Green investment vital to ‘Korean New Deal’
“Government-set higher standards will foster technological development, a virtuous cycle facilitating progress and growth. ” Transition to renewable energy, carbon tax inevitable
The government should forgo salvaging “zombie firms” and divert the state resources to financing staterun projects and companies with green initiatives, in a streamlined, measured approach to advance the “Korean New Deal,” a grand vision to identify the country’s new growth engine post the COVID-19 pandemic, a noted economist said Friday.
A prompt investment in renewable energy will be a much-needed crisis-turned-opportunity for the Asia’s fourth-largest, export-reliant economy once touted as the top global player for shipbuilding industry, following Denmark which lost the industry to Korea in the 1990s but has since re-utilized the infrastructure and became a leader in the wind power generation, according to Korea Development Institute School of Public Policy and Management (KDI School) Dean You Jong-il.
Fierce pushback from “the establishment” - notably the fossil fuel and auto industry — is expected against the drive which they consider “costly and uncertain” as opposed to the status quo whereby their corporate profit is all but guaranteed or at least manageable.
Yet a quicker-than-expected transition to “green economy” will ensue once the government maintains policy consistency, assuring businesses that complying with the initiative will be a boon.
Higher standards will facilitate technological development, which will in turn help Korea known for robust information technology industry emerge stronger bolstering recognition earned for exceptional handling of the virus.
The Ministry of Economy and Finance said June 3 that some 5.1 trillion won will be used for the “Korean New Deal” in 2020, as part of a five-year plan that will need 76 trillion won. Of the 5.1 trillion won, digital and green initiatives will be allocated 2.7 billion won and 1.4 trillion won, respectively. About 1 trillion won will be used to strengthen the social safety net, while 2.5 trillion won will be used for anti-virus and disaster prevention measures.
Efficient allocation of state resources
“Once a directive is set, it is all about consistency,” You said in an interview with The Korea Times, June 30.
The once-promising airline business with growing demands has seen the launch of a number of low-cost carriers over the past few years, but their business prospect will remain clouded for the foreseeable future due to the longer-than-feared spread of the virus. Fossil fuel industry providing aircraft fuel will inevitably be affected. State support granted despite the clear lack of immediate corporate recovery in that sense will be a cost wasted and opportunity lost by other new businesses with huge growth potential in need of stable financing.
“State funding should not be wasted on zombie firms whose financials had long been shaky before the pandemic, nor should it be granted to those whose business portfolio has become unsustainable. Going green should mean support for projects and firms with such business models. Otherwise, what is the point?”
‘Korea can look to Denmark’
The Harvard-educated economist said Korea can become a leader in renewable energy in the same way how Denmark has become.
In a recent meeting with You, Danish ambassador to Korea Einar Jensen said losing the country’s shipbuilding industry to Korea was a new growth opportunity to advance renewable energy, urging the former top competitor in the manufacturing industry to follow suit.
“The country underwent a radial transition to eco-friendly economy and it is highly feasible,” said You who graduated from Seoul National University with an economics major.
Under the “Denmark Green Evolution,” the country’s energy dependence on fossil fuel dropped to 29 percent in 2017 from 73 percent in 2005, further down from 96 percent in 1995. Its wind energy in turn increased to 48 percent in 2017 from 18 percent in 2005. It accounted for only 3 percent in 1995. The country’s biomass also grew from only 1 percent in 1995 to 18 percent in 2017.
Contrary to popular thinking, business community there had little to no opposition chiefly due to hefty investment drawn from foreign investors including Google, a global multinational tech giant which achieved its goal of sourcing 100 percent renewable electricity globally in 2017, as part of “RE 100.”
Led by the Climate Group in partnership with carbon disclosure project (CDP), RE100 is a global corporate leadership initiative bringing together influential businesses committed to 100 percent renewable electricity seeking zero carbon grids at global scale. A total of global 241 firms have committed to the initiative.
Google needed immense energy to preserve data center. Continued, stable source of renewable energy at an “affordable” price was its top priority and Denmark was the destination.
Denmark had high wages and its business environment was not particularly favorable to firms, but that did not matter to foreign investors because it had what they needed.
“Wind energy was generated with infrastructure and technology from shipbuilding. Korea with now-failed major shipbuilders can redefine the growth momentum, helped further by decreasing unit price to produce such an energy,” he said. Not one Korean firm has joined the RE 100 initiative, an inevitable result given the lack of renewable energy. But once the government drive takes clear shape, businesses will move fueled by the prospect of greater profit and growth, in his view.
“Businesses by nature are profit-driven. It is the government’s role to give them a clear signal with policy consistency to keep them motivated to what they do best. The government-set higher standard will foster technological development, a virtuous cycle facilitating progress and growth.”