Bringing in Future Technologies for a 40% NDC Surge... Industry on High Alert Over Soaring Emission Permit Prices

Industrial Sector Carbon Reduction Target More Than Doubled from 16.7 Million Tons to 37.9 Million Tons
Including Future Technologies Like Low-Carbon Steelmaking, NDC Increase Seen as Overambitious
NDC Increase → Stricter Greenhouse Gas Emission Regulations → Sharp Rise in Emission Permit Prices Sparks Industry Alarm
"Expand Overseas Reduction Credits to Ease Burden on Industry and Others"

[Asia Economy Reporter Kwon Haeyoung] The upward revision of the Nationally Determined Contribution (NDC) is expected to inevitably cause shocks across all sectors, including industry, energy, and transportation. This is because the cost burden of carbon neutrality will significantly increase. While the government estimates that the impact of the revised NDC on the Gross Domestic Product (GDP) growth rate will be at most -0.09%, the Bank of Korea analyzes that if the scope is expanded to include the 2050 carbon neutrality target, the annual impact could reach as much as -0.32%. In particular, concerns have been raised that by significantly raising the NDC to include 'future technologies' that have not yet been commercialized, the carbon reduction burden on the industrial sector will sharply increase. Above all, as the government is expected to strengthen greenhouse gas emission regulations to achieve the NDC, fears are spreading that emission permit prices will surge, causing a rapid increase in environmental cost burdens on the industrial sector.

◆Including Future Technologies for an Additional 99.5 Million Tons Reduction＝According to the government's revised 2030 NDC announced on the 8th, the government plans to reduce domestic greenhouse gas emissions from the peak total of 727.6 million tons in 2018 to 436.6 million tons by 2030. Initially, the government had planned to reduce carbon emissions to 536.1 million tons (a reduction rate of 26.3%) by 2030, but with this NDC revision, an additional 99.5 million tons must be cut compared to the previous plan.

The sector-specific greenhouse gas emission targets presented by the government are ▲Industry 222.6 million tons (-14.5% compared to 2018 emissions) ▲Power generation 149.9 million tons (-44.4%) ▲Transportation 61 million tons (-37.8%) ▲Buildings 35 million tons (-32.8%) ▲Agriculture, forestry, and fisheries 18.3 million tons (-25.9%) ▲Waste 9.1 million tons (-46.8%) ▲Hydrogen 7.6 million tons (new) ▲Others 5.2 million tons (unchanged).

This NDC revision is expected to hit the industrial sector particularly hard. The amount of carbon emissions the industry must reduce has doubled compared to the previous target. Under the previous NDC, the industry was required to reduce 16.7 million tons of carbon by 2030, but now the target has been set at 37.9 million tons, more than double. This reduction target is significantly higher than before. Initially, the government had conveyed to the Carbon Neutrality Committee that when setting the NDC at 35-40%, the industry's reduction target should be 12.9-14%, but during the committee's discussions, it was raised to 14.5%.

Looking at major industries, ▲Steel plans to reduce carbon emissions from 101.2 million tons in 2018 to 98.9 million tons in 2030, a 2.3% reduction. ▲Petrochemicals will reduce from 46.9 million tons to 37.4 million tons, a 20.2% cut. ▲Cement will reduce from 34.1 million tons to 30 million tons, a 12% reduction. ▲Other sectors such as semiconductors and displays will reduce from 78.3 million tons to 56.3 million tons, a 28.1% cut.

The problem is that by setting the targets too high, the government has included a significant amount of future technologies that have not yet been commercialized in sectors such as steel, semiconductors, and industrial complex cogeneration. For example, the steel industry plans to reduce carbon emissions through energy savings, partial conversion of blast furnaces to electric steelmaking, and applying steel scrap to converters. However, the 'low HMR operation technology' that applies steel scrap to converters is currently in the development stage. POSCO aimed for commercialization by 2040, but with this NDC revision, the introduction timeline has been advanced to 2030, and Hyundai Steel has also been directed to adopt similar technology.

◆Emission Permit Market Shock Inevitable with NDC Revision＝As the government proposes to significantly raise the NDC from the previous 26.3% to 40%, companies subject to the greenhouse gas emissions trading system are expected to face a sharp increase in environmental cost burdens. The government has already reduced the annual allocation per company from 970,000 tons in the 2nd phase (2018-2020) to 760,000 tons in the 3rd phase (2021-2025), and after finalizing the NDC revision, plans to further reduce emission allowances to meet the targets. Companies that fail to meet the carbon reduction targets set by the government will be forced to either artificially reduce production or purchase additional emission permits to emit carbon.

The NDC revision is expected to further fuel the recent surge in emission permit prices. The price of the emission permit 'KAU21' was 29,600 KRW the day before, doubling from 15,400 KRW six months ago (April 8). This increases the reduction burden on the industrial sector even more.

The industrial sector unanimously agrees that the NDC targets should be set considering Korea's high manufacturing ratio. There are calls for moderating the speed of carbon neutrality. According to the Organization for Economic Cooperation and Development (OECD), Korea's manufacturing share of GDP is 27.8%, higher than Germany (21.6%) and Japan (20.8%), which have similar industrial structures. Nevertheless, the government has raised the 2030 NDC, setting an average annual reduction rate of 4.71%, which is higher than the European Union (1.98%), the United States (2.81%), the United Kingdom (2.81%), and Japan (3.56%).

Some argue that expanding international reductions further is necessary to alleviate the burden on the industrial sector. Previously, the government conveyed to the Carbon Neutrality Committee that if the NDC is set at 40%, the international reduction portion should be increased to 7.2 percentage points, similar to Japan's level (around 7%). However, the committee insisted that even if international reductions are expanded, they should be less than Japan's, deciding on a total reduction target of 40%, with domestic reductions at 35.2 percentage points and international reductions at 4.8 percentage points.

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