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Research Reports

Fiscal management direction for the fine dust response budget
  • Author Chung, Woo Hyun
  • Researchers
  • Date 2020-10-31
Ⅰ. Research Background and Goals
ㅇ In accordance with the prevailing anxiety and attention to the fine dust problem, the national budget related to fine dust has sharply increased in recent years.
※ The Air Quality Program budget:
o until 2015: KRW 200~300 billion
o since 2016: increased by 30~50% every year
o 2019: surpassed KRW 1 trillion
o 2020: over KRW 2.2 trillion
o by 2023: will surpass KRW 4 trillion
ㅇ For the soaring fine dust budget we need to ensure the fiscal performance and efficiency and set a rational direction for fiscal management.
- This research aims to offer insight and advice on the fiscal management of fine dust budget, focusing on the tracking of fiscal performances, the budget allocation in consideration of the effectiveness and efficiency, and the performance management system to ensure the fiscal performance.

Ⅱ. Overview of Fine Dust Policy and Budget
1. Policy Overview
ㅇ The national fine dust policy was reinforced several times since 2016.
- Since oThe Special Plan for Fine Dust Managemento was first enacted in 2016, additional 4 plans and 1 comprehensive plan, and 3 special acts were established in relation to the fine dust response.
- Accordingly the policy goals were repeatedly tightened, in terms of the fine dust concentration in the air, and emission abatement.

2. Budget Overview
o Environmental Budget
ㅇ As the fine dust response budget soared, the total budget in the environmental area also showed a sharp rise.
※ KRW 6~7 trillion (2013~18) ⇒ 7.4 trillion (2019) ⇒ 9 trillion (2020) ⇒ 12.6 trillion (2024, projection)

o Air Quality Program Budget
ㅇ Disproportionately concentrated to a small number of sub-programs:
- 42.6% on “air quality improvement” sub-program
- 35.2% on “EV and the charging infrastructure” sub-program
ㅇ Particularly, the “air quality improvement” sub-program needs to be reorganized into a structure that will commensurate with the steep growth in budget scale.
※ KRW 100 bill (2015) ⇒ 970 bill (2020)
- Current program title is too comprehensive and ambiguous, and in fact covers a variety of heterogeneous projects related vehicles, industries, or urban emitters.
- Need to break down into manageable units with clear goals, which is suitable for performance management.

Ⅲ. Analysis of Fine Dust Response Budget
1. Review of Policy Performance and the Indicators
o Pollution Concentration
ㅇ The fine dust concentration shows a sign of improvement; though the trend is likely not sufficient to meet the policy goal.

o Pollution Emission
ㅇ The analysis is limited due to the delay in production of official statistics.
- As domestic emission is the essential target of fine dust policy, we need to be expedite the production of statistics, and keep an eye on the fiscal performance in terms of emission abatement.

o Days of High Concentration
ㅇ Largely, the low concentration days show an increase, the medium conc. days decrease, and the high and very high conc. days are stagnant.
ㅇ As the days of high concentration is related to the health effects, we need to make more use of it as the policy performance indicator.

o Policy Output: Disseminating the Green Vehicles
ㅇ As a large sum of budget is allocated for the subsidy programs, the green vehicles (electric vehicle(EV), hydrogen fuel cell vehicle(FCEV), etc) are beginning to increase on the road; still a heavy fiscal investment seems necessary to meet the ambitious policy goal.
ㅇ Also, the green vehicle policy needs a strategic improvement to reduce the fiscal burden of subsidy programs, i.e. adopting more of the regulatory approach.

2. Sectoral Review of Fine Dust Policy
ㅇ The major policy contents in the ooThe Comperhensive Plan for Fine Dust Managemento(2019.11) and the related national budgets were reviewed, according the policy sectors defined in the Comprehensive Plan.

3. Review of Budget Allocation
o Review of Budget Allocation across Policy Sectors considering Abatement Effectiveness
ㅇ Compared the share in emission & abatement goal to the share in budget across the policy sectors of transport, industrial, power generation, health protection, etc.
ㅇ Transport sector :
- Almost a half of estimated fine dust-related budget is allocated.
o which can be in part explained by its large share in domestic emission abatement, its notable pollution contribution in the Seoul metropolitan area and large cities, and its strategic industrial value related to early entry into the world market of future vehicles.
- Still it is desirable to diversify the budget allocation to expand other sectors as industrial, health protection, etc.
ㅇ Industrial sector:
- Compared to its considerable share in emission abatement, the budget allocation amounts to only around 1/5 of the transport sector.
o which can be in part explained by the fact that industrial abatement is mainly based on regulatory approach, that doest not require much of fiscal expenditure.
- Yet it is desirable to discover and invest in projects to expedite innovations in the industrial pollution control and results in fine dust abatement outcomes.

o Review of Budget Allocation across Policy Tools considering Abatement Efficiency
ㅇ Analyzed the efficiency (emission abatement / national spending) for major subsidy programs related to fine dust:
- subsidies for purchasing the EV and HFCV, for early scrapping of diesel vehicles, for emission control devices as DPF, for industrial low-NOx burner, and for household low-NOx boiler.
ㅇ The abatement efficiency of subsidy programs related to diesel vehicles (esp. the construction machineries), and low-NOx burners and boilers tends to be higher than the EV & HFCV subsidies.
- Need to consider increasing the budget for programs showing higher efficiency.

Ⅳ. Conclusion and Suggestions
ㅇ Since the fine dust policy and budget began to grow sharply in 2016, related outcomes are now beginning to appear, including the sign of improvement in pollution concentration.
ㅇ We need to further ensure the performance and efficiency of the soaring fine dust budget, by reorganizing the budget program structure and the performance indicators.
ㅇ The fine dust budget is rather disproportionately allocated to the transport sector, of which a large sum is dedicated to the subsidies for EV & FCEV.
- Needs to diversify towards sectors of industrial, health protection, etc.
ㅇ As a result of analyzing the subsidy programs, the abatement efficiency of EV & FCEV subsidies appears to be low, especially for the plug-in hybrid and FCEV.