FKI: Domestic Companies Face Up to 36 Trillion Won Tax Burden if Carbon Tax Imposed

[Asia Economy Reporter Woo Su-yeon] The Federation of Korean Industries (FKI) has projected that if a carbon tax burden begins domestically, the annual additional tax burden on domestic companies could increase up to 36.3 trillion won. This amount is equivalent to half of South Korea's total tax revenue in 2019.

On the 31st, FKI announced an analysis of the additional tax burden costs that could arise for domestic companies upon the introduction of a carbon tax, based on 2019 greenhouse gas emissions. The analysis predicted that the additional burden could range from a minimum of 7.3 trillion won to a maximum of 36.3 trillion won annually.

FKI estimated the carbon tax under three scenarios with rates of $10, $30, and $50 per ton of CO2 equivalent. The analysis covered 908 emission sources registered in the 2019 Greenhouse Gas Energy Target Management Statement, including private companies and major public power corporations. Under each scenario, the estimated carbon tax burdens were 7.3 trillion won, 21.8 trillion won, and 36.3 trillion won, respectively.

Among these, the top 100 emitters by emission volume are expected to bear 89.6% of the total carbon tax, with companies having lower operating profits anticipated to face greater burdens from the carbon tax. The number of emission sources where the carbon tax amount could exceed operating profits is estimated to reach up to 50 under the scenarios.

Carbon Tax Burden Status by Scenario (Based on 2019 Performance) / Source: Federation of Korean Industries

By industry, under the mid-level scenario ($30 per ton CO2 equivalent), the burden ranking is as follows: power generation energy (8.8 trillion won), steel (4.1 trillion won), petrochemicals (2.1 trillion won), cement (1.4 trillion won), and refining (1.2 trillion won). FKI pointed out that the carbon tax burden on major public power corporations and their subsidiaries (7 companies) alone amounts to 7.3 trillion won, which could act as a factor for electricity rate increases due to rising costs.

Looking at cases in major overseas countries, as of 2020, 24 countries have introduced a carbon tax, but among the top 10 greenhouse gas emitters, only Japan and Canada have implemented a carbon tax. Japan, ranked 5th in emissions, imposes an additional $3 per ton CO2 equivalent through the 'Global Warming Countermeasure Tax' on top of petroleum and coal taxes, while Canada, ranked 10th, has introduced carbon taxes at the provincial government level. Countries with relatively high carbon tax rates among those that have introduced the tax tend to have lower greenhouse gas emissions and higher shares of renewable energy generation, such as Sweden, Switzerland, and Finland.

Yoo Hwan-ik, head of the Corporate Policy Office at FKI, said, "South Korea has a higher manufacturing sector ratio compared to major countries, so a low-carbon transition in the industrial sector is expected to be very challenging." He added, "If an excessive carbon tax is introduced, the burden on the industrial sector could become too heavy, potentially causing negative effects on the overall economy such as reduced investment, job losses, and price increases."

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