'Carbon Neutrality's Big Obstacle' Soaring Emission Permit Prices Cause Corporate Outcry... Electricity Bill Surge Brings Tears to Ordinary People

Carbon Neutrality Committee Finalizes NDC 40% Increase and 2050 Carbon Neutrality Scenario... Industry Must Cut Emissions by 80.4%
Emission Permit Prices Expected to Surge Starting Next Year
Radical Goal to Completely Phase Out Coal Power... Carbon Neutrality Committee Also Says "Electricity Rates Must Rise"

[Sejong=Asia Economy Reporters Haeyoung Kwon, Heungsun Kim] The Presidential Committee on Carbon Neutrality has finalized an aggressive carbon neutrality goal to reduce greenhouse gases by 40% by 2030 and achieve net-zero carbon emissions by 2050, raising the possibility of a sharp increase in carbon emission permits and electricity prices. The burden felt not only by the industrial sector but also by the entire nation is inevitably expected to grow.

◆Emission permit prices likely to soar... Even Hyundai Motor struggles＝According to the final version of the '2050 Carbon Neutrality Scenario' announced by the Carbon Neutrality Committee, the industrial sector must reduce greenhouse gas emissions by 80.4% compared to the 2018 emission volume (260.5 million tons) by 2050. The industry is required to cut 37.9 million tons of carbon by 2030 in line with the enhanced Nationally Determined Contribution (NDC) target and further reduce an additional 171.5 million tons by 2050. Especially with the confirmation of the NDC enhancement, there is a high likelihood that companies will face a sharp rise in emission permit purchase costs starting next year. The Carbon Neutrality Committee also hinted at the possibility of a surge in permit prices in the scenario announced the day before, stating that "the total emission allowance under the emissions trading system must be strictly managed to induce the achievement of carbon neutrality."

The industrial sector is on high alert. In particular, the steel industry, which accounts for 8% of global carbon emissions and faces significant pressure for carbon neutrality, is expected to bear an increased burden. In the first half of this year, companies' emission liabilities amounted to about 420 billion KRW, and as each company moves to secure emission permits, emission liabilities are also expected to increase accordingly. Emission liabilities are provisions set aside to purchase carbon emission permits in the market when greenhouse gas emissions exceed the government-allocated emission volume. According to related industries, the top five companies with the largest greenhouse gas emission liabilities reflected a cumulative total of 419.6 billion KRW in emission liabilities in their financial statements for the first half of this year. Among domestic companies, Kia has the highest emission liabilities at 216.9 billion KRW, followed by Hyundai Steel with 133.9 billion KRW and POSCO with 42.2 billion KRW reflected.

The price of 'KAU21,' one of the emission permits, has already surpassed 30,000 KRW, doubling in just four months. The transaction volume of emission permits among companies is also increasing sharply every year. According to the Korea Exchange, the annual cumulative transaction volume of all carbon emission permit items rose from 13.9 billion KRW in 2015 to 620.8 billion KRW in 2020, an average annual increase of 114%. This is recorded as emission liabilities for companies, increasing their financial burden. In a survey conducted last month by the Federation of Korean Industries among 126 companies subject to the greenhouse gas and energy target management system, 39.5% responded that "due to the strengthened NDC targets, the burden on companies such as purchasing emission permits and regulatory compliance will increase," the highest response rate.

The problem is that the Carbon Neutrality Committee has meticulously designed reduction plans such as the steel industry's use of eco-friendly materials and renewable energy, making it difficult to prepare corresponding measures in a short period. The domestic finished car industry also faces the possibility of various side effects emerging as the sharply raised NDC predicts a 'hard landing' from the existing internal combustion engine vehicle market to the electrification market.

Ryu Seong-won, head of the Industrial Strategy Team at the Federation of Korean Industries, said, "From a corporate perspective, companies will try various efforts to reduce carbon emissions even slightly, but since our industry's energy efficiency is already at the world's highest level and it is not easy to introduce revolutionary carbon reduction technologies, it is questionable whether there is a real exit."

◆Complete phase-out of coal-fired power... Carbon Neutrality Committee: "100% reflection of power generation costs necessary"＝The energy transition sector's goals are also radical. The core of the 2050 Carbon Neutrality Scenario final draft can be summarized as the complete phase-out of coal-fired power plants. The Carbon Neutrality Committee initially included a plan to maintain seven coal-fired power units in the draft, but the final version shifted direction to close all of them and proposed expanding the share of renewable energy from the current 6.6% to up to 70.8%. Meanwhile, nuclear power is reduced to 6.1%, and coal-fired and liquefied natural gas (LNG) power generation shares are lowered to 0% each.

This has been criticized as a goal that does not consider current power generation costs or expenses at all. Last year, Korea Electric Power Corporation's (KEPCO) purchase price per 1kWh by power source was 59.7 KRW for nuclear, 81.6 KRW for coal, 99.3 KRW for LNG, and renewable energy reached 149.4 KRW including government subsidies. Renewable energy costs are nearly three times that of nuclear and twice that of coal-fired power. In particular, not only the expansion of renewable energy power facilities but also the construction of backup facilities such as energy storage systems (ESS) and installation of transmission and distribution networks are expected to incur astronomical costs. Internally, the Carbon Neutrality Committee estimated that up to 1,248 trillion KRW would be required solely for ESS construction due to the expansion of renewable energy share. Ultimately, the costs associated with the rapid expansion of renewable energy will inevitably lead to increased electricity rates and a burden on the public.

The Carbon Neutrality Committee also stated, "In the short term, carbon neutrality in the power generation sector should be promoted by strengthening the already introduced environmental dispatch, and carbon costs should be reflected in electricity rates along with fuel costs," adding, "It is necessary to strengthen the emissions trading system through measures such as increasing the paid allocation ratio and, in the long term, fully reflect carbon costs in power generation costs."