By Jang Daul
The heat wave finally seems over. Although it was difficult to endure, at least it was not worse than the hottest summer in 2018.
However, the inconvenient truth is that the frequency and severity of extreme weather events will most likely continue to increase due to global warming.
For many households, now is the time to worry about the bill of the hot summer. The media is already discussing August electricity bills and how they could be a big burden to households.
The bills are costlier because of people using air conditioning at home much more frequently and longer in August due to not only the scorching heat but also social distancing as a result of the COVID-19 pandemic.
In addition, since progressive rates are applied to only residential electricity in Korea, it is likely that most households pay more for electricity. However, is this "fare bomb" really too much of a burden?
According to data of the Korea Electric Power Corp., the average household consumed about 300 kilowatt-hours and paid 30,000 won in 2019, equivalent to $26 or 22 euros.
Since an average household spends 134,000 won for TV, internet and mobile service, the electricity expenditure is less than a quarter of telecommunication expenditures. Therefore, the power bill does not seem like that big a burden for households.
Of course, in July and August, households consume more electricity. In the hottest summer in 2018, an average household consumed 443 kWh of electricity in August and paid 54,000 won. It was an 80 percent increase compared to normal but it might be too much to call it "a fare bomb."
Furthermore, the household electricity price in Korea is very low compared to other industrialized countries. According to the International Energy Agency, the electricity price of Korea in 2019 was $102 per MWh which was the second-lowest among OECD member countries.
Germany ranked at the top with $334 per MWh and Denmark was second with $321 per MWh. The households in the two countries pay triple what Korean homes pay.
If we look at the details of the prices, we can understand why there is a big difference. Korea's $102 per MWh is composed of $90.10 of fare, $3.30 of excise tax and $9 of value-added tax (VAT) while that of Germany consists of $156.40 of fare, $124.20 of excise tax and $53.30 of VAT.
The excise tax in Germany is 38 times higher than that of Korea. The situation is similar for Denmark and many other OECD member countries, because revenues from the excise tax are mostly utilized for environmental and climate protection.
For example, with the tax revenue, the government could do many things to support energy transition, subsidizing the rapid deployment of renewables, extending grid systems, installing more energy storage services, and compensate industries and workers affected by the industrial transition required for reducing carbon emissions.
Then, how much does the average household in Korea pay for climate protection now?
Now every household in Korea can check how much they pay for the environment and climate protection with their electricity bills. The environment and climate charge rate is 5.3 won per kWh.
Therefore, if a household uses 300 kWh per month, then the climate charge is 1,590 won which is little more than 1 euro (equivalent to 1,378 won).
The possible revenue derived from such charging is too little to effectively invest in various ambitious climate mitigation policies. Of course, residential electricity consumption only accounts for 15 percent of the total in 2020 while the shares of industrial and commercial consumption were 55 and 22 percent, respectively.
Not paying enough for curbing carbon emissions now will result in an enormous bill in the future. Industrial, commercial and residential electricity bills need to substantially increase the excise tax in order to secure the necessary budget for a green transition.
Research by the Swiss RE Institute in June 2021 estimated that the economies of the G7 nations could lose an average of 8.5 percent GDP every year by 2050 if we do not respond effectively to the ongoing global climate crisis. The institute calculated that the GDP loss for Korea would be 9.7 percent annually.
Therefore, bearing the cost of the necessary transition to decarbonize our socioeconomic system is a lot cheaper and therefore a smarter way to respond to the deteriorating climate crisis.
The recent release of part of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change gave a stark warning of where we are headed if urgent action is not taken.
Therefore, it's the time to think big and bold. Every country, especially for the global major economies including Korea, needs to accelerate the green transition, which requires a budget and it should certainly be much bigger than 1 euro per month if we ever hope to avoid a climate disaster.
Jang Daul (daul.jang@greenpeace.org) is a government relations and advocacy specialist at Greenpeace East Asia Seoul Office.
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However, the inconvenient truth is that the frequency and severity of extreme weather events will most likely continue to increase due to global warming.
For many households, now is the time to worry about the bill of the hot summer. The media is already discussing August electricity bills and how they could be a big burden to households.
The bills are costlier because of people using air conditioning at home much more frequently and longer in August due to not only the scorching heat but also social distancing as a result of the COVID-19 pandemic.
In addition, since progressive rates are applied to only residential electricity in Korea, it is likely that most households pay more for electricity. However, is this "fare bomb" really too much of a burden?
According to data of the Korea Electric Power Corp., the average household consumed about 300 kilowatt-hours and paid 30,000 won in 2019, equivalent to $26 or 22 euros.
Since an average household spends 134,000 won for TV, internet and mobile service, the electricity expenditure is less than a quarter of telecommunication expenditures. Therefore, the power bill does not seem like that big a burden for households.
Of course, in July and August, households consume more electricity. In the hottest summer in 2018, an average household consumed 443 kWh of electricity in August and paid 54,000 won. It was an 80 percent increase compared to normal but it might be too much to call it "a fare bomb."
Furthermore, the household electricity price in Korea is very low compared to other industrialized countries. According to the International Energy Agency, the electricity price of Korea in 2019 was $102 per MWh which was the second-lowest among OECD member countries.
Germany ranked at the top with $334 per MWh and Denmark was second with $321 per MWh. The households in the two countries pay triple what Korean homes pay.
If we look at the details of the prices, we can understand why there is a big difference. Korea's $102 per MWh is composed of $90.10 of fare, $3.30 of excise tax and $9 of value-added tax (VAT) while that of Germany consists of $156.40 of fare, $124.20 of excise tax and $53.30 of VAT.
The excise tax in Germany is 38 times higher than that of Korea. The situation is similar for Denmark and many other OECD member countries, because revenues from the excise tax are mostly utilized for environmental and climate protection.
For example, with the tax revenue, the government could do many things to support energy transition, subsidizing the rapid deployment of renewables, extending grid systems, installing more energy storage services, and compensate industries and workers affected by the industrial transition required for reducing carbon emissions.
Then, how much does the average household in Korea pay for climate protection now?
Now every household in Korea can check how much they pay for the environment and climate protection with their electricity bills. The environment and climate charge rate is 5.3 won per kWh.
Therefore, if a household uses 300 kWh per month, then the climate charge is 1,590 won which is little more than 1 euro (equivalent to 1,378 won).
The possible revenue derived from such charging is too little to effectively invest in various ambitious climate mitigation policies. Of course, residential electricity consumption only accounts for 15 percent of the total in 2020 while the shares of industrial and commercial consumption were 55 and 22 percent, respectively.
Not paying enough for curbing carbon emissions now will result in an enormous bill in the future. Industrial, commercial and residential electricity bills need to substantially increase the excise tax in order to secure the necessary budget for a green transition.
Research by the Swiss RE Institute in June 2021 estimated that the economies of the G7 nations could lose an average of 8.5 percent GDP every year by 2050 if we do not respond effectively to the ongoing global climate crisis. The institute calculated that the GDP loss for Korea would be 9.7 percent annually.
Therefore, bearing the cost of the necessary transition to decarbonize our socioeconomic system is a lot cheaper and therefore a smarter way to respond to the deteriorating climate crisis.
The recent release of part of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change gave a stark warning of where we are headed if urgent action is not taken.
Therefore, it's the time to think big and bold. Every country, especially for the global major economies including Korea, needs to accelerate the green transition, which requires a budget and it should certainly be much bigger than 1 euro per month if we ever hope to avoid a climate disaster.
Jang Daul (daul.jang@greenpeace.org) is a government relations and advocacy specialist at Greenpeace East Asia Seoul Office.
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