Ahead of the Presidential Election, 'Carbon Tax' Discussions Intensify... Budget Policy Office Begins Research on "Reviewing New Tax System"

Seeking Carbon Tax to Address Carbon Border Tax by EU and Others
Lee Jae-myung "If Carbon Emissions Don't Decrease, There Is No International Competitiveness for Industry"

[Asia Economy Reporter Park Cheol-eung] The National Assembly Budget Office has begun research on reforming the energy tax system, including the introduction of a carbon tax. This is due to the global spread of the '2050 Carbon Neutrality' vision and the need for improvements in line with the trend, as it is being legislated in Korea as well. Discussions are expected to intensify as some presidential candidates, including Gyeonggi Province Governor Lee Jae-myung, have proposed pledges to introduce a carbon tax.

The Budget Office recently announced an external bid for research titled "Study on the Development Direction of the Energy Tax System in Response to Carbon Neutrality," explaining the research background by stating, "As the ‘2050 Carbon Neutrality’ has become a global agenda, the transition of the energy mix is expected to accelerate, increasing the need to improve energy-related tax systems."

Korea's energy tax system functions as a corrective mechanism that adjusts market prices to guide the energy consumption structure in a specific direction. The Budget Office said, "It is necessary to prepare a plan to reform the energy tax system to encourage increased consumption of eco-friendly energy while securing a stable tax base," adding, "It is necessary to review various options, including maintaining and improving the existing energy tax system and introducing new taxes such as a carbon tax."

Through this research, the Budget Office will reflect changes in energy consumption structure for power generation, the increase of electric and hydrogen vehicles, and analyze industrial trends to forecast tax revenues under various scenarios.

One of the research goals is to propose measures that establish the relationship between the carbon tax and the existing energy tax system, as well as consider the relationship with other systems operated to achieve similar objectives, such as the carbon emissions trading system.

They will also explore carbon tax imposition measures to respond to carbon border taxes imposed by entities such as the European Union (EU). The carbon border tax is a type of tariff imposed on products imported from countries with high carbon emissions. It is a measure to protect companies paying carbon taxes from overseas competitors.

The Budget Office has set the research period at five months, so results are expected before the presidential election in March next year. The Budget Office supports the National Assembly’s budget and settlement reviews and strengthens the Assembly’s fiscal control authority. Especially after experiencing the COVID-19 crisis, the ruling party has emphasized stronger leadership than the executive branch, so discussions on introducing a carbon tax are expected to gain momentum.

Among the ruling party’s presidential candidates, Governor Lee is proactive. He recently announced a 'Transition Growth' pledge, stating, "If carbon emissions are not reduced, the international competitiveness of industries will not exist; this is a harsh reality. Although the carbon emissions trading system is in place, it is insufficient for entering a low-carbon society." He emphasized, "We will effectively suppress carbon emissions by imposing a carbon tax. A portion of the carbon tax revenue will be used to support industrial transition to accelerate the shift to a low-carbon green industry." He also intends to use some of the revenue as a resource for the basic income program, which is considered his signature policy.

Former Minister of Justice Choo Mi-ae stated in her climate change response pledge last month that "carbon taxes and carbon tariffs must be fundamental," and Democratic Party lawmaker Park Yong-jin has also pledged to establish a carbon tax based on national consensus.

Concerns about the burden on companies are not insignificant. Baek Soo-yeon, an analyst at the Budget Office, noted in a report last July, "When a carbon tax is imposed, industries with high carbon emissions such as petrochemicals and steel are expected to experience a decline in operating profit margins and increased costs for investment in carbon reduction facilities, so consideration is necessary." She added, "To address the regressive issues that may arise from the introduction of a carbon tax, it is also necessary to consider carbon tax reductions for low-income groups and support for low-income groups using carbon tax revenues."

Meanwhile, on the 31st of last month, the National Assembly passed the Basic Act on Carbon Neutrality and Green Growth in a plenary session. The act includes a provision to reduce national greenhouse gas emissions by more than 35% by 2030 compared to 2018 levels. This increases the reduction target by 9 percentage points from the previous goal. Korea is the 14th country in the world to legislate a carbon neutrality vision and implementation system.

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