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Green New Deal for Carbon-neutrality and Trade Policy in Korea Trade policy, Environmental policy

Author Jukwan Lee, Jong Duk Kim, Jin-Young Moon, Jun Hyun Eom, Ji Hyeon Kim, and Jeongmeen Suh Series 21-10 Language Korean Date 2021.12.30

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This research defines the Green New Deal, as a fiscal policy having both environmental and economic growth as its main objectives. A trade policy perspective and approach has been applied while reviewing the carbon-neutral policy as both carbon-neutrality and economic growth pursued by the Green New Deal are closely linked to the multilateral system and the international trade system. Climate change is a global issue that transcends national borders. There are inevitably limits to the level of greenhouse gas reduction that can be achieved through the efforts of any one region or country. Carbon-neutrality also requires an understanding of the international economy and production networks. Production supply chains are expanding all over the world and value chains are intricately connected. The Green New Deal needs to be considered in terms of trade policy. Therefore, this study tries to provide implications in terms of trade policy in relation to the Green New Deal policy for carbon-neutrality.
Chapter 2 introduces carbon-neutral policies that major countries are adopting and compares them with past Green New Deal policies. The latter were introduced in the context of economic stimulus and eco-friendliness during the 2008 global financial crisis. In addition, we compare Korea’s current Green New Deal with its 2008-version called the low-carbon green growth policy to examine the similarities and differences. Although major countries used different names such as ‘Green Deal’ or ‘Green New Deal’ to implement policies for greenhouse gas reduction and economic growth, they were not sufficient in reducing greenhouse gas emissions. Past and current policies generally put more emphasis on short-term employment growth and economic stimulus. Korea’s Green New Deal also had limitations while considering carbon-neutrality as a policy goal until the government announced the Green New Deal 2.0 in July 2021. Discussions in Chapter 2 confirm the need for a balanced Green New Deal design which takes into consideration trade aspects for achieving carbon- neutrality and economic growth, as the effects of carbon-neutral policies promoted by major countries also affect trade.
Chapter 3 examines the reason why each country is imposing independent carbon policies as seen in Chapter 2, and the factors to be considered when designing Green New Deal policies. As with carbon policies, multilateral cooperation is more effective than individual countries’ independent strategies for environmental policy. However, discussions in Chapter 3 shows that the multilateral discussions at the UN, WTO, and APEC did not make much progress over the past 20 years, and as a reaction, major advanced countries are increasingly adopting individual policies to try to solve the issues on their own. Chapter 3 argues that where global cooperation is difficult, it is desirable that the basic direction of the Green New Deal policy at the national level be based on ‘the principle of targeting by policy means’ which matches policy means and goals. Furthermore, under the circumstances in which major countries operate carbon-neutral policies, by only considering the environment or growth the society’s optimum as a whole cannot be achieved. Therefore, this chapter presents the role of trade policy tools to be considered while promoting the Green New Deal. First, it needs to correct international environmental externalities and second, improve the terms of trade. When designing the Green New Deal, we need to consider environment goals having in mind that environmental policies interact with industrial and trade policies. That is, there needs to establish implementation paces’ and priorities based on economies of scale and domestic export/import competitiveness in terms of trade.
Chapter 4 answers the question of whether participation in international trade actually increases the efficiency of carbon-neutral policy under tightly intertwined global production networks, and suggests the direction of the Green New Deal policy from an industrial perspective in connection to trade. As the discussions on international cooperation for carbon emission reduction expanded, the question of whether the expansion of international trade and openness actually help to reduce carbon emission was constantly raised. In this report, we attempted through an empirical analysis to determine whether the expansion of openness helps reduce carbon emissions. In particular, unlike existing literature, openness was interpreted in terms of the expansion of trade in intermediate goods and the development of a global production network (or global value chain (GVC)), and its impact was analyzed accordingly. The results in Chapter 4 provide supports to the existing discussion that trade expansion (in particular, expansion of forward participation) helps reduce carbon emissions, and that carbon leakage does not actually increase, with the latter being statistically significant. Based on this, Chapter 4 proposes the need to consider the effect of the current Green New Deal policy on securing economic efficiency and reducing carbon emissions following openness. In addition, it was discussed that a strategic openness policy can be used as an effective carbon reduction policy based on the direction of industrial structure transformation under the carbon-neutral policy.
Chapter 5 attempts to answer whether each country’s current independent carbon-neutral policy is cost-effective. The analysis in Chapter 5 contains the discussions of previous Chapters 3 and 4. Basically, Caliendo and Parro’s (2015) multi-country/multi-industry model is introduced to analyze the impact of a carbon-neutral policy, such as the EU’s carbon border adjustment, on the global economy under global production networks. In addition, the amount of financial support from Korea’s Green New Deal needed to offset the negative economic effects of other countries’ independent carbon- neutral policies was derived by selecting hypothetical industrial combinations. The government has budget constraints so resources that can be put into the Green New Deal are limited. The result of the analysis is consistent with the discussion in Chapter 3. In order to increase the effectiveness of the Green New Deal under a situation where a national carbon-neutral policy reduces economic welfare, both the environment and trade aspects needs to be considered in policy measures. Based on this, Chapter 5 emphasizes that it is necessary to balance carbon intensity by industry, export competitiveness, and cost effectiveness of investment in designing the current Green New Deal. At the same time, since the input of the Green New Deal causes a significant financial burden, it leads to concerns about the need for a plan to reduce the government's fiscal input by using a more market-friendly system.
Chapter 6 examines the need to develop international standards for carbon and environment and tries to check how we can understand current increase in unilateral carbon policies in the context of current WTO regulations and find ways to induce cooperation from the multilateral system. we show that it is necessary to establish and comply with multilateral norms that lead to joint efforts for carbon-neutrality and prevent the Green New Deal from becoming a protectionist policy for the economic growth of powerful countries. In particular, from the point of view of Korea which grew  under liberalization and international order based on norms, the Green New Deal and each country’s carbon-neutral policies in the protectionist era, we should consider restoring international cooperation and order so that trade barriers and reckless competition do not spread.
Environmental policy has been basically recognized as a domestic policy, but as the carbon-neutral policy has recently become a major part of environmental policy, it is also affecting the setting of government’s policy directions, such as the Green New Deal. At the same time, as the world economy is closely connected through global production networks and carbon moves to countries around the world through carbon-connected networks, carbon-neutral policy is inevitably linked with trade policy. Our research does not cover all the contents of the Green New Deal, nor does it claim that all economic problems related to carbon-neutral policy can be efficiently solved through trade policies. However, trade policies should be considered and fully utilized as one of various policy alternatives within the comprehensive policy platform of the Green New Deal policy. This study finally suggests that the effect of the Green New Deal can be expanded through the restoration of openness and global cooperation. More specifically, first, the Green New Deal should be pursued beyond protectionism. To this end, it is necessary to consider △recognizing the expansion of openness as one of the measures to reduce carbon intensity and △considering the structural transformation to a carbon reduction-friendly ‘GVC downstream industry’. Second, it is necessary to achieve a Green New Deal that conforms to the norms of trade. To this end, △Reorganization of the Green New Deal into ‘basic technology investment’ in climate technology, and △Securing the autonomy of the Green New Deal through improvement of multilateral trade rules can be considered. Third, the recovery of global cooperation can lead to synergies. Thus, △Consideration of climate club participation for joint-response to climate change, and △Green New Deal that contributes to the establishment of a global carbon market is proposed. 

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