Cornered by EU Carbon Border Tax, South Korea... Government Rolls Up Sleeves to Support Private Sector Technological Innovation

Greenpeace "Steel Industry Faces 543.8 Billion KRW Carbon Border Tax by 2030... 16.67% of European Exports"
Ministry of Industry to Invest 5 Trillion KRW in Carbon Neutral R&D Including 1 Trillion for Steel
Subsidies Raised to 67% of Mid-Sized Company R&D Costs
Private Firms to Receive Incentives Like Tax, Finance, and Regulatory Exceptions to Ease Carbon Neutrality Burden

[Sejong=Asia Economy Reporter Kwon Haeyoung] The Ministry of Trade, Industry and Energy has decided to pour 5 trillion won into research and development (R&D) of new carbon reduction technologies in the industrial and energy sectors by 2030 because the survival of domestic companies depends on 'carbon neutrality.' While the country must achieve the 2050 carbon neutrality goal internally, the introduction of the EU's Carbon Border Adjustment Mechanism (CBAM) and the U.S. signaling the introduction of a carbon border tax have made carbon reduction an irreversible global trend, cornering domestic high-carbon-emission manufacturing companies that rely on trade. The business community unanimously agrees that the government should significantly increase new budget allocations for carbon reduction technology development at the pan-government level to actively support technological innovation in private companies.

◆Domestic Industry Hit Hard by EU Carbon Border Tax...Business Community Calls for Incentives for Carbon Reduction Technological Innovation＝ Greenpeace released a press statement immediately after the EU unveiled the CBAM details on the 14th (local time), forecasting that the domestic steel industry could bear up to $472.8 million (approximately 543.8 billion won) in carbon border taxes by 2030 if export volumes to the EU are maintained. This figure assumes that the carbon emission allowance price within the EU rises from the current low 50 euros to 85 euros by 2030, as expected by the European Commission, and amounts to 16.67% of steel export revenue to the European market.

Greenpeace observed, "If competitors develop hydrogen-reduced steel with extremely low carbon emissions, the market competitiveness of steel produced using existing methods will deteriorate sharply," adding, "If the scope of the carbon border adjustment mechanism expands to other export products in 2026, the damage to domestic industries could be enormous."

CBAM essentially imposes tariffs on imports with higher carbon emissions than products produced within the EU. It will initially apply to five sectors?steel, cement, fertilizer, aluminum, and electricity?in 2023 and is scheduled for full implementation in 2026.

The business community is in a state of emergency as concerns over the carbon border tax become a reality. Particularly, manufacturing accounts for 27.8% of the Korean economy, making the industrial sector's burden heavier compared to other countries. The Federation of Korean Industries appealed, "Please strengthen support incentives for technological innovation to reduce carbon emissions in carbon-intensive industries."

◆Government to Promote Tax and Financial Incentives for Carbon Reduction New Technology R&D... "Significantly Increase New Budget"＝ The Ministry of Trade, Industry and Energy, responsible for the real economy, plans to invest at least 1 trillion won in the steel industry's transition to eco-friendly processes and a total of 5 trillion won by 2030 to support technological innovation for carbon reduction in the industrial and energy sectors.

They intend to strengthen incentives across all areas, including tax, finance, and regulatory exemptions, related to carbon neutrality new technology R&D. In particular, the threshold for large companies like POSCO to participate in government R&D projects will be significantly lowered. Currently, the ministry supports 33% of large companies' R&D costs, but for carbon neutrality technologies, the government support ratio will be raised to 67%, the level for small and medium enterprises. They are also pursuing a plan to additionally include carbon neutrality-related new technologies in the tax credit for new growth and core technology investments.

The ministry plans to focus on supporting companies' carbon neutrality efforts by enacting the 'Carbon Neutrality Special Act' soon, establishing a carbon neutrality R&D strategy including a technology roadmap through 2050 in September, and announcing the '2050 Carbon Neutral Industrial Transformation Vision and Strategy' within the year.

Some voices call for a significant expansion of the government's new budget for carbon reduction technology development. If the 5 trillion won public-private cooperative carbon neutrality technology R&D project promoted by the ministry passes the preliminary feasibility study, the annual budget from 2023 to 2030 will be 600 to 700 billion won, about 5-6% of the ministry's 2023 budget (11.186 trillion won). Since there is considerable overlap with existing budgets, there are calls to increase support for carbon reduction new technology R&D at the pan-government level, including the Ministry of Trade, Industry and Energy. For comparison, the Australian government plans to invest 18 billion Australian dollars (about 15.5 trillion won) by 2030 in developing low-carbon emission technologies for companies, which is three times the budget the ministry plans to invest by 2030.

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