[Initial Insight] The Role of Government and SMEs in Carbon Neutrality

Kim Cheol-hyun, Deputy Director of the Bio, Startup and Venture Department

Octavia Butler's novel Parable of the Sower depicts the United States devastated by climate change. Interestingly, the novel is set in this year, 2024. When he wrote this novel in 1993, it seems he thought that climate change would ruin the world 30 years later. Now that it is 2024, although the extreme situation Butler described has not yet occurred, the risks of climate change have already entered and lurk within our lives. These risks approach the industry from two perspectives. One is a common human problem that our living environment will be threatened if things continue as they are, and the other is a corporate survival issue where a company's existence could be at risk if it fails to respond properly. In particular, the domestic small and medium-sized enterprises (SMEs) sector has faced this second concern this year.

The urgent issue is the European Union (EU)'s Carbon Border Adjustment Mechanism (CBAM). CBAM is a system where the EU imposes a 'carbon border tax' on the carbon emissions generated during the production and manufacturing processes of imported products. Although it will be fully applied from 2026, companies must submit quarterly carbon emissions reports starting this year, which is the 'transition period.' Domestic companies exporting six major items?steel, aluminum, cement, fertilizer, electricity, and hydrogen?are subject to this. The number of applicable domestic exporting SMEs reaches about 1,600.

However, when this issue was asked to SMEs on the ground, many responded by asking, "How can we calculate the carbon emissions of our factory?" According to a survey by the Korea Federation of SMEs, 78% of SMEs were unaware of the EU's carbon border tax. Even among companies planning to export to the EU, more than half had not established any specific countermeasures. There are also practical challenges. The carbon emissions required by the EU must be calculated per product, not per factory, including all emissions within the process. This includes not only direct emissions but also electricity and other factors. For SMEs struggling with a shortage of specialized personnel, this is not an easy task.

Nevertheless, being an SME or small in scale does not allow one to avoid this issue. Climate change response is no longer a distant social contribution matter. Before talking about future generations, it has become one of the top priorities in current corporate management responsibilities. Moreover, the role of SMEs is important to achieve the national greenhouse gas reduction targets. Greenhouse gas emissions from domestic SMEs with fewer than 300 employees account for more than 30% of emissions in the industrial sector. Without the participation of SMEs, carbon neutrality is unattainable. The SME sector also shows willingness. According to a survey by the Korea Federation of SMEs, 69% of respondents felt the need to strengthen corporate environmental and social responsibility. It is now time to prepare appropriate support policies that can back up SMEs' willingness to participate in carbon neutrality.

On the ground, many SMEs are confused, not knowing where to seek help immediately. The Ministry of Trade, Industry and Energy, the Ministry of Environment, and the Ministry of SMEs and Startups are all related, but there is no unified channel yet. Until now, the government's carbon neutrality policies have mainly targeted large or mid-sized companies with higher carbon emissions. There is a risk that SMEs, which have relatively poor infrastructure, may suffer from domestic and international eco-friendly regulations. Bill Gates emphasized this in How to Avoid a Climate Disaster: "Innovation is not just about creating new devices. New policies that enable new innovations to be brought to market as quickly as possible are also innovation." This advice is most crucial for our SME policies.

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