The Impact of Environmental Regulations on the Manufacturing Sector: The Role of Electricity Prices

The role of policy (among various other factors) in determining the stability of the power supply and electricity rates is becoming more important. Policy-based pressure on rising electricity prices is expected to intensify as countries prepare stronger environmental regulations in an international effort to cope with climate change. Under the Paris Agreement, countries submit Nationally Determined Contributions (NDC) that comprise plans to reduce greenhouse gas emissions by 2030. South Korea has declared a goal of reducing greenhouse gas emissions in 2030 by 24.4 percent compared to 2017 levels. In addition, at the end of 2020, countries submitted plans of a long-term low-carbon vision by 2050. Recently, major countries including the United States, European nations and South Korea have been pushing for a Green New Deal, and more and more countries are targeting net-zero emissions. This trend has only intensified in the post-COVID-19 era, as countries build consensus around the establishment of an eco-friendly and low-carbon society. GHG reductions and environmentally-friendly trends are likely to lead to higher electricity prices. It is self-evident that if the shares of renewable energy and natural gas of the power mix increase and the amount of power generated from fuels that were previously responsible for baseloads (such as nuclear and coal power) decreases, upward pressure on electricity prices will continue to build. The purpose of this study is to reveal the future impact of power sector-related regulations on the manufacturing sector and to provide insight for firms in establishing strategies to deal with such policies.