The dilemma of government intervention in the liquefied petroleum gas market: Focusing on entry regulation

With the proliferation of air pollution in the Seoul metropolitan area since the 2000s and the emergence of fine dust as a salient social issue around 2018, the Korean government has explored a range of policy options to promote the use of liquefied petroleum gas (LPG). Against this backdrop, this paper analyzes the LPG market from the viewpoint of economic regulation, examining the various policy instruments that have been adopted by the government over time. Specifically, under current legislation, LPG is categorized not only by its physical characteristics but also by market demand. Accordingly, butane is used for transportation, while propane is used for household purposes. Price controls on both types of gas were maintained until 2001. Further analysis shows that butane, as a cheaper alternative to gasoline, was gradually approved for use as a taxi fuel and by national merit awardees and people with disabilities, beginning in the 1980s. Subsequently, restrictions on LPG usage were eased in line with the policy objective of expanding eco-friendly fuels. In contrast, propane lost ground to natural gas during the 1990s, leading to a shrinking market. More recently, since 2013, the government has expanded small-scale LPG distribution projects in rural, island, and mountainous regions with poor access to city gas, under the policy goal of enhancing energy welfare. In conclusion, this study suggests that, given Korea’s nearly three decades of accumulated experience since the liberalization of LPG prices, this is an appropriate time to reconsider the optimal allocation of roles between government and market actors.