The European Union’s sweeping plans, announced Wednesday, to cut emissions are expected to hurt South Korea’s steel and other carbon-intensive industries, experts and industry officials said Thursday.
The EU announced a comprehensive climate package that revolves around three key proposals: imposing tariffs on carbon-intensive imports starting 2026; banning the sales of cars running on fossil fuels starting 2035; and forcing clean fuel in the aviation and maritime sectors.
What caught the most attention here was the tariff plan, more commonly referred to as the carbon border tax. The Federation of Korean Industries, a major business lobby, warned of its impact on local firms, saying that “the policy is practically a tariff hike on imports.”
“For South Korea, whose industry is carbon-intensive and based on manufacturing, the carbon border tax could undermine the industry’s overall competitiveness,” an FKI official said.
“In the short term, Korea’s major export items including steel and aluminum, due to their high-carbon emissions, will suffer a decline in exports.”
The EU’s envisioned carbon border tax will first apply to five carbon-intensive imports -- steel, aluminum, cement, fertilizer and electricity. After a three-year grace period, the policy will apply to all imports.
The policy will require importers to purchase a permit for every ton of carbon dioxide emitted by imported goods, forcing imports to have a similar price as if they had been produced in the continent. The system is seen as a de facto trade barrier that punishes players who operate under a more relaxed environment than Europe. The price of a permit currently stands above 50 euros ($60).
To avoid the border levy, Korean steel firms, which exported $1.5 billion worth of goods to Europe last year, would have to drastically reduce carbon emissions of their products.
According to a Greenpeace report released in January, if the permit’s price goes up to $75, it would cost the Korean steel industry $347.7 million. Bloomberg estimates that the permit’s price will reach 85 euros, which would further drive up the cost to $472.8 million.
“Korea’s leading steelmaker Posco can consider producing steel with hydrogen instead of coal, but the technology is in a research stage. Rolling out new infrastructure based on the hydrogen technology will cost about 60 trillion won ($52.6 billion), so there is no solution here,” a steel industry official said.
The Korea Institute for International Economic Policy predicted that a permit price of 30 euros would translate to a tariff of 1.9 percent to Korea.
A day after the EU decision, the Ministry of Trade, Industry and Energy convened an emergency meeting to discuss the matter with major steel and aluminum manufacturers, including Posco, Hyundai Steel, Dongkuk Steel and Novelis Korea.
Korea’s steel industry is already suffering from the EU’s safeguard measures. Last year, Korea exported $1.5 billion of steel products to the EU, the lowest figure in the recent five years.
The Trade Ministry is working to persuade the EU that Korea operates its own certified reduction emission system and therefore should be exempt from the carbon border tax.
LG Energy Solution, Samsung SDI and SK Innovation, who together control about 40 percent of the global electric vehicle battery market, welcomed the news, with one of them even calling the EU’s climate package a “jackpot,” as the EU and the UK are major markets where 16 million new cars were sold in 2019.
Hyundai Motor, which sold 6,500 hydrogen vehicles and commanded 69 percent of the global hydrogen vehicle market, is expected to be a potential beneficiary of the EU’s plan to phase out all passenger cars running on fossil fuels by 2035 and have all newly registered cars be zero-emission.
Meanwhile, Korean airliners face complications as the EU will require all aviation fuels to include sustainable fuels in their blend at a minimum quota by 2030. Also, free emitting permits for air carriers will disappear after 2026.
Considering that Korean Air and Asiana Airlines spent 3 trillion won and 2 trillion won in 2020 for fuel, respectively, the EU’s mandatory use of sustainable aviation fuels is expected to drive up fuel costs by tens to hundreds of billions of won.
Shipping companies face a similar situation. By 2050, renewable low-carbon fuels should constitute more than 80 percent of their fuel mix. They will also be obliged to buy and trade carbon permits for every ton of carbon dioxide they emit.
The Export-Import Bank of Korea estimates that if the price of a carbon permit is 50 euros, shipping companies will have to spend $186 on permits for each ton of excessive fuel.
Hyundai Merchant Marine, which used 1.5 million tons of fuel worth 500 billion won, could have to spend an additional 100 billion won for fuel in the future.
Published : July 16, 2021
By : Kim Byung-wook/The Korea Herald/ANN