Energy Prices Have Already Risen... The 'Greenflation' Crisis

Government Proposes 40% NDC

Energy Greenhouse Gas Emissions Must Be Reduced by 44.4%

Switching from Fossil Fuels to Electricity
Inevitable Increase in Electricity Demand
Sharp Rise in Electricity Prices Unavoidable

Eco-friendly Policies Drive Energy Prices Up
Dubai Crude Hits Yearly High

Experts Say "When Energy Prices Rise, Companies Pass Costs to Services and Goods... Ultimately Causing Inflation"

[Sejong=Asia Economy Reporter Joo Sang-don] The government has set a 40% target for the '2030 National Greenhouse Gas Reduction Goal (NDC)' and proposed a higher target for the energy sector. This is based on the judgment that reducing the use of fossil energy, which emits the most greenhouse gases, is the most important to achieve the overall target. However, considering that energy prices such as oil are already rising due to the expansion of renewable energy, the so-called 'greenflation,' where stricter eco-friendly regulations lead to a contraction in existing energy production and a sharp price surge, is expected to intensify.

On the 8th, related ministries and the 2050 Carbon Neutrality Committee proposed an upward revision to reduce greenhouse gas emissions in the transition sector by 44.4% by 2030. This figure is 4.4 percentage points higher than the total reduction rate of 40%, and except for waste?which had the lowest greenhouse gas emissions in 2018 (17.1 million tons of CO2 equivalent)?the transition sector must carry out the most intensive reductions.

In 2018, greenhouse gas emissions in the transition sector were 269.6 million tons. The existing NDC aimed to reduce this by 28.5% to 192.7 million tons, but with the NDC revision, it must be reduced to 149.9 million tons, requiring an additional reduction of 42.8 million tons compared to the previous target.

The government proposed reducing the share of coal power generation and expanding renewable energy as measures to reduce emissions in the transition sector. Specifically, the 2030 power generation shares by energy source are proposed as △Nuclear 23.9% △Coal 21.8% △Liquefied Natural Gas (LNG) 19.5% △Renewables 30.2%.

Professor Jeong Dong-wook of the Department of Energy Systems Engineering at Chung-Ang University said, "The nuclear power share appears to follow the existing nuclear phase-out roadmap. To switch energy sources in each sector from fossil fuels to electricity, electricity demand will inevitably increase, and it is questionable whether this can be met solely by renewable energy. Even if possible, a sharp rise in electricity prices is unavoidable."

The surge in energy prices due to eco-friendly policies is already evident. Dubai crude oil recorded $80.55 per barrel on the 6th, marking the highest level of the year. LNG futures prices on the New York Mercantile Exchange (NYMEX) jumped to $6.31 per 1 MMBtu (1 MMBtu = gas producing 250,000 kcal of heat) on the 5th, nearly tripling from $2.33 on December 28 last year. Additionally, the price of coal for power generation, which was around $54.4 per ton in October last year, soared to $206.3 per ton earlier this month.

This is a factor driving electricity price increases. Earlier, the government and Korea Electric Power Corporation raised electricity rates in the fourth quarter for the first time in eight years since November 2013, due to the surge in fuel costs starting early this year. The average post-tax prices for coal, LNG, and BC oil reflected in the fourth quarter electricity rates for June to August this year were 151.13 KRW/kg, 601.54 KRW/kg, and 574.4 KRW/kg respectively, representing a 10.2% to 22.6% increase compared to the previous three months. This has increased the burden on the public.

Joo Won, head of the Economic Research Office at Hyundai Research Institute, said, "When energy prices rise, companies inevitably pass the costs onto services and goods, which ultimately causes inflation. Especially in South Korea, where the industrial structure is centered on heavy and chemical industries with high energy consumption, the impact of energy prices on inflation is greater than in Europe and other regions."

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