The Growing Importance of Carbon in Corporate Profitability Analysis... "Active Discussions on Carbon Border Tax"

Carbon Emission Allowance Supply Shortage May Occur

As carbon emission targets are strengthened, European emission allowance prices are soaring. (Provided by DB Financial Investment)

[Asia Economy Reporter Gong Byung-sun] An analysis has emerged suggesting that carbon emissions should be considered when analyzing corporate profitability.

According to DB Financial Investment on the 1st, major countries are strengthening carbon emission targets to achieve a carbon-neutral economy. At the Climate Change Summit held on the 22nd, major countries including the United States, Europe, the United Kingdom, and Japan announced ambitious reduction targets.

Although South Korea did not present exact figures at the summit, it plans to propose strengthened carbon emission reduction targets by the end of the year. The cost of carbon emissions in major advanced countries is expected to increase in the future. In Europe, carbon emission regulations have been tightened, and due to Brexit (the United Kingdom's withdrawal from the EU) and economic normalization, the price of carbon emission permits has doubled compared to the COVID-19 period, rising to 40 euros (approximately 53,900 KRW).

In particular, as discussions on the carbon border tax become more active, it is anticipated that reducing carbon emissions will be essential for exports. Europe is discussing the introduction of a carbon border tax to prevent carbon leakage caused by strengthened carbon emission targets. Carbon leakage refers to the relocation of carbon-intensive industries to countries with weaker carbon emission regulations. Kang Dae-seung, a researcher at DB Financial Investment, explained, “The carbon border tax imposes tariffs on items imported from countries with weaker carbon emission regulations to countries with stronger regulations,” adding, “If the carbon border tax is introduced, it could become a burden for some domestic industries.”

Accordingly, concerns have been raised domestically that the cost burden due to carbon emissions may increase. Following the recovery of manufacturing operating rates after COVID-19, demand for carbon emission permits is expected to rise. If the 2030 carbon emission reduction targets are announced within this year and the total allowable carbon emissions are reduced, it could lead to a shortage in the supply of carbon emission permits. Researcher Kang stated, “In the future, companies with high sales efficiency relative to carbon emissions are more likely to secure price competitiveness,” recommending, “It is advisable to utilize sales and carbon emission indicators as one axis in analyzing corporate profitability.”

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