[Exclusive] Government Indefinitely 'Postpones' Carbon Tax Introduction... Report to Yoon Transition Committee on 24th

'Carbon Price Imposition System Reform Plan' Government Research Report Completed
Promotion of Emissions Trading System Supplement Instead of Carbon Tax Introduction

[Asia Economy Reporters Son Sun-hee (Sejong), Yoo Hyun-seok] The Moon Jae-in administration's discussions on introducing a carbon tax as part of its decarbonization policy have been indefinitely postponed. This decision was made after comprehensively considering factors such as the potential for double regulation with the existing Emission Trading System (ETS). There are also expectations that energy-related policies promoted by the Moon administration, including the carbon tax, will inevitably undergo comprehensive revisions once the new government takes office.

According to tax authorities on the 23rd, instead of introducing a carbon tax, the government is finalizing a direction to supplement and promote the existing greenhouse gas emission trading system. The related government research report is currently undergoing final review. The 'Carbon Pricing System Reform Plan' research report, conducted over a year by four national research institutes?the Korea Institute of Public Finance, the Korea Environment Institute, the Korea Energy Economics Institute, and the Korea Transport Institute?and reviewed by the Ministry of Economy and Finance, will be unveiled for the first time at the Ministry of Economy and Finance's briefing to the Presidential Transition Committee scheduled for the 24th.

The carbon tax introduction research project, commissioned by the government in March last year, was originally scheduled to be completed by the end of last year. However, during the research process, variables emerged such as the government's sharp increase in the 2030 Nationally Determined Contribution (NDC) target from 26.3% to 40% in October last year, leading to the need for additional supplementary research and a three-month extension until March this year. Some speculate that the delay was due to concerns over the presidential election, given that this is a significant issue ultimately linked to tax increases.

The research report on the carbon pricing system reform plan reportedly includes review results for various scenarios, including whether to introduce a carbon tax. However, the overall conclusion after government review converged on the need to supplement and operate the existing emission trading system, which has been in effect since 2015.

The carbon tax and the emission trading system are fundamentally carbon pricing mechanisms with the same purpose of imposing costs on greenhouse gas emissions. Due to differences only in the basis of imposition, their policy effects are essentially identical, leading to continuous criticism of 'overlapping regulation.'

Moreover, the introduction of a carbon tax inevitably links to the current energy tax policy. Given the recent surge in international oil prices, the government is currently implementing a fuel tax reduction policy, which complicates matters. Introducing a carbon tax would effectively raise energy taxes, including fuel taxes, conflicting with the ongoing fuel tax reduction policy. The transportation, energy, and environment taxes, initially scheduled to be abolished at the end of last year, have been extended for three more years until the end of 2024. A Ministry of Economy and Finance official stated, "Since the emission trading system, which strengthens carbon pricing, is in operation, it is necessary to consider consistency between systems," adding, "(The introduction of a carbon tax) needs to be reviewed in the mid to long term."

For the new government led by President-elect Yoon Seok-youl, introducing a carbon tax as a form of 'tax increase' is a burden. The local elections scheduled for June are also imminent. During the presidential campaign, Yoon expressed in his pledge book that "the expansion of paid allocation of greenhouse gas emission permits will be pursued, and the introduction of a carbon tax will be approached cautiously."

The industrial sector, which had expressed concerns about the introduction of a carbon tax, can now breathe a sigh of relief. The steel industry, identified by the European Union (EU) as a priority sector for the Carbon Border Adjustment Mechanism (CBAM), advocates caution regarding the domestic introduction of a carbon tax. A steel industry official said, "If South Korea introduces a carbon tax ahead of other countries, product costs will increase, inevitably reducing export competitiveness," adding, "We need to reduce the burden by considering trends in other countries, including the EU, and linking it with the currently implemented emission trading system."

The semiconductor industry expressed concerns about reduced investment and job losses. A semiconductor industry official stated, "While carbon neutrality is the direction the global economy must take, it is a burden on the industry," and emphasized, "Due to concerns about negative impacts such as investment contraction and job losses, careful decision-making is necessary." The automotive industry shares similar concerns. Although electric vehicles are becoming more widespread, their proportion is still low, so the industry's situation must be taken into account. An industry representative explained, "While the trend is shifting toward electric vehicles, internal combustion engines still dominate," and added, "It is appropriate to introduce measures proportionate to the industry's transition to electric vehicles."

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