[2022 Economic Policy] 'The First Year of Carbon Neutrality' Growth Basic Plan Confirmed... Establishment of Climate Response Fund

Legal Plan Changes and Establishment in Energy and Transportation Sectors Next Year

Additional Emission Allowances Reflect and Favor Companies Reducing Carbon Emissions

Revision of Guidelines for Business Restructuring Review to Include Labor Transition Plans

[Sejong=Asia Economy Reporter Moon Chaeseok] As the Carbon Neutrality Basic Act is set to be enforced from March next year, the government has designated this year as the 'first year of carbon neutrality target implementation' and decided to accelerate the enactment of enforcement ordinances. The government plans to finalize the 'National Carbon Neutrality Green Growth Basic Plan,' which includes sector-specific and annual greenhouse gas reduction targets and pathways, within next year. Interest in the basic plan is high as the national greenhouse gas reduction target (NDC) for 2030 was significantly raised from 26% to 40% compared to 2018 last October, making it highly likely that the carbon net emission targets for industries such as energy and transportation will be substantially increased.

The government will promote incentives and institutional reforms to increase corporate participation in the carbon emissions trading system and ESG (Environmental, Social, and Governance) management. Additionally, a 'carrot policy' has been introduced to provide preferential treatment by reflecting labor transition (a euphemism for workforce redeployment and restructuring) plans submitted by coal-fired power generation and internal combustion engine vehicle companies, which are high carbon-emitting sectors, when applying for business restructuring.

The government has labeled carbon neutrality as a 'future challenge.' It views that the transition to an eco-friendly, low-carbon economy and corporate business restructuring and labor transition must inevitably follow in the process of implementing carbon neutrality. Since this reform involves rapid industrial restructuring, the government believes that whether companies are induced to participate will determine success or failure, and thus has presented various incentives.

First, the government plans to implement the remaining 'five major follow-up measures' after the Basic Act enforcement in March next year. After promptly enacting the enforcement ordinance of the Basic Act, climate change impact assessments will be implemented starting from September next year. While investing 11.4 trillion KRW in four key areas including the decarbonization of the economic structure within next year, a climate response fund worth 2.4 trillion KRW will be newly established next year to secure funding for carbon reduction projects.

Major statutory plans requiring changes and reflection in the next plan according to the carbon neutrality goal. (Source: Ministry of Economy and Finance)

The 'National Carbon Neutrality Green Growth Basic Plan' will be finalized and announced within next year. It will include specific targets such as carbon emission quotas by industry according to the raised NDC standards. Furthermore, to achieve goals such as the supply of 4.5 million electric and hydrogen vehicles by 2030, statutory plans in energy and transportation sectors will be revised and established starting next year. The government will actively promote external activities such as new contributions to international climate-related organizations.

The government is reviewing changes to the '3rd Allocation Plan for the Greenhouse Gas Emissions Trading System' (2021?2025), targeting 684 companies including POSCO (industry), Shinsegae (buildings), and Kumho Express (transportation). Efforts to reduce carbon emissions, such as recognizing the purchase of renewable energy power as internal reduction achievements, will be reflected in the next and additional emission allowance allocations. Moreover, a new 'performance-linked financial project' will be launched next year to support follow-up projects if reduction targets are met. For example, 5.45 billion KRW will be invested to implement a support project for small and medium-sized enterprises' transition to carbon neutrality.

The 'fair labor transition' plan for workers in high carbon-emitting sectors, announced last July, has also been refined. Notably, the authorities will add companies promoting carbon neutrality and digital transformation to the list of approved business restructuring and expand the scope of regulatory exemptions under the Corporate Vitality Act. Management difficulties will be alleviated by suspending the prohibition on affiliate stock ownership for three years and extending the exemption period for mutual and circular shareholding regulations. Additionally, the implementation guidelines of the Corporate Vitality Act will be revised to ensure that labor transition plans prepared by companies participating in business restructuring reviews are sufficiently considered during the review process.