The Bank of Korea Says "High-Carbon Industries' Stock Prices Could Drop Up to 53% by 2050"

Publication of the Report on 'Climate Change Transition Risks and Financial Stability'

On the 21st, the KOSPI opened at 2,981.67, up 18.67 points (0.63%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate started at 1,189.8 won, down 1.0 won from the previous trading day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jang Sehee] An analysis has emerged that the production costs of high-carbon industries such as petrochemicals will surge, causing the default rates in these sectors to rise and stock prices to halve by 2050. This could also spread to bank insolvencies, necessitating preemptive measures.

According to the Bank of Korea's Monthly Survey of Economic Statistics published on the 30th, titled "Climate Change Transition Risks and Financial Stability," "Transition risks arising from climate change responses are likely to have a significant impact on long-term growth trends and financial stability, which is a key responsibility of central banks."

Assuming the global average temperature rise is limited to 1.5 to 2.0 degrees Celsius compared to pre-industrial levels (1850?1990), the analysis found that production costs in nine high-carbon industries?including petrochemicals, refining, steel, shipping, coal power, and cement (industries with the highest greenhouse gas emissions relative to value added)?would increase. Consequently, value added would sharply decline and default rates would rise. As a result, the value added in high-carbon industries is expected to decrease annually by 0.95% (2℃ scenario) to 2.44% (1.5℃ scenario) due to transition risks, leading to a reduction of 28.5% (2℃ scenario) to 73.1% (1.5℃ scenario) by 2050 compared to the scenario baseline.

By individual industry, the electricity supply sector is expected to recover significantly from transition risk shocks as existing fossil fuel-based technologies are replaced by renewable energy. High-carbon manufacturing industries such as petrochemicals are anticipated to suffer losses over a long period because greenhouse gas reduction technologies for carbon neutrality have not yet been developed or commercialized.

The increase in production costs for high-carbon industries is predicted to raise default rates, increase credit risk, and cause stock prices to plummet sharply. The default rate for high-carbon companies is projected to rise by 10.2 to 18.8 percentage points (an annual increase of 0.34 to 0.63 percentage points) by 2050 compared to 2020. Stock prices in high-carbon industries are also expected to fall dramatically by 51.0 to 53.7% (1.7 to 1.8% annually) over 30 years.

Meanwhile, concerns about the insolvency of high-carbon industries during the implementation of low-carbon policies are expected to have an immediate impact on banks. The Bank of Korea stated that by 2050, due to the insolvency of high-carbon industries, the BIS ratio of domestic banks will decline by 2.6 to 5.8 percentage points compared to last year. Under the "1.5-degree scenario," the BIS ratio is projected to fall to 10.7%, close to the regulatory minimum of 10%.

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