[New Trade Barrier Carbon Tax①] 'Carbon Tax and RE100' Are Minefields Everywhere... EU and US Export Tax Burden Increases by 1 Trillion Won

Europe's Steel Blast Furnaces Reach End of Life... Domestic Firms Must Scrap Functional Furnaces
Korea's Manufacturing Share at 27.8% of GDP, 2-3 Times That of UK and US... Greater Impact on Our Industry
RE100 Participation Pressure Adds to Corporate Burden
"Trade Barriers Unavoidable... Public-Private Cooperation Needed for Carbon Reduction Efforts"

[Sejong=Asia Economy Reporter Kwon Haeyoung] If the European Union (EU) introduces the Carbon Border Adjustment Mechanism (CBAM), the spread of 'carbon as a trade barrier' is highly likely. The mandatory implementation of 'RE100,' which requires companies to supply 100% of their electricity from renewable energy, is also underway. Following the EU, the United States is also likely to join such systems. This is expected to deliver a significant shock to our economy, which has a high manufacturing ratio and heavy trade dependence. Behind the grand cause of 'responding to climate change,' there are criticisms that it strongly resembles a 'ladder kicking' against Asia, the latecomer industrial region of the US and Europe, which had already shifted from manufacturing to services.

◆Carbon Tax and RE100... 'New Trade Barriers'＝According to the recent report "Analysis of the Impact of Climate Change Regulations on Korean Exports" published by the accounting and consulting firm EY Han Young, Korean companies are expected to pay $618.8 million to the EU and $295.9 million to the US in carbon taxes by 2030. The carbon tax proportion relative to local market export value is about 2.38% and 0.67%, respectively.

In the EU market, the steel industry bears the largest carbon tax burden at $347.7 million, followed by petrochemicals ($229.8 million), batteries ($17.8 million), automobiles ($12.7 million), and general machinery ($3.4 million). In the US, petrochemicals lead with $234.3 million, followed by automobiles ($42.2 million), batteries ($9.5 million), home appliances ($7.1 million), and telecommunications ($2.5 million).

Invisible carbon tariffs such as RE100 also increase the burden on our companies. Global companies like Apple and BMW participate in the RE100 campaign, which produces products using 100% electricity from renewable sources such as solar and wind power, and they demand participation from domestic partners like LG Chem, Samsung SDI, and SK Hynix. It is reported that Samsung SDI moved its domestic production volume overseas to locations where renewable energy power can be utilized because of this. Originally started as a voluntary campaign, RE100 is showing signs of becoming mandatory, creating another trade barrier for our companies.

◆Manufacturing Ratio in Korea 27.8%, 2 to 3 Times That of the UK and US＝Some criticize that Europe and the US, whose manufacturing competitiveness has declined, are using 'carbon tariffs' as trade barriers. This is because the economic core of Europe and the US has shifted from manufacturing to services, and even the remaining manufacturing sectors have lost price competitiveness.

The manufacturing sector accounts for 2 to 3 times more of our economy than in the US and the UK. According to the Organisation for Economic Co-operation and Development (OECD), the manufacturing ratio relative to GDP is 27.8% in Korea, higher than Germany (21.6%) and Japan (20.8%), which have similar industrial structures. Due to the global carbon neutrality trend, the industrial sectors of Asian countries such as Korea, China, and India are inevitably facing significant impacts.

[Image source=Yonhap News]

Taking the steel industry, which will be directly hit by carbon taxes as a high carbon-emitting sector, as an example: European steel companies have used blast furnaces to extract molten iron from iron ore for about 100 years, whereas domestic companies like POSCO have operated blast furnaces for 40 to 50 years, and Hyundai Steel for about 10 years. European companies have exhausted the lifespan of their blast furnaces, but our companies must scrap still functional blast furnaces and replace them with 'hydrogen reduction method' blast furnaces that extract molten iron using hydrogen instead of coal. POSCO CEO Kim Hakdong's call for government support on the 7th, stating "carbon neutrality is becoming a new trade barrier," is closely related to this situation.

◆Our Government Also Making Every Effort to Prepare Carbon Tax Measures＝Our government is also making every effort to prepare countermeasures against the EU's carbon tax introduction. Following Minister of Trade, Industry and Energy Moon Seungwook's communication to the EU Commission that CBAM should not be applied to countries implementing carbon emissions trading systems similar to the EU, the Ministry of Industry has commissioned a research project on the "Global Carbon Border Adjustment Response Strategy and Environmental Competitiveness Enhancement Plan for the Steel Industry."

Experts say that although the situation faced by the domestic industrial sector is not easy, given our economy's structure that depends on trade, it is impossible to go against the carbon reduction trend.

A trade expert advised, "The decarbonization pressure in industrial sectors centered on Europe and the US is a trade barrier against latecomers but unavoidable," adding, "The government and industry, including the public and private sectors, should join forces to support the industrial sector's efforts to transition to eco-friendly processes and carbon reduction, turning this into an opportunity to secure the competitiveness of our industry."