January 13, 2021 (Seoul) – A new report researched by Ernst & Young Han Young and commissioned by Greenpeace Seoul suggests that if Korea’s response to the climate crisis is delayed, the competitiveness of its export industry, which is the basis of the Korean economy, may significantly fall.
The report, “Climate change regulation and its impact on South Korea’s export,” analyzed the impact of a carbon border tax on Korea’s major export industry provided that Korea’s major export nations like the United States, the European Union, and China adopt carbon border tax.
A carbon border tax is a tariff on carbon emissions attributed to imported goods that have not been carbon-taxed at the source country. The European Union will introduce the carbon border tax in 2023, and the US President-elect Joe Biden also advocated for carbon adjustment fees or quotas on carbon-intensive goods from countries failing to meet their climate and environmental obligations. In the era of carbon neutrality, this report is the first finding of its kind that quantified the economic impact of the carbon border tax, which is going to be the pivotal environmental regulation.
When the carbon border tax is introduced in 2023, Korea will pay approximately US$530 million in carbon border tax every year, the report estimated. The figure only accounts for major export industries, such as steel, oil, batteries and automobiles that mainly export to the US, EU, and China.
For exports to the EU, the steel industry is expected to pay over 10% of its export value as carbon border tax, and the petrochemical industry over 5%. In 2018, the business profits of the major global steelmakers were less than 10%, which implies the steel industry could suffer a serious setback.
In 2023, all major export industries to the EU—automobile, battery, shipbuilding, general machinery, medicine, steel, petroleum, and telecommunications—are likely to spend US$253 million as carbon border tax. In 2030, when the regulations are tightened, the tax could be more than doubled to US$619 million.
For exports to the United States, which include petrochemicals, automobiles, batteries, home appliances, telecommunications, and computers, Korea is expected to pay US$93 million by 2023. By 2030, the number will be up to US$296 million. The petrochemical is most likely to suffer because it will have to pay an amount that is equivalent to 5.1% of its current export as a carbon border tax.
For China, the carbon border tax that is imposed on major export industries—petrochemicals, semiconductors, precision equipment, computers, and telecommunications—is estimated to be about US$186 million, nearly quadrupling in 2030 to US$714 million. Among the export target regions surveyed, China was likely to see the largest increase in carbon border tax between 2023 and 2030.
In the report, the three countries were selected based on the actual feasibility of adopting the carbon border tax, the size of imports and the national environmental performance. Then major export items were analyzed based on the export volume by each country.
To yield tax calculation, the report applied the carbon tariff that is most likely to be introduced, among the trade regulations related to the environment. Utilizing the premise suggested by the International Monetary Fund, the report assessed the 2030 carbon price—US$75 for the United States and the EU, and US$35 for China—predicting the carbon border tax accordingly, based on the carbon emissions inherent in Korea’s key exports.
In addition to the carbon border tax, the report noted, the EU and other regions are on a path to ban the sale of internal combustion engines, and major financial institutions are divesting from fossil fuels. The report also highlighted more companies are committing to renewable energy through such initiatives as the RE100, signifying that the new norm in the global economy will be dictated by the receptivity to climate change.
For an effective response to the rapidly evolving trade arrangements, the report suggested the Korean industries must do the following:
- Decarbonize the electricity grid by expanding power generation through renewable energy;
- Expand investment in new technologies such as green hydrogen and wind power generation;
- Actively participate in global climate change initiatives for transparent information sharing with investors and stakeholders.
Jiseok Kim, Climate and Energy Specialist at Greenpeace East Asia said, “The days of making vague statements are over and the world is now transitioning to implementation of concrete climate change policies such as carbon border tax and internal combustion engine car sales ban. Making products that help mitigate climate change in ways that slow down global warming is the only way to protect not only the environment but the economy as well.”
Jiseok Kim, Climate and Energy Specialist at Greenpeace East Asia ，[email protected]/
Jenny Hyun, Communications Officer，[email protected]/ 010-6397-2716