Three-Year Inter-Ministerial Tug-of-War Over Designating Hydrogen as a 'National Strategic Technology'

[Asia Economy Sejong=Reporter Dongwoo Lee] Disagreements among government ministries over the plan to develop hydrogen as a national strategic industry have persisted for three years. The Ministry of Trade, Industry and Energy insists that hydrogen should be included as a core renewable energy for carbon neutrality in the national strategic technologies, while the Ministry of Economy and Finance, which oversees taxation, emphasizes the need for a cautious approach since the selection of strategic technologies is directly related to tax revenue.

According to related ministries on the 18th, the Ministry of Economy and Finance recently requested data on the current status of the hydrogen industry and key technologies from the Ministry of Trade, Industry and Energy. This was to review whether hydrogen should be included in the national strategic technologies by examining the latest trends. Earlier this month, after the government raised the tax credit rate for semiconductor facility investments to a maximum of 25%, political circles argued that other industries such as hydrogen should also be included in the national strategic technologies for fairness, prompting this review.

National strategic technologies refer to technologies of strategic importance from a national security perspective and those that have a significant impact on the national economy, which the government manages intensively. Established at the end of 2021 through amendments to the Restriction of Special Taxation Act, fields selected as national strategic technologies benefit from top-level tax support compared to major competing countries when conducting research and development (R&D) and facility investments. Currently, national strategic technologies cover a total of 36 technologies across three fields: semiconductors, secondary batteries, and vaccines.

Hydrogen, a Core Industry of the Yoon Administration

The Ministry of Trade, Industry and Energy has maintained for three years since 2021 that the government should actively support hydrogen as a national strategic technology to secure competitiveness in green hydrogen, a key to carbon neutrality. The logic is that the government has consistently voiced support for the hydrogen industry regardless of the administration. In fact, at the end of 2021 during the Moon Jae-in administration, the Ministry of Economy and Finance stated in the '2022 Economic Policy Direction' that it would continue to consider designating the hydrogen industry as a national strategic technology from economic and security perspectives. In May last year, the Yoon Seok-yeol administration also emphasized active government support with the goal of 'developing the world's number one hydrogen industry' among its 110 national tasks.

Green hydrogen is produced by electrolyzing water using renewable energy and nuclear energy, with the advantage of emitting no greenhouse gases from the production stage. However, due to its high production cost and low economic feasibility, technological development is essential to overcome these drawbacks. According to the Korea Institute of Science and Technology Information (KISTI), global green hydrogen production is expected to increase significantly from 70,000 tons in 2020 to 1,723,000 tons in 2026. During the same period, the global green hydrogen market size is predicted to grow at an average annual rate of 58%, from $329 million to $4.3733 billion by 2026. This is why the Ministry of Trade, Industry and Energy is actively working to strengthen competitiveness in the hydrogen industry as a future growth engine. To this end, they argue that including hydrogen in national strategic technologies to enhance tax support for R&D and facility investments is necessary to boost corporate incentives.

The problem is that the selection of national strategic technologies has been delayed contrary to expectations, leaving the industry, which invested based on the government's hydrogen tax benefits, to bear the burden. The industry emphasizes that the government should select hydrogen as a national strategic technology and strengthen support such as tax credits to secure competitiveness in the hydrogen industry, which requires massive initial investment costs. Since the plan to include hydrogen as a national strategic technology was scrapped at the end of 2021, the Ministry of Trade, Industry and Energy has been in talks with the Ministry of Economy and Finance for three years. A ministry official said, "Recently, the selection of national strategic technologies is based on industries that have a significant impact on our industry due to the global supply chain restructuring," adding, "This is why discussions on selecting hydrogen as a strategic technology have been relatively delayed."

Additional Tax Credits Are a Burden

The Taxation Office of the Ministry of Economy and Finance, however, stressed that the selection of hydrogen industry as a national strategic technology should be discussed comprehensively considering external environments. They said the impact on the national economy and the future prospects of the industry should also be examined. Considering this, they concluded that including hydrogen in the support targets is premature. They also need to be mindful of the tax revenue loss caused by the increase in the semiconductor facility investment tax credit rate to 25% starting this year.

According to the revised enforcement decree following the 2022 tax reform, the tax credit rate for facility investments in national strategic technologies will be raised this year from 8% to 15% for large and medium-sized enterprises, and from 16% to 25% for small and medium-sized enterprises. Additionally, if the additional tax credit rate (10%) for investment increases compared to the average of the previous three years is applied, investment benefits will temporarily increase up to a maximum of 35% this year. The Ministry of Economy and Finance expects the tax revenue loss next year due to the increase in semiconductor facility investment tax credits to reach 3.65 trillion won.

A Taxation Office official said, "Plans to include hydrogen as a national strategic technology under the Restriction of Special Taxation Act require further review," adding, "Regarding carbon neutrality, support is being provided through tax credits for 'new growth and original technologies.'" The tax credit rate for new growth and original technologies is about 10 percentage points lower than that for national strategic technologies. Lee Seunghoon, head of the Hydrogen Convergence Alliance Promotion Group, a public-private consultative body for hydrogen supply activation, said, "As the world strengthens carbon neutrality, eco-friendly business for companies is no longer a choice but a necessity," and added, "Strengthening government hydrogen policies is urgent to secure national competitiveness."

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