[Weekly Review] Stronger Carbon Neutrality Scenario... Carbon Neutrality Committee Includes Perfect 'Net Zero'

[Image source=Yonhap News]

[Asia Economy Reporter Joo Sang-don] The Presidential Committee on Carbon Neutrality (Carbon Neutrality Committee) has presented a net-zero scenario to achieve zero net carbon emissions by 2050 (Net Zero: total emissions - offset = 0). This goes a step further than the carbon net emission reduction scenarios previously submitted by the government to the committee, adding a plan to shut down coal power plants and completely halt liquefied natural gas (LNG) power generation.

On the 5th, Yoon Soon-jin, the private co-chair of the Carbon Neutrality Committee, announced the draft of the "2050 Carbon Neutrality Scenario" containing these details at the Government Seoul Office. Chair Yoon said, "The scenario envisions the future when carbon neutrality is realized in 2050 and forecasts the transition process by sector. It will serve as a compass to gauge detailed policy directions and transition speeds by sector."

The committee's proposal consists of three scenarios. In addition to the government's existing Plan 1 and Plan 2, a third plan including the net-zero scenario was added. Plans 1 and 2 aim to maintain coal power generation while reducing net carbon emissions to 25.4 million tons (Plan 1) and 18.7 million tons (Plan 2), respectively. Plan 3 targets net emissions of zero, aiming for perfect net zero.

The biggest differences between Plans 1 and 2 and Plan 3 occur in the power transition and hydrogen sectors. Plan 1 assumes maintaining seven coal power plants with remaining lifespans as of 2050, while Plan 2 assumes halting coal power but using LNG power as an emergency power source. The net carbon emissions in the power transition sector are 46.2 million tons (Plan 1) and 31.2 million tons (Plan 2), respectively.

In contrast, Plan 3 assumes a complete shutdown of both coal and LNG power generation, aiming to reduce carbon emissions in the power transition sector to zero. In the hydrogen sector, Plans 1 and 2 reflect 13.6 million tons of carbon emissions, but Plan 3 proposes converting all hydrogen to green hydrogen, resulting in zero emissions.

The committee will gather public opinions on the three scenarios through a carbon neutrality citizens' assembly of about 500 members, launching on the 7th. After further discussions among related ministries, the government plans to announce the final plan by the end of October.

◆ Current Account Surplus in the First Half Hits Five-Year High... Expected to Surpass $80 Billion Annually= As the global economy recovers from the COVID-19 shock, South Korea's current account surplus in the first half of the year recorded the largest gain in five years. Compared to the first half of last year, which was severely impacted by COVID-19, it increased by 2.3 times (133%), marking the third-largest surplus on record for the first half of the year. Since last year, South Korea's current account has posted a surplus for 14 consecutive months amid export recovery.

According to the Bank of Korea's "June and First Half Balance of Payments (Preliminary)" report on the 6th, the current account surplus for the first half of this year was $44.34 billion (approximately 50.67 trillion KRW), an increase of $25.3 billion compared to $19.04 billion in the first half of last year. This is the third-largest surplus for the first half of the year after $53.45 billion in the first half of 2016 and $49.7 billion in the first half of 2015.

The surplus is mainly driven by exports. Exports in the first half reached $301.79 billion, up 26.6% ($63.39 billion) from $238.4 billion in the same period last year. Due to rising raw material prices, expanded exports and facility investments, and improved consumer sentiment, imports of raw materials (up 25.5%), capital goods (up 22.9%), and consumer goods (up 22.7%) also increased. Imports in the first half totaled $263.62 billion, up 23.6% ($50.35 billion) from the previous year. The trade balance, representing the difference between exports and imports, was $38.17 billion, with the surplus expanding by $13.04 billion compared to the same period last year.

Along with economic recovery, the increase in freight transport income significantly reduced the service deficit. The service account deficit in the first half was $2.9 billion, narrowing by $6.69 billion compared to the same period last year. The transportation account posted a surplus of $5.81 billion, turning positive compared to the previous year and recording the largest surplus ever. On a monthly basis, the current account surplus for June was $8.85 billion, marking 14 consecutive months of surplus.

During the same period, domestic investors increased overseas stock investments by $39.47 billion, marking the largest increase ever. This surpassed the $28.48 billion recorded in the first half of last year, driven by a stock market boom involving not only individuals but also non-financial corporations investing in overseas stocks. Conversely, foreigners withdrew $13.58 billion from domestic stocks in the first half, realizing profits. However, foreign investment in domestic bonds increased by $46.42 billion, the largest increase on record. Domestic bonds were attractive due to their stability and relatively high yields.

(Photo) [Image source=Yonhap News]

◆ July Consumer Prices Rise 2.6% Again at Highest Level... Volatility Expands Amid ‘Heatwave’ Variable= Consumer prices rose 2.6% last month, matching the highest level recorded in May. The inflation rate, which had been steadily increasing this year, appeared to pause in June but surged again due to supply-demand instability caused by the heatwave. Contrary to the government's expectation of stabilization in the second half, volatility is expanding ahead of Chuseok.

According to Statistics Korea's "July Consumer Price Trends" released on the 3rd, the consumer price index last month was 107.61 (2015=100), up 2.6% compared to the same month last year. This increase matches the 2.6% peak recorded in May, the highest in 9 years and 1 month.

Agricultural product prices rose broadly due to poor crop yields caused by the heatwave, and egg prices surged more than 1.5 times compared to a year ago due to avian influenza (AI), pushing overall agricultural, livestock, and fishery product prices up 9.6%. Eo Un-seon, Director of Economic Trend Statistics at Statistics Korea, explained, "The impact of poor crop yields last year and early this year continued, causing agricultural product prices, especially fruits and grains, to rise 11.1%. Livestock products also increased 11.9%, centered on eggs, pork, and domestic beef, due to AI outbreaks, the heatwave, and increased demand."

Industrial product prices, including gasoline (up 19.3%) and diesel (up 21.9%), also rose 2.8% during the same period due to soaring international oil prices. Service prices increased by 1.7%, and electricity, water, and gas prices, which had previously recorded negative growth, rose by 0.3%. This was due to the reduction of electricity bill discounts applied in July last year and the disappearance of urban gas price reduction effects.

With prices rising across sectors, the living cost index, which reflects items sensitive to consumer price changes, rose 3.4% compared to a year ago. This is the highest increase in 3 years and 11 months since August 2017 (3.5%).

The inflation rate for the second quarter, when prices rose intensively, was 2.5%, already far exceeding the government's annual inflation management target of 2.0%. The government initially expected prices to stabilize in the second half, but due to unexpected variables such as the heatwave, inflation started the second half at a level exceeding the mid-2% range. Additionally, concerns have emerged that the COVID-19 coexistence national support fund (250,000 KRW per person), scheduled for concentrated payment next month, may further fuel inflation.

The Ministry of Economy and Finance stated, "We will focus policy efforts on stable price management with special vigilance in preparation for the possibility of continued upward pressure on prices. In particular, to stabilize living costs for low-income households, we will proactively and fully respond to stabilize agricultural, livestock, and fishery product prices before Chuseok."

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