Energy Trade-offs: Import substitution and economic growth in South Korea's low-carbon transition

Abstract

This study quantitatively analyzes the substitution effects within South Korea’s energy and non-energy inputs, focusing on the output elasticities of factors, substitution possibilities, and technological progress, which collectively contribute to about 98 % of the country’s total fossil energy. To provide a comprehensive investigation of the country’s energy and infrastructure, we applied a trans-log production model. The results show that the analyzed output elasticities between capital and labor as well as energy show a growing trend between 0.62 and 1.45 from 1990 to 2023. The estimated elasticity of substitution between energy and non-energy factors is about 0.42 and 1.64, in which capital provides a significant contribution to the country’s economic development. This is an obvious indication that allocating maximum capital or skilled labor to South Korea’s energy industry will be useful in sustainable development. The relative differences in technological progress of all factors fall between − 0.6 and + 0.06, provided that coal-nuclear, oil-gas and gas-nuclear energy make an acceptance of the fuel substitution possibilities with economic growth. The driving factors of energy efficiency variation are further discussed, and outcomes present that technological progress is the main factor determining energy efficiency. Consequently, energy efficiency, technological investment, and low-carbon energy are the best for future sustainability