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.

In Korea, multiple efforts, including subsidies to energy industries, have been made to increase renewable energy use and strengthen the competitiveness of renewable energy industries. Ironically, a considerable number of subsidies have also been provided for fossil fuels, drawing criticism both within Korea and overseas that these subsidies increase not only fossil fuel consumption and greenhouse gas emissions, but also energy market distortion. Thus, the Korean government announced a plan to discontinue some fossil fuel subsidies in 2020. Based on Korea’s policy orientation to expand renewable energy and strengthen its competitiveness, various scenarios to phase out fossil fuel subsidies and increase renewable energy subsidies can be examined. This study used the computable general equilibrium model to subdivide the energy sector and analyze the influence of changes in subsidies on the Korean economy and CO₂ emissions based on three scenarios. The results show that phasing out fossil fuel subsidies causes a significant reduction in domestic CO₂ emissions by −6.9 to −8.5%, depending on our scenarios. Implementing energy policy in Korea may have minimum impacts on its economy when fossil fuel subsidies transfer to renewable energy industries. The real gross domestic product could be only decreased by −0.04 to −0.14%.