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[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kwon Haeyoung] The Ministry of Trade, Industry and Energy attempted to significantly expand the scale of support for carbon reduction technology research and development (R&D) for large corporations to the level of small and medium-sized enterprises (SMEs), but it has encountered difficulties due to opposition from the Ministry of Economy and Finance. This is due to concerns over preferential treatment for large corporations. However, considering that large corporations like POSCO alone must spend an astronomical 54 trillion won to achieve the 2050 carbon neutrality goal, there are criticisms that the government may be overly sensitive to the issue of 'preferential treatment for large corporations.'

According to the government and related industries on the 7th, the Ministry of Trade, Industry and Energy applied to the Ministry of Science and ICT last month for a preliminary feasibility study on 'carbon neutrality technology development in the industrial sector' worth 6.729 trillion won, deciding to maintain the current 50% support ratio for large corporations' R&D project expenses.

If a company's R&D project is selected as a task under the government's industrial technology innovation project, the government supports part of the R&D costs. The support is broadly divided into innovative product type and fundamental technology type tasks, with the government covering 33-50% of the total project cost for large corporations and 67-75% for SMEs.

Initially, the Ministry of Trade, Industry and Energy aimed to raise the support ratio for large corporations' carbon neutrality R&D to a maximum of 75%, the same level as SMEs. However, the Ministry of Economy and Finance reportedly expressed reluctance due to concerns about preferential treatment for large corporations.

A government official said, "The Ministry of Economy and Finance, the Ministry of Trade, Industry and Energy, and the Ministry of Science and ICT are continuously consulting regarding the expansion of the support ratio for large corporations," adding, "The final decision on the support ratio for large corporations in carbon neutrality R&D by the Ministry of Trade, Industry and Energy will be made at the time the actual project is executed."

The business community is voicing strong demands for a significant expansion of government support. In particular, the steel industry, including POSCO, which is the largest carbon emitter in Korea accounting for 12% of total emissions, is making strong demands. The Ministry of Trade, Industry and Energy plans to support the steel industry with a total of 1.0597 trillion won from 2023 to 2030, investing 800 billion won in the development of hydrogen reduction steelmaking technology and the construction of demonstration plants that produce molten iron using hydrogen instead of coal. A consortium led by POSCO, including research institutes, academia, and SMEs, will carry out the project, but POSCO, as a large corporation, will only receive support for half of the total project cost.

A steel industry official said, "Hydrogen reduction steelmaking has high technological barriers and development risks, requiring large-scale R&D costs," emphasizing, "The government needs to expand support during the initial technology development and demonstration phases and ease the burden on companies so that large corporations can make large-scale investments once the business feasibility is confirmed."

The Korea Iron & Steel Association analyzed that if POSCO replaces all nine currently operating blast furnaces with hydrogen reduction facilities, a total cost of 54 trillion won will be incurred, including 27 trillion won in sunk costs and 27 trillion won in installation costs. Domestic companies have a high proportion of blast furnaces, accounting for 68.9%, which is a heavier burden compared to the European Union (57.6%), the United States (29.4%), and India (44.5%).

Government support for large corporations in Korea is minimal compared to major countries. According to an analysis of OECD statistics by the Korea Economic Research Institute, the proportion of government support in total R&D investment by companies in major countries last year was 2% in Korea, which is lower than France (41%), China (23%), Germany (19%), Japan (17%), the UK (12%), and the US (7%). Last year, government R&D support for large corporations decreased to 1.6%, while support for SMEs expanded to 24.3%.

Meanwhile, a Ministry of Economy and Finance official stated regarding the increase in the support ratio for large corporations in the carbon neutrality R&D project, "We plan to decide after consulting with related ministries such as the Ministry of Trade, Industry and Energy." Although the authority for preliminary feasibility study review has shifted to the Ministry of Science and ICT, the Ministry of Economy and Finance holds the budget allocation authority, so adjustments to the support ratio for large corporations during the preliminary feasibility study application are usually discussed with the Ministry of Economy and Finance as well.

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