[Square] Carbon Neutrality Detailed Scenarios Must Consider Domestic Industry Conditions

Jung Manki, Chairman of the Korea Automobile Manufacturers Association

Recently, the government finalized the 2050 Long-term Low Carbon Development Strategy and plans to establish a detailed carbon neutrality scenario for 2050 by June next year. The National Climate and Environment Council is reported to have suggested that the sale of internal combustion engine vehicles should be halted around 2040. Amidst the global declarations of carbon neutrality, it will be inevitable for us to respond actively as well. If limited to the transportation sector, the core tasks will be the activation of the electric vehicle market and the ban on sales of internal combustion engine vehicles. There are issues to consider in this regard.

One thing is certain: the future automobile market will be reorganized mainly around electric vehicles. The share of electric vehicles in global automobile sales has been expanding from 1.3% in 2011 to 5.7% last year. According to some institutions, the share of electric vehicles in vehicle sales is expected to increase to 10% in 2025, 28% in 2030, and 58% in 2040. In Korea, electric vehicle sales have recently shown a growth rate of around 40%. Efforts are needed to lead our market.

However, these efforts must be made considering that we are a vehicle-producing country. In particular, the ban on sales of internal combustion engine vehicles should be approached cautiously. This is because the positions differ between vehicle-producing countries and those that are not. For example, Norway, a non-vehicle-producing country, declared a ban on internal combustion engine vehicle sales by 2025, and the Netherlands by 2030, whereas Japan, a vehicle-producing country, set the year 2050, and even then allowed sales of hybrid vehicles, in which Japan has competitiveness, beyond that date. In the United States, only the California state government has proposed 2035, and in Germany, although the upper house proposed 2030, the lower house has had it pending for over four years. China proposed 2035, but this is a decision based on an industrial strategy to lead the electric vehicle market.

The activation of the electric vehicle market should also be promoted mainly through incentives rather than regulations. For example, our government introduced a low- and zero-emission vehicle supply target system this year. Companies must pay a contribution fee of up to 1% of sales if they fail to meet their individual supply targets starting in 2022. Except for some states like California in the U.S. and China, no other country has introduced such a system. The problem is that such regulatory measures do not guarantee an expansion in electric vehicle sales. Vehicle sales are influenced by vehicle price, charging infrastructure, charging time, and driving range per charge. If vehicles do not sell in the market, achieving targets is impossible. In China, after implementing a mandatory zero-emission vehicle sales system but reducing subsidies for eco-friendly vehicles, vehicle sales declined by more than 30% in the second half of last year compared to 2018. Incentives such as subsidies and charging infrastructure, rather than regulations, determine the supply of low- and zero-emission vehicles.

The readiness of our automobile parts companies for the transition to the electric vehicle era must also be considered. According to a recent survey by the Automobile Manufacturers Association, only about 40% of our parts companies are developing or producing electric vehicle parts, and most of the funding for this is secured internally. Among these companies, only 17% are achieving profits in the electric vehicle sector. The development and production period for parts is about six years.

Considering this situation, policies that rush the activation of the electric vehicle market may weaken our automobile industry ecosystem and only benefit importers. The domestic electric vehicle market has grown rapidly until November this year, largely due to the increased market share of imported vehicles such as Tesla and Chinese electric buses. Although imported vehicles account for about 16% of total domestic vehicle sales, the market share of imported vehicles in electric vehicles approaches 50%. Policies for the electric vehicle market that do not consider the domestic parts industry situation risk weakening the domestic industry and only expanding imports. This should be noted when establishing detailed carbon neutrality scenarios or related policy formulation.

This content was produced with the assistance of AI translation services.