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Korean industries eye impact of Biden's carbon plans


From battery to petrochemical industries, Korea braces for changes

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US President-elect Joe Biden’s ambitions to curb carbon emissions are set to bring significant changes to the economic landscape for South Korea’s exporters.

During his campaign, the 77-year-old Democrat said he wanted to introduce a border carbon adjustment mechanism. The scheme would impose a tax on carbon-intensive imports from heavy polluters such as China, leveling the playing field for producers in advanced countries that pursue rigorous environmental standards.

Simultaneously, to allow the US to achieve a 100 percent clean energy economy and reach net-zero emissions by 2050, Biden proposed a carbon pricing policy at home, saying that he wants legislation to enact an “enforcement mechanism.” This mechanism “will be based on principles that polluters must bear the full cost of the carbon pollution” and must achieve “clear, legally binding emissions reductions.”

Though some experts predict that Biden’s plan will require years of political efforts to receive approval and take effect, the initiative is being closely watched by Korea, which stood as the sixth-largest goods trading partner of the US as of last year.


Batteries

Over Biden’s extensive carbon pricing, Korean battery makers are mostly optimistic, albeit with caution.

According to a survey conducted by the Korea Chamber of Commerce and Industry on 300 Korean manufacturing companies over the impact of Biden administration Sunday, the Korean battery industry scored 3.67, the most positive response of all industries.

The survey measured the responses of the companies over how their business environments will be impacted by Biden on a scale of 1 to 5, 1 being the most negative and 5 being the most positive.

Korean battery makers have been making forays into the US market, riding on the popularity of electric vehicles.

While companies such as SK Innovation have their battery factories powered 100 percent by electricity, the raw materials inside the batteries are full of chemical products and minerals that may be subject to the border carbon tax when they are imported for production.

LG Chem currently runs a lithium-ion battery plant in Michigan with another one currently under construction in Ohio. SK Innovation is building a battery plant in Georgia.

Samsung SDI runs a battery pack plant in Detroit.

On a different aspect, the industry here is also hopeful that Biden’s potential carbon pricing policy will turn out favorable to Korean battery makers.

“When Biden implements carbon regulations, factories in the US will be forced to source electricity generated by renewable energy sources, not from coal-fired power plants. To do so, for example, those factories will have to install solar panels on the rooftop and link them to energy storage systems. Demand for ESS will naturally boost demand for batteries,” an industry source said.


Solar and wind power

Biden plans to roll out 500 million solar panels within five years and the elimination of carbon pollution from power plants by 2035.

The pledge has subsequently raised speculation that it might create a window for Chinese competitors to enter the US market.

But Korean makers are in a wait-and-see mode.

“Biden hasn’t announced specific plans on tariffs on Chinese solar panels because he doesn’t have to. Enough regulatory measures are already in place to prevent cheap Chinese solar products from invading the US market,” said an official from one of Korean solar power companies.

In 2018, the US slapped imported solar modules with a 30 percent tariff and a 25 percent tariff in 2019. This year, the tariff stands at 20 percent, and it is scheduled to go down to 15 percent next year.

However, the US applies a customized tariff as high as 300 percent on solar panels manufactured by Chinese companies. The customized tariff is calculated based on how much each of those Chinese solar power companies can hurt the US economy.

The customized tariff on Chinese solar products benefited Korean companies in turn. Hanwha Q Cells and LG Electronics rank No. 1 and No. 2 in the US residential solar market, respectively, with a combined market share of 34.8 percent in the first half of this year, according to global energy consulting firm Wood Mackenzie. In the commercial solar market, Hanwha and LG ranked No. 1 and No. 5, each controlling 21.5 percent and 5.1 percent.

Meanwhile, the Korean wind power industry, which mostly exports parts for wind turbines, estimated that Biden’s border carbon tax would not affect the industry significantly.

“The parts for the wind turbines are made by welding steel plates. As wind power companies neither melt iron in furnaces or manufacture steel plates directly, it’s actually steel companies that would face the impact regarding carbon emissions,” a wind power industry official said.


Steel

Concerning Biden’s carbon regulations, Korean steel industry said though the change is inevitable, it was likely to be a soft landing.

“The discussion on border carbon adjustment mechanism began in the European Union last year, but the EU hasn’t reached a consensus yet on how to actually carry out the mechanism. The European Steel Association has asked for the EU to maintain the current system and seek a gradual change to avoid confusion in the industry,” an industry official from a steel company said.

As steel companies don’t yet have the technology to replace fossil fuels, Biden’s carbon regulations are likely to be enforced to the level and extent steel companies can handle, the official added.

However, it’s undeniable that Biden’s plan to roll out 60,000 wind turbines is expected further boost Korean steelmakers such as Posco. According to Posco, 1 out of 10 wind turbines in the world are made of Posco steel.


Automobiles

Biden’s push for electric vehicles isn’t likely to benefit Hyundai Motor immediately, as Biden said he would prioritize the purchase of “American-made” electric vehicles.

Currently, Hyundai Motor manufactures 70 percent of its US volume in the US. However, all Hyundai Motor vehicles manufactured there are internal combustion engine vehicles, meaning they won’t benefit from Biden’s tax plans.

Biden’s federal procurement plan to swap government fleet vehicles with 100 percent “clean energy and zero-emissions vehicles” also only applies to domestically made vehicles.

So far, Hyundai Motor has said on Nov. 12 that it would bolster its EV lineup to 10 models from current seven by the end of 2022 in the US to compete in the local market against American-made EVs.

Asked whether Hyundai Motor plans to construct a new EV plant in the US, the company said nothing had been decided yet and an official announcement will be made if it decides to do so.

“Korean industries face a complex reality where they can’t necessarily let their guards down. Though there are expectations that Biden will stabilize the global commerce environment and roll back Trump’s unilateralism, they have to watch and see if America First policy will continue and favor American-made products,” a KCCI official said.


Petrochemical

Korean refineries and petrochemical companies are least likely to be influenced by Biden’s border carbon tax as the US is not their main market.

“Korean refineries and petrochemical companies export their products to countries in the region where shipping costs do not affect the price competitiveness of the products. For this reason, they don’t really export to the US, which is far away,” an industry official from one of the four major Korean refineries said.

The industry, however, anticipates an increase in the price of petrochemical products in the US following the levying of border carbon tax on imports and stringent carbon regulations.

“Biden administration’s multilateralism, greater government spending and green policy might seem like positive factors, but at closer look, Biden seeks to keep pressure on China, bolster environmental regulations and prioritize the purchase of American-made products, so there are a lot of challenges,” said Song Yoo-chul, a professor at Dongduk Women’s university and an adviser to the KCCI.

In the KCCI survey, 40 percent of them responded that they are unequipped to respond to Biden’s green policies.

Published : November 24, 2020

By : Kim Byung-wook The Korea Herald/ANN