[Choi Ji-woong's Energy War] The Real Motive Behind Europe's Call for Carbon Neutrality

EU Declares Carbon Neutrality by 2050

Not Only to Overcome Climate Change
But Also Because It Benefits the European Industry

Asia Economy Newspaper publishes 'Choi Ji-woong's Energy War' once a month on Thursdays, diagnosing the energy industry undergoing a great transformation and examining the changes in the international order related to it. The author is an expert in the energy field who joined Korea National Oil Corporation in 2008, worked in the Europe & Africa Business Division and the Stockpile Business Division, and completed an oil and gas MBA program at Coventry University in London in 2015. He published the bestseller 'How Oil Rules the World,' which covers the modern history of oil. Last year, he gained readers' attention by serializing the column in this newspaper.

If humanity dramatically reduces carbon emissions and overcomes climate change in the future, should future historians describe the European Union (hereafter EU) as having made a significant contribution? Last July, the EU's executive body, the European Commission, announced the carbon reduction policy proposal 'Fit for 55,' which includes carbon border adjustment on imports and the expansion of renewable energy. The goal is to reduce carbon emissions by 55% by 2030.

Commission President Ursula von der Leyen said, "Europe is the first continent to declare carbon neutrality by 2050 and also the first to present a detailed roadmap toward that goal." Indeed, since the EU announced the 'European Green Deal' in 2019, which centers on carbon neutrality, countries such as Korea, China, and Japan have joined the carbon neutrality declaration, making carbon issues a prominent agenda in the international community.

So why is the EU so eager to reduce carbon emissions and expand renewable energy? In fact, Europe was the first to develop and disseminate fossil fuels and to use them on a large scale. Britain's steam engine sharply increased coal use, and the internal combustion engine completed in Germany greatly enhanced the value of oil use. Europe's Industrial Revolution, Middle East expansion, and the activities of major oil companies made coal and oil the foundation of modern industrial society.

Europe, which once led in fossil fuel use, is now leading their phase-out. Of course, it is not wrong to take the lead and emphasize the importance of addressing climate change. However, it feels somewhat awkward that Europe, which has enjoyed the benefits of the carbon economy the most and the longest, plays the pacemaker role and unilaterally sets rules on the journey to carbon zero. Some developing countries might see this as kicking away the ladder.

The EU's call for carbon neutrality and renewable energy expansion is partly due to climate change, but also because it benefits the European industry. Currently, the countries leading in renewable energy sectors such as wind and solar power are European countries. As of 2020, the share of renewable energy in power generation in Germany, the UK, Italy, and Spain all exceeds 40%. This is incomparable to Korea's 7.2%, and even surpasses the US (20.6%) and Japan (21.7%).

Europe's Industry Has a Large Share of Finance, Law, and Other Sectors Less Affected by Energy Prices
Quick Overseas Market Expansion Opportunities Through Renewable Energy Industry Technology

The high share of renewable energy in Europe is also due to its industrial structure. As of 2020 GDP rankings, Germany is 4th, the UK 5th, France 7th, and Italy 8th, all ahead of Korea's 10th place. Yet, electricity consumption is lower than Korea's. Only Germany, with its developed manufacturing industry, shows power generation levels similar to Korea, while the UK, Italy, and Spain have about half of Korea's power generation. This is because Korea's manufacturing sector accounts for 28.4% of industry, larger than the EU's 18.4%. Not only is the manufacturing share high, but heavy industries with large power consumption such as steel, automobiles, shipbuilding, and petrochemicals also have a significant share.

Europe's industry has a large share of service sectors such as finance, law, and tourism, which are less affected by energy prices. Instead of low-priced daily necessities, the luxury brand 'premium' business is also developed, making electricity rates less of a competitive factor. Therefore, the burden from expanding renewable energy is relatively less than in other regions.

Moreover, Europe has accumulated experience and technology in the renewable energy industry, so it needs to rapidly expand overseas markets before the gap narrows. Leading European energy companies such as Equinor, Shell, and GIG have already entered Korea and are planning or conducting wind power projects. Last November, Denmark's world-renowned wind power company Ørsted announced plans to invest about 8 trillion KRW to install 1.6 GW of offshore wind facilities off the coast of Incheon. For Europe, carbon neutrality is not only a timely imperative but also a growth engine as today's 'New Deal.'

Carbon neutrality involves broad changes and participation from both citizens and industries. Therefore, different strategies and speeds are needed depending on each country's circumstances. Korea has a large manufacturing sector and very different conditions for renewable energy use compared to Europe. Hence, it is necessary to devise strategies suited to Korea's conditions and environment.

Jiwung Choi, Researcher at the Petroleum Information Center, Korea National Oil Corporation

Different Carbon Neutrality Strategies Needed for Each Country
Korea Needs Support for CCS Research and Development

Even within Europe, efforts toward carbon neutrality appear differently by country. France has a relatively low share of renewable energy (25%) among major European countries but emits less carbon than Germany and the UK due to its high share of nuclear power (65.7%). In contrast, Italy approaches carbon zero with an energy mix focused on renewables and natural gas without operating a single nuclear power plant. Sweden uses its natural terrain to supply 44.9% of its power generation from hydropower.

Korea declared carbon neutrality last year and is now in the early stages of moving toward it with both industry and citizens. Therefore, Korea's carbon neutrality path is not yet clear. One certainty is that energy saving and efficiency improvement must also be pursued as important pillars in Korea. This is because Korea depends almost entirely on overseas energy resources and has many energy uses that are difficult to reduce due to the national economic structure.

In the same context, CCS (Carbon Capture and Storage) technology, which absorbs carbon inevitably emitted due to Korea's industrial structure, holds relatively greater importance. Therefore, it is necessary to consider active support for energy public enterprises conducting CCS research and development regardless of profitability.

The International Energy Agency (IEA) stated in its 'Net Zero By 2050' report last May that achieving carbon neutrality by 2050 "requires unprecedented levels of intergovernmental cooperation." Since "unilateral direction setting" and "unprecedented cooperation" are far apart, an independent, rational, yet sufficiently persuasive strategy is needed.