, the concentration of PM2.5 is above the level (10μg/m3) recommended by the World Health Organisation (WHO). An upcoming OECD report (OECD, forthcoming) investigates the economic benefits of policy action on air pollution in Northeast Asia and provides projections up to 2050. The report finds that Korea could see a substantial decrease in the share of people exposed to unsafe PM2.5 concentrations levels by 2050 thanks to ambitious domestic policy action. Air pollution-related mortality rates would thus decrease by up to 10% in 2050 compared to the baseline scenario. Reduced air pollution-related mortality and morbidity rates would bring substantial yearly per-capita welfare benefits of almost USD 200 by 2050, increase labour productivity and agricultural productivity while only creating insignificant macroeconomic costs.

 Korea's role as a new global leader in sustainable water management

In the last three decades, Korea has emerged as a global leader in water management. The OECD is proud to accompany that emergence at domestic, regional, and international levels. However, while innovation and achievements are remarkable, there is no place for complacency. At the domestic level, Korea faces severe water-related challenges, which, if not adequately addressed, will impair social and economic development and resilience to a changing climate. At the regional and global level, Korea can strengthen its leadership by promoting innovation in hardware and soft power. The OECD is keen to further accompany and support current and future developments, working with Korean authorities in a mutually rewarding collaboration.

 Bold policy reforms at the domestic level

At the domestic level, the OECD has accompanied the transition from infrastructure-driven supply augmentation to a more sustainable path that combines demand management, economic policy instruments, robust water allocation regimes, and attention to ecosystems. This transition is fuelled by technological innovation, particularly regarding the use of information and communication technology for water management, captured in the Korean promotion of smart water management. It epitomised a dramatic change in water governance when the Ministry of Environment took the responsibility of water quantity and quality management and oversight of K-water and water infrastructure development.

 Enhancing water use efficiency in Korea

Korea, a water-stressed country, grew and urbanised faster than most other countries by investing in water infrastructure to augment supply and prevent flood risks. However, long-term trends such as an ageing population and more uncertainty about water availability – due to climate change – question the prevailing model, characterised by heavy reliance on (publicly financed) infrastructure.

In that context, in 2016-17, at the demand of Korean authorities, the OECD reviewed three sets of instruments for water quantity management in Korea and related governance arrangements. The review focused on: i) economic instruments that promote water efficiency use in Korea; ii) Smart Water Management and the combination of water and information and communication technology to manage water resources and deliver water services; iii) water allocation regimes.

The review suggested that Korean authorities would benefit from adjusting economic policy instruments to promote water use efficiency in Korea. First, tariffs could better reflect the cost of supply at the abstraction point. Second, revenues could finance expenditure programmes that effectively contribute to river maintenance in the basins. Moreover, an abstraction charge could be considered in the longer term, reflecting the opportunity costs of using water in basins where water is scarce. Any step in this direction would benefit from a gradual, long-term, inclusive, staged approach that engages stakeholders at both national and local levels.

The review noted that Smart Water Management has the potential to contribute substantially to water use efficiency in Korea and abroad. It can support decisions about managing dams and reservoirs and allocating water in the system. In addition, it can support value-adding services to water utilities (such as leak detection) and water users (such as real-time information on water quality), thereby enhancing the performance of water utilities. However, the diffusion of Smart Water Management is hindered by several bottlenecks in Korea and abroad. Such bottlenecks can be overcome by targeted measures, such as charges and tariffs that reflect the full cost of supplying water or models that minimise the need for new data. Such measures deliver better when accompanied by the involvement of final water users in defining additional services that contribute to their needs and by capacity building in municipalities.

Regarding water allocation regimes, the coexistence of water entitlements acquired before and after the construction of dams hampers the capacity of water allocation regimes to promote water use efficiency and discourage wastage. Reforming water allocation regimes can generate welfare gains in Korea. Now, these reforms are very challenging. International experience is helpful to explore how such reforms can be managed with appropriate accompanying measures. The OECD stands ready to further support policy reforms in this area, if and when appropriate.

Finally, the review emphasised that there was room to improve water governance, amending the institutional framework to promote water use efficiency in Korea. Governance arrangements could better reflect local conditions and engage with relevant stakeholders at national, basin, or local scale. Some recent developments along these lines should be encouraged, such as educating and informing the population and water users about water scarcity, the opportunity cost of misusing or misallocating water, and the cost of supplying water; developing a strategic programme towards stakeholder engagement, with result-oriented performance management; acknowledging basin organisations have a role to play. As a commitment to improving its water governance, the Ministry of Environment endorsed the OECD Principles on Water Governance and is part of the OECD Water Governance Initiative.1

 Renewed emphasis on water quality and ecosystems

A dramatic institutional reform occurred in June 2018, when the majority of water-related responsibilities shifted from the Ministry of Land, Infrastructure, and Transport, which successfully supported rapid economic growth and water supply augmentation, to the Ministry of Environment. This merge is a step in the right direction for improved policy alignment and coherence. However, the experience of OECD countries suggests that improved coordination does not derive automatically from a reallocation of responsibilities. Therefore, the Ministry of Environment needs to develop and implement a co-ordinated water quality and quantity strategy to effectively merge responsibilities at national and sub-national levels and achieve greater coherence between water, land, and related policies.

In such a context, a collaboration between the Korean Ministry of Environment and the OECD on water was triggered by the acknowledgement that urbanisation, industrialisation, and population growth (at least until 2030) are increasing energy and food demands, which in turn, are exacerbating pressure on Korea's scarce natural resources and ecosystems, including water and land. These pressures and others raise the stakes on allocating and re-allocating water and land resource uses across the water-energy-land-food (WELF) nexus for sustainable growth.

Innovative policy and institutional responses are required to make Korea's advanced water infrastructure network more effective and efficient. Korea has made the transition from an expansionary water economy to a mature water economy. Demand-side interventions, options for water reallocations and pollution reductions, and further development of context-specific policy and institutional arrangements need to be further developed as competition and pressures on water escalate. The methods for evaluating the choice and implementation of interventions also need to adjust, including anticipating and planning against future risks, reflecting basin-specific issues and institutional contexts, and valuing water and ecosystem services.

At the same time, under a changing climate and increasing development pressures on water and land, traditional assumptions about the reliability of a rainy season and the certainty of reservoirs refilling each year, or the magnitude of floods, are likely to be misplaced. Korea would benefit from a long-term vision and plan to deal with existing problems and anticipate and plan against disruptive future water risks. Improvements in water quantity and quality monitoring, economic analysis of policy measures, and the incorporation of climate change and socio-economic scenarios would assist in the development of such a plan. Addressing the nexus sustainably requires Korean policymakers to consider: i) equity issues related to the allocation of risks and opportunities; ii) creating more with less and allocating scarce resources where they add value to society; and iii) investing in sustaining ecosystem services. To support further progress in these directions, the OECD concluded that Korea would benefit from independent water regulation and greater enforcement of environmental compliance.

It is noteworthy that such reforms contribute to a stronger alignment of water policies in Korea with the OECD standard on water, as set by the Recommendation of the OECD Council on water. Korea has been instrumental in developing the Recommendation, which was unanimously endorsed by all OECD member countries in December 2016. Korea has also actively supported the development of the Toolkit for Water Policies and Governance, released in 2021. Korea endeavours to translate the Toolkit into Korean to facilitate its wider diffusion among Korean stakeholders.

 Global relevance of Korea as regards water technologies and management

Innovation has a role to play in mitigating water-related risks and supporting the provision of water services on which our well-being and sustainable development depend. Over the last three decades, Korea has emerged as a global leader in water-related innovation. The OECD documented this performance, using patent data to track the invention of technologies that promote water security since 1990 (Leflaive et al., 2020).

The water-related technologies identified in the paper can be clustered into three categories: i) water pollution abatement; ii) demand-side (conservation of water in indoor use, in irrigation, in thermoelectric power production, and water distribution); and iii) supply-side (availability of water, through the collection of rain, surface, and ground-water; water storage; desalination of seawater).

The five largest overall inventors of the world's water-related technologies, by patent count, are the US, Korea, Germany, China, and Japan, with about 70% between them. China and Korea have exhibited substantial growth in their share of world patenting for water-related and all technologies, while Germany's share has steadily fallen. Korea went from less than 1% of the world's water-related patents in 1990 to more than a quarter since 2009. For Korea, this growth outpaced its rapid increase in its share of overall patenting, which went from 2.2% to about 20% over the same period. In addition, Korea has a Relative Technological Advantage (RTA2) of 1.40, indicating it is relatively specialised in water security technologies compared to other domains (see Table 1 below).

Korea and China contribute proportionally more to global pollution abatement invention than they do to overall patenting. Korea has the largest share of the world's patented inventions for supply-side water technologies. However, of global water supply-side inventions that are patented in more than one jurisdiction, Korea has a 6.6% share and an RTA of 0.98. This may be due to these inventions being tailored to the local context or possibly a lower propensity for Korean resident inventors to seek patent protection in other jurisdictions.

Such a remarkable performance shows that the enabling environment for water-related innovation is particularly well-developed in Korea and could inspire other countries with similar ambitions. This enabling environment combines robust policies that support innovation in the country, combining multiple domains for scientific and technological know-how (typically when information and communication technologies combine with water-related innovation to support smart water infrastructure and management). Moreover, such an enabling environment at home gains traction abroad, with the active support of the Ministry of Foreign Affairs; the national champion K-water; and tailored fora such as the Asia Water Council. The regional initiative sketched below illustrates the combination of the adequate enabling environment and a regional agenda for water.

 An initiative to position Korea and the OECD as prominent regional partners on water

At a regional level, the OECD and Korea co-operate to enhance water security in several countries in Southeast Asia. This co-operation benefits from the partnership with the Asia Water Council (AWC), which contributes convening power, and expertise on technology.

In May 2019, the Korean Ministry of Environment, the OECD, and the AWC signed a memorandum of understanding to support the achievement of the Sustainable Development Goals (SDGs) through the resolution of Asian water issues. The Korean Ministry of Foreign Affairs joined the partnership in June 2020. The Parties seek to co-operate in the water sector in line with the OECD's Southeast Asia Regional Programme (SEARP). Co-operation entails, among other things, joint projects on water issues in developing countries of Asia; mutual co-operation and support for international co-operation projects in the Asian water sector; exchange of relevant experts and trainees in the water sector, subject to each Party's written agreements.

The MoE-AWC-OECD collaboration takes the form of two mutually supportive tracks:

• A regional track, where common issues are addressed, experiences from Asian countries are reported, and good practices are shared. The regional track includes one meeting per year with government representatives from each of the Asian countries covered by the work, representatives from financing institutions (e.g., WB, ADB, GCF), and Asia Water Council (AWC) regional partners, possibly in the context of the international events (e.g. Asia International Water Week), to be chosen by the project partners.

• A domestic track, where National Policy Dialogues (NPDs) are undertaken by the MoE, the AWC, and the OECD to identify priority areas for water-related investment, options to address financing needs and enhance financing capacities, and technologies and innovation in line with policy priorities, financing strategies, and capacities. The NPDs are demand-driven and tailored to the specific needs of countries. They aim to facilitate the development of strategic pathways for investment, robust financing strategies, and the planning and implementation of reforms that promote investments that contribute to sustainable growth, taking account of future water issues and problems.

Lately, the international collaboration between Korea and the OECD on water is taking a new dimension. Korea explores the benefit of a water welfare approach to water management, highlighting the economic, social, and environmental benefits of water management. The OECD contributes to that innovative re-framing of water policy, building on own analyses as well as the OECD's well-being lens to the climate action. The ambition is to offer this new approach as a framework that supplements prevailing notions of integrated water resources management and water security. As a result, water welfare can inspire innovative policies for water management at the domestic, national, or global levels.