Session5: Policy Evaluation for Financial and Industrial Policy
SPEAKERS
ㅇZhiwu Chen (Professor at University of Hong Kong / Former Professor at Yale University)
<”The Redistributive Effects of China’s Financial Policies”>
▸China’s financial policy creates winners and losers, resulting in a growth model heavily dependent on investment, industry, and exports
▸Given that China has only strengthened the government’s control of everything from monetary policy to almost all walks of life, it is unlikely that heavy policy-created distortions will be weakened any time soon.
ㅇKen Koyama (Senior Managing Director of Institute of Energy Economics Japan)
<”Global Energy Transition and the Challenges for Japan and Korea.”>
▸Importance of achieving the twin objectives of energy security and decarbonization is recognized.
▸South Korea’s decision to abandon its nuclear phase-out policy is welcomed.
▸It is recommended to extend the operational life of existing nuclear power plants, expand new construction, and invest in SMRs.
▸There is a suggestion for Japan-Korea cooperation on global energy security and environmental protection.
DISCUSSION HIGHLIGHTS
CHAIR
Hak Kil Pyo (Professor of Economics Emeritus at Seoul National University)
DISCUSSANT
Dong Hyun Ahn (Professor at Seoul National University / Former President of Korea Capital Market)
Joo Hun Park (Professor at Dongduk University / Former President of Korea Energy Economics Institute)
ㅇDong Hyun Ahn (Professor at Seoul National University / Former President of Korea Capital Market)
– The Importance of Quantifying Policy Effects: Understanding the effects of macroeconomic variables is crucial. It serves as a fundamental starting point, especially when evaluating policies. Quantifying the net effect is essential in policy evaluation as it enables the comparison of outcomes with and without government intervention.
-Fiscal restraint or artificially manipulating interest rates, such as in China, can have distorting effects on wealth redistribution.”
-Developing Methodologies Using New Technologies: The use of an accurate benchmark model for policy evaluation is critical, and Professor Chen’s machine learning benchmarking model surpasses other models. Although there are objections that machine learning is an AI-based approach and its calculation method may seem like a ‘black box’ (even if the accuracy is high, it can be difficult to understand the reasoning behind it), the primary goal is to comprehend the specific calculated values.
ㅇJoo Hun Park (Professor at Dongduk University / Former President of Korea Energy Economics Institute)
– As policies enter the realm of politics, they often become disconnected from evidence and scientific foundations, burdening the entire economy. A prime example is the nuclear phase-out policy.
-Energy policy should take into account energy security, economics, and the environment. However, there is no evidence that this policy was grounded in economics or the environment.
-The five reactors that were planned or built were never completed. If the original plan had been followed, the country would have had five reactors with a capacity of about 7 GW by the end of last year, resulting in a substantial loss.
-Overemphasis on addressing climate change has led to the stigmatization of coal power and delays in constructing new coal plants. For electricity supply, maintaining baseload capacity is critical, and we have been unable to meet the demand for both nuclear and coal power.
-Now we have 10th power supply plan. If the 7th power supply plan of the Park Geun-hye government had been continued, the country should have had 71 GW of baseload capacity by the end of last year (2022). However, we only had about 60 GW by the end of last year, resulting in a deficit of 11 GW of baseload power.
-If 11 GW of nuclear power plants had been operational, the country could have reduced its gas imports by about 8 million tons, saving approximately 26 trillion Korean won, a significant financial loss.
-The Nationally Determined Contribution (NDC) target of reducing greenhouse gas emissions by 40% by 2030 was pledged to the world by then-President Moon Jae-in. Initially, the Ministry of Trade, Industry, and Energy proposed a 28% reduction, but the legislative process mandated a 35% or higher reduction, which was enacted into law, setting the target at 40% in the enforcement ordinance.The rationale behind the Ministry of Trade, Industry, and Energy’s 28% proposal was its belief that our economy could sustain it. However, there was no clear logic behind the subsequent increase to 35% and 40%.
-Electricity prices are highly politicized. While natural gas prices have surged by 8-9 times worldwide, the prices for electricity generated from it have been artificially restrained, often for political reasons, such as preventing inflation and ensuring affordability for the general public prior to elections.
-KEPCO (Korea Electric Power Corporation) incurred a loss of 32.5 trillion won in the past year (2022) alone. These losses represent a challenge need to be addressed in the future.
-In this manner, policies are not established or decided based on evidence, statistics, or scientific reasoning but rather on political ideologies and beliefs, ultimately placing a burden on the entire economy.
<PERI, Policy Evaluation Research Institute>
