"Companies Cry Out Over 'Carbon Emission Cost Burden'... One Year's Operating Profit Gone"

Emission Trading Prices Surge 52% in 4 Months
Burden on High-Emission Industries like Steel, Cement, and Refining
At Least 400 Trillion Won Expected by 2050

[Asia Economy Reporters Kim Bo-kyung, Moon Chae-seok, Hwang Yoon-joo] As carbon emission trading prices have surged by more than 50% recently, carbon-intensive companies such as steel, refining, and petrochemical industries are becoming increasingly tense. This is because carbon emissions are directly linked to corporate performance, increasing the likelihood of significant impacts.

According to industry sources on the 30th, Hyundai Steel, which has the second highest carbon emissions in Korea, has set aside 65.4 billion KRW in provisions for liabilities related to carbon emission trading from 2018 through the third quarter of this year. Including the fourth quarter trades reflecting the recent price increases, the provisions related to emission trading are estimated by the industry to exceed 100 billion KRW. This amount is comparable to this year’s expected operating profit of 114.2 billion KRW. Despite having struggled to generate profits amid the COVID-19 pandemic, net profit is expected to significantly decrease due to non-operating expenses (costs for securing carbon emission rights).

The burden of purchasing carbon emission rights for companies is growing even larger. According to the Korea Exchange, which handles carbon trading rights, the average market price for greenhouse gas emission rights (KAU20) was 27,000 KRW per ton as of the closing price on the 28th. This is a 51.7% increase from the lowest price of 17,800 KRW recorded on August 19 this year. The price has risen more than 50% in the past four months. Although it is lower than the 42,500 KRW recorded on April 3, it has maintained a steep upward trend since August.

The rise in emission trading prices is due to demand exceeding supply. As carbon emission regulations have tightened, efforts to secure emission rights have pushed prices upward. The 35.8% increase in prices in Europe, the world’s largest emission rights market, compared to the end of last year has also had an impact.

The rise in emission rights prices is negatively affecting the performance of heavy chemical industries, which are key sectors. The cost Hyundai Steel has invested in purchasing emission rights since 2018 is 20 times the cost incurred during the previous three years from 2015 to 2017.

The problem is that companies must not only bear the burden of purchasing emission rights but also invest in carbon reduction facilities. As the European Union (EU), the United States, and others are expected to accelerate the introduction of carbon border taxes, investment in carbon reduction facilities could become a new trade barrier. In particular, carbon-intensive sectors such as steel, petrochemicals, cement, and refining are also facing the burden of business restructuring in line with the government’s 2050 carbon neutrality policy.

At the '2050 Long-term Low Carbon Development Strategy (LEDS) 2nd Industry Forum' held last October, it was projected that the three domestic industries of steel, petrochemicals, and cement would need to spend at least 400 trillion KRW on carbon neutrality costs by 2050.

Professor Kim Min-sung of the Department of Energy Systems Engineering at Chung-Ang University said, "If emission rights prices surge, it will not only worsen corporate management but also raise concerns that domestic companies’ competitiveness will weaken more significantly compared to overseas companies, such as those in China, where emission rights trading is less active."

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