Korea must rein in energy use as risks grow

A vehicle rationing system based on license plate numbers is being floated as a possible response to surging oil prices. The idea is already stirring debate, with questions over how those who rely on trucks for their livelihoods would cope and whether the measure would be mandatory or voluntary. If extended to the private sector, it would mark the first such move in 35 years, since the 1991 Gulf War drove a spike in oil prices, making it a difficult call for the government.

In truth, demand-side energy controls should have come much earlier. Despite its limited natural resources, South Korea has long consumed energy with little restraint. The country’s energy self-sufficiency rate stands at about 18 percent, placing it near the bottom among OECD members, while oil and gas are entirely imported. Even under these constraints, South Korea ranks third globally in per capita electricity consumption, behind Canada and the United States.

Relatively low electricity prices have played a central role. According to GlobalPetrolPrices, South Korea’s household electricity rate stood at 106.3 won per kilowatt-hour in 2024, with only Canada posting a lower rate among OECD countries.

This helps explain why complaints about rising grocery bills are widespread, while concerns over electricity costs remain relatively subdued. Europe offers a stark contrast. In France, households typically receive an annual settlement bill in spring or early summer based on the previous year’s usage. Although payments are made monthly, the full yearly cost is presented at once, often triggering debate over how much it has risen. In Germany, when energy prices surged after Russia’s invasion of Ukraine in 2022, protests broke out across cities including Berlin, Cologne and Duesseldorf.

South Korea’s comparatively low electricity prices reflect strong government control. Given the public nature of electricity, authorities are reluctant to raise rates even when oil prices climb. In earlier years, low industrial electricity tariffs helped drive economic growth, underpinning global competitiveness in industries such as semiconductors and steel.

Yet prolonged price controls that diverge from market principles risk encouraging excessive consumption. Even when upward pressure on electricity costs builds, the government has often chosen to freeze rates for political reasons. Industrial rates, which are less directly tied to voter sentiment, have risen, but residential and general commercial rates, which are more politically sensitive, have not increased since May 2023.

Unless demand inflated by low electricity prices is brought under control, even a wide range of energy policies may prove ineffective. If demand remains unchecked and the energy situation deteriorates further, the consequences would extend beyond supply disruptions and could destabilize the broader economy. After the outbreak of war between the United States and Iran on Feb. 28, oil prices quickly surged past $100 per barrel, while the already volatile won-dollar exchange rate breached the psychologically significant 1,500 level. As energy supply management becomes a matter of national security, the framework for setting electricity prices must be fundamentally reconsidered.