[Opinion] Causes of Heating Bill Shocks and the Controversy over Windfall Tax

The entire country is buzzing due to the heating bill bombshell. The president's approval rating has also plummeted. However, the real bomb is just beginning. The gas bill arriving this month is even more worrisome. This is because it reflects the impact of the unprecedented cold wave that hit after the Lunar New Year holiday. The electricity bill will not be any easier. Electricity rates have increased by 13.1 won per kWh since January. Using an electric blanket instead of gas heating is not a viable alternative.

The direct cause of the heating bill bombshell is the surge in liquefied natural gas (LNG) prices in the international market. It is a disaster caused by the combination of the Russia-Ukraine war and COVID-19. Since we import all the LNG needed for heating, cooking, power generation, and industry, there is nothing we can do arbitrarily. The belated complaint that the Korea Gas Corporation should have secured sufficient quantities through cheap long-term contracts is practically meaningless.

The responsibility clearly lies with the previous administration, which ruined the national energy policy through blind nuclear phase-out, coal phase-out, and renewable energy policies. Recovering the nuclear power plant operation rate to some extent in 2021 cannot serve as a pardon. On the contrary, the illegal shutdown of Wolseong Unit 1 and the delays in the construction of Shin-Kori Units 5 and 6 and Shin-Hanul Units 1 and 2 cannot be ignored.

As a result, LNG power generation has significantly increased. In 2022, the Korea Gas Corporation had to import an additional 9.6 million tons of LNG on top of the 36.4 million tons it had already prepared. The additional volume must have been purchased on the spot market, which is more than four times more expensive than long-term contracts. It is said that the Korea Gas Corporation’s burden increased by a staggering $25 billion (about 30 trillion won). Most of the Korea Gas Corporation’s unpaid receivables were due to the increase in LNG consumption.

The previous administration’s repeated refusal of the Korea Gas Corporation’s urgent requests for rate hikes was clearly a dereliction of duty. Even a child knows that blindly freezing energy prices is not the solution. Energy prices are the most reliable signal indicating the practical difficulties of energy supply and demand. Due to the previous administration’s freeze on gas prices, consumers were deprived of the right to respond voluntarily.

The ‘windfall tax’ proposed by the opposition leader is also absurd. The windfall tax is not a new idea. It has appeared repeatedly whenever international crude oil prices rose, only to be discarded each time. Moreover, this heating bill bombshell was not caused by refiners. It means the opposition failed to distinguish between ‘natural gas’ and ‘petroleum products.’

There was also a severe lack of understanding about the nature of the windfall tax temporarily implemented in some European countries. Europe’s windfall tax is imposed on ‘oil companies’ that produce crude oil and natural gas. Imposing a windfall tax on oil companies does not cause international energy prices, determined by fierce competition in the global energy market, to rise accordingly.

The situation is entirely different for ‘refiners’ who refine crude oil into petroleum products. The windfall tax demanded by the opposition is not actually paid by the owners of the refiners. The windfall tax is directly reflected in the price of petroleum products, which further increases the burden on consumers.

The debate over selective versus universal welfare is meaningless. There is no reason for the public to help the opposition leader with heating bills. Indiscriminate handouts must end with COVID-19. Government heating support should be limited to direct assistance for gas and electricity bills for vulnerable groups. It is also urgent to establish systems to improve energy consumption efficiency.

Lee Deok-hwan (Professor Emeritus at Sogang University, Chemistry and Science Communication)