EU CBAM Implemented This Month, "About 140 Korean Companies Affected"

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is giving an opening speech at the 18th Emission Allowance Allocation Committee held at the Government Complex Seoul in Jongno-gu, Seoul on September 20. Photo by Jo Yong-jun jun21@

According to the Carbon Border Adjustment Mechanism (CBAM) implemented by the European Union (EU) starting from the 1st of this month, approximately 140 domestic steel and aluminum companies are expected to be directly or indirectly affected. In particular, it has been identified that small and medium-sized enterprises (SMEs) and mid-sized companies without experience in the domestic emissions trading system (K-ETS) lack the capacity to respond effectively.

On the 16th, the government approved the agenda titled "Status of Preparation for the EU Carbon Border Adjustment Mechanism and Future Response Directions" at an emergency economic ministers' meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho.

The Carbon Border Adjustment Mechanism requires companies exporting six products?steel, aluminum, fertilizers, cement, hydrogen, and electricity?to the EU to report the amount of carbon emissions generated during the production process and purchase certificates corresponding to their emissions. From October of this year until 2025, a transition period will be in place, with full implementation starting in 2026. During the transition period, only the reporting obligation for carbon emissions applies, but from January 2026, companies must also purchase certificates. Since the cost of purchasing certificates will be reflected in product prices, products with high carbon emissions may face reduced export competitiveness.

The EU plans to enact more than 20 additional implementing and delegated acts before 2026, detailing verification procedures, certificate sales and repurchases, certificate pricing, and other specifics.

The government has identified that about 140 domestic companies producing and exporting steel, aluminum, and other products will be affected by the Carbon Border Adjustment Mechanism. Among these, the steel industry is expected to be the most impacted, having exported $4.46 billion (approximately 6.0433 trillion KRW) worth of products to the EU in 2022. The EU accounts for 11.7% of the steel industry's exports. Aluminum product exports to the EU amount to $540 million, fertilizers $5.4 million, and cement $10,000.

In the case of aluminum, since ingots (aluminum raw materials) are entirely imported and processed domestically, the impact of the Carbon Border Adjustment Mechanism is expected to be limited. Ninety-five percent of the carbon emissions in the entire aluminum manufacturing process occur during ingot production. However, there is a need to identify emission information from companies exporting ingots.

The government explained that domestic steel companies have varying response capabilities depending on whether they operate in upstream or downstream processes. Upstream companies such as POSCO and Hyundai Steel have secured considerable capacity for emissions reporting due to their proactive response to the Carbon Border Adjustment Mechanism from the outset. Conversely, downstream companies processing semi-finished products like slabs and billets have insufficient response capabilities due to lack of experience with the domestic emissions trading system (K-ETS) and insufficient emissions data.

The government stated that it will continue to consult with the EU to alleviate the burden on domestic companies and will sustain efforts to strengthen the response capabilities of domestic SMEs and mid-sized companies. It plans to support 127.7 billion KRW next year for the development of low-carbon technologies and facility replacement.

Additionally, in the short term, the government will accelerate the development of carbon reduction technologies, including demonstration projects for hydrogen reduction steelmaking process design technology in the mid to long term. It will also continue efforts to join the International Accreditation Forum (IAF) and the Multilateral Recognition Arrangement (MLA) to ensure that emission verification results from domestic accredited certification bodies are internationally recognized.

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