Is carbon neutrality feasible for Korean manufacturing firms?: The CO2 emissions performance of the Metafrontier Malmquist-Luenberger index.

To achieve carbon neutrality, the Korean government has promoted regulatory policies on the transition toward a carbon free economy in 2050. Unfortunately, these policies face strong complaints from industries with respect to losing international competitiveness owing to extra cost burdens. Is it feasible to achieve a carbon neutral economy with these regulatory policies? This study tries answering the question by evaluating the CO2 emissions performances of the Korean manufacturing industry for feasible solutions toward a carbon neutral economy. For this purpose, we adopted the metafrontier Malmquist-Luenberger (MML) index to reflect group heterogeneity at the technology level. Forty subsectors of manufacturing industrial data were collected from 2012 to 2017, which were classified under four technological levels: high, middle-high, middle-low, and low. The CO2 emissions performance showed a poor effect from the policies, with an overall 0.8% deterioration (-0.8%) in the CO2 emissions. Under the group heterogeneity, the middle-high and middle-low technology groups showed a significantly slower upward trend, implying that the environmental regulatory regime did not have a strong effect on these groups. To obtain a feasible solution for this fine tuning, MML decomposition was implemented in the second stage. As the efficiency change is the main driver that influences the CO2 emissions performance, the Korean government should encourage the catching-up effect in industries via a green cultural revolution, as well as provide strong incentives to avoid negligible performance in the innovation effect, supported by more market-oriented emissions trading schemes (ETSs).