Korea risks drop in economic standing without green transition
Climate change is triggering economic crisis
Few would disagree that combating the climate crisis is the most crucial task the human race faces. But many Koreans do not seem to view that as an urgent issue requiring immediate action.
According to a survey conducted by the Segye Ilbo daily and non-profit research center Public View in May 2022, economic growth was overwhelmingly chosen as the top priority needing to be addressed within a year. Issues like unemployment and low birthrate were highlighted as well, but climate change ranked second to last among eight options provided.
Going against such perceptions, Hong Jong-ho, a professor at Seoul National University’s Graduate School of Environmental Studies, says climate change is triggering an economic crisis.
“In September 2022, Typhoon Hinnamnor hit Pohang hard, damaging many lives. What many people might not notice is that such natural disasters, caused by climate change, severely impact economic activities. For instance, during that time, a corporation in Pohang suffered significant damage as floodwaters from a nearby river inundated factories, resulting in economic damage worth 2.2 trillion won ($1.6 billion),” Hong said during a recent interview with The Korea Times.
A perfect storm looms over the Korean economy.
“There is a growing worldwide consensus about transitioning from a carbon-based economy. Nobody considers Korea as a developing country that can prioritize economic development over carbon reduction. Many are pushing Korea, as a developed country, to adopt greener practices. However, Korea is seriously underprepared, despite the urgency,” the economist said.
As of 2021, Korea’s renewable energy generation accounted for just 7.15 percent of its total energy output, placing it at the bottom among Organization for Economic Cooperation and Development (OECD) member countries. This percentage is substantially below the OECD average of 31.3 percent.
Korea ranked 64th in the 2023 Climate Change Performance Index. This is the lowest among non-oil-producing nations and invited global criticism.
The situation facing the industry in the global market is even more dire.
“An increasing number of global giants, such as Apple, are demanding that supply firms should use 100 percent renewable energy. These giants are threatening to cease trade with firms that fail to meet these conditions. Within the next two or three years, a global standard mandating decarbonization in industry will be established. Korea is left with only a short amount of time to adapt,” Hong explained.
The most imminent threat Korean industries face is the Carbon Border Adjustment Mechanism (CBAM) pushed by the European Commission.
Considering the five industries targeted by this mechanism — steel, cement, fertilizer, aluminum and electricity — approximately 4 percent of Korea’s exports are anticipated to be impacted. If this mechanism is extended to include the petrochemical industry, the projected impact on exports could sharply rise to 15 percent, significantly exacerbating the economic consequences.
As a country that relies on exporting manufactured products for economic growth, such a transition in global trends is critical.
However, Hong believes that CBAM is only the beginning. A company’s ability to reduce carbon emissions is becoming a key measure of its competitiveness in the global market, he said.
“Hanwha Q CELLS recently closed its factories in Jincheon and Eumseong, North Chungcheong Province. What does this signify? Hanwha is the global leader in producing solar modules, dominating the U.S. market. Yet, it has shut down its factories in Korea and is investing billions of won in Georgia, the U.S. This, I believe, is the clear indication of our current situation,” Hong said.
“If the Korean government cannot provide renewable electricity
2 to domestic corporations, what options do they have? Corporations are left with no choice but to relocate to countries where renewable energies are more prevalent. These issues are directly linked to Korea’s future sources of food, job creation and regional balance,” Hong added.
To address the issue, Hong views that a combination of government policies consistently promoting the expansion of the renewable energy market and public awareness of the importance of using renewable energy are required.
“In Korea, there are too many unnecessary discussions that turn this issue into an ideological one. Due to the lack of public consensus, we see no uniform trends in policy. Korea already has set its goals, but each administration delays execution, passing it on to the next, in the belief that acting might cost them votes,” Hong said.
The most questionable policy, in Hong’s view, is the suppressed electricity price.
“Korea imports 100 percent of its fossil fuel. How can the government provide high-quality electricity at such a low price? This is the result of the government’s arbitrary suppression of prices, a practice that has been in place for decades. This has led the public to take cheap electricity for granted. I, personally, think that both the public and corporations are ‘addicted’ to this policy, leading to an abuse of fossil fuels,” Hong said.
During this time, Korea’s counterparts in the trade market are increasing their competitiveness. For example, Germany, which also has a large proportion of manufacturing in its industrial portfolio, is financially supporting steel companies to adopt hydrogen reduction technology. This technology allows the production of iron using hydrogen instead of fossil fuels. However, it’s very expensive and time-consuming to commercialize.
“If the technology is successfully commercialized, it will wield enormous power. Germany could export this technology, receiving a tremendous amount of money in return. With that strength, it will further reinforce decarbonized trade regulations,” Hong explained.
This could also be the case for Korea, using the transformation as an opportunity rather than a challenge.
Hong’s research indicates that if Korea achieves carbon neutrality by 2050, the renewable energy sector is expected to generate at least around 503,000 jobs. To put this into perspective, the country’s automobile industry employed around 490,000 people in 2017.
“In the 1960s, the World Bank banned building expressways in Korea. They argued, ‘Koreans don’t even have cars, so how does building an expressway make sense?’ Yet, we built it within four years. Now, it’s time to ask ourselves a question. Which task is more difficult? Creating automobiles and steel firms from scratch after the war, or transforming our manufacturing industry to go green?” Hong stated.
“If the public and politicians think the latter is more unfeasible, I foresee a very uncertain future for Korea. This is the critical point. We reached our economic peak as one of the top 10 economies. But from here, we can only fall without transformation.”