Hyundai Steel to Lose Half of Operating Profit as Paid Carbon Emission Permits Expand

Paid Allocation in Power Generation to Expand to 50% by 2030
Hyundai Steel Faces Additional Electricity Costs of 73.2 Billion Won
Steel and Petrochemicals to Pay Over 700 Billion Won More in Electricity Fees

With the government deciding to significantly increase the proportion of paid carbon emission permits, energy-intensive industries such as steel and petrochemicals are expected to face additional electricity costs of over 700 billion won. Hyundai Steel, which purchases the largest amount of electricity from Korea Electric Power Corporation (KEPCO) among steelmakers, is now in a position where it will have to pay nearly half of its annual operating profit in additional electricity bills. While Kim Seonghwan, Minister of Climate, Energy, and Environment, stated, "We will do our best to curb increases in industrial electricity rates," industry insiders argue that an increase in electricity prices is structurally inevitable.

Molten steel is pouring out from the electric furnace at Hyundai Steel's Incheon plant. Photo by Hyundai Steel

According to the fourth national allocation plan for emission permits announced by the Ministry of Climate on October 1, the proportion of paid allocation in the power generation sector will rise to 50% by 2030. Until now, power generation companies have received most of their permits for free, but going forward, they will have to purchase half of them directly from the market. Steel and petrochemical companies, which have so far received 100% of their permits for free, will inevitably face higher industrial electricity rates. An industry official said, "Although the direct expansion of paid allocation applies to power generators, the increase in electricity rates translates directly into costs according to the amount of power purchased," adding, "From the companies' perspective, they cannot avoid this indirect burden."

According to the report "The Impact of the Emissions Trading Scheme on Electricity Rates," commissioned by the Federation of Korean Industries and authored by Shin Donghyun, a research fellow at the Korea Energy Economics Institute, if the proportion of paid allocation is raised to 50% and the emission permit price is assumed to be 30,000 won per ton, electricity rates are expected to rise by 9.41 won per kWh. By industry, the annual additional burden is estimated at 309.4 billion won for steel (primary metals) and 416 billion won for chemicals.

Last year, Hyundai Steel's annual electricity consumption was 12,956 GWh, of which 7,774 GWh was purchased externally. Applying the projected rate increase, this would result in an annual additional electricity cost of 73.2 billion won-nearly half of last year's operating profit of 159.5 billion won.

Dongkuk Steel faces a similar situation. Its additional annual electricity cost is projected at 46.5 billion won, which is nearly half of last year's operating profit of 102.5 billion won. While POSCO is less affected due to its high self-generation ratio of 85.5%, it will still incur an additional burden of 28.7 billion won based on its purchased electricity volume (3,045 GWh). An industry official commented, "While the government emphasizes carbon neutrality, it paradoxically hinders companies that are pursuing a switch to electric furnaces or process improvements."

The situation is the same for the chemical industry, which is currently undergoing restructuring. Major companies such as SK Innovation, LG Chem, and Lotte Chemical have been posting losses for over a year, and now face additional electricity costs in the hundreds of billions of won. According to the Korea Energy Economics Institute report, the petrochemical industry alone is expected to incur an additional 416 billion won in costs due to higher electricity rates. In the petrochemical sector, electricity typically accounts for 10-15% of total production costs. An industry insider remarked, "With losses already piling up, any further increase in electricity rates will only cause losses to snowball."

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