[New Trade Barrier Carbon Tax①] Domestic Steel Companies Face 11% 'Tariff' on European Exports Starting 2023

Steel Industry on High Alert Ahead of EU Carbon Border Adjustment Mechanism Draft Announcement
Domestic Steel Industry Expected to Pay 300 Billion Won in First Year... Dual Regulation Risks WTO 'National Treatment' Violation

[Image source=Yonhap News]

[Sejong=Asia Economy Reporters Haeyoung Kwon and Sangdon Joo] As the European Union (EU) is about to announce its Carbon Border Adjustment Mechanism (CBAM), concerns are spreading that 'carbon' will become a new trade barrier. Until now, countries have responded by raising tariffs to protect their domestic industries, but now the EU intends to impose tariffs on carbon emissions under the pretext of 'climate change response.' Following the EU, the Biden administration in the United States has also hinted at introducing a carbon tax, raising prospects that export competitiveness could decline, especially in domestic manufacturing sectors with high carbon emissions.

According to a compilation of announcements from the government and related industries on the 12th, if the EU implements CBAM as scheduled from 2023, South Korea's steel industry, including POSCO and Hyundai Steel, will have to pay more than 10% of their exports to the EU as a carbon border tax. Last year, the export value of Korean steel products to the EU exceeded 2.7 trillion KRW, and considering the expected increase in export volume, it means that more than 300 billion KRW will have to be paid as tariffs in the first year of implementation.

This figure is derived from the fact that Korean steel companies exported 2.62 million tons of steel products to the EU last year, with estimated carbon emissions of 4.04 million tons. Considering that the EU carbon emission allowance price is around 54 euros per ton based on December futures (ICE EUA), the cost that the Korean steel industry would have to bear within the EU due to carbon emissions is approximately 219.21 million euros (about 299 billion KRW) based on last year’s data. This accounts for 10.9% of the steel export value to the EU last year (about 2.738 trillion KRW) according to the Ministry of Trade, Industry and Energy statistics. However, the actual carbon tax imposed may vary depending on the detailed provisions of the EU CBAM and future negotiations.

The government is becoming tense as the possibility of new trade barriers emerging increases. Minister of Trade, Industry and Energy Moon Seung-wook recently conveyed to the EU Commission that "CBAM should not act as an international trade barrier" and that "the system should not be applied to countries implementing carbon emission trading schemes."

An official from the Ministry of Trade, Industry and Energy said, "The imposition of the EU carbon tax will hit the steel industry the hardest among our industries," adding, "It is a double regulation on our companies, and there is a high possibility of conflicts between the EU and other countries over the method of calculating greenhouse gas emissions."