[CBAM Shock] Japan Releases '1 Trillion' While Korea Only '12 Billion'... Europe Carbon Tax Response Fails

Steel Industry Accelerates Hydrogen Reduction Steelmaking Demonstration
Japan Supports Investment with Green Innovation Fund
"Price Competitiveness Inevitably Falls Behind"

'Japan 1 trillion won vs. Korea 12 billion won'

The Japanese government has allocated 1 trillion won to develop hydrogen reduction steelmaking technology in response to the European Carbon Border Adjustment Mechanism (CBAM), which is set to be implemented next month. In contrast, the amount spent by our government is 12 billion won. CBAM (Carbon Border Adjustment Mechanism) is a type of trade tariff introduced by the EU under the pretext of reducing carbon emissions.

The industry most affected by CBAM is the steel industry. The traditional blast furnace method of making steel uses coal to separate oxygen from iron ore. This process emits a large amount of carbon dioxide. This is why steel companies have the highest carbon emissions among all industries.

Using hydrogen instead of coal produces only water instead of carbon dioxide. This so-called hydrogen reduction steelmaking method has been recognized by steel companies worldwide as a key technology for carbon neutrality. The steel industries in both Korea and Japan have been dedicated to developing hydrogen reduction steelmaking early on, but Japan’s progress is noticeably faster.

The background is as follows. In 2020, the Japanese government announced the 'Green Growth Strategy' and established the 'Green Innovation Fund (GI Fund)' worth 2 trillion yen (approximately 18 trillion won). This fund supports technology development to realize a carbon-neutral society. About 1 trillion won of this was used for demonstration projects of hydrogen reduction steelmaking in the Japanese steel industry.

On the other hand, POSCO, Korea’s leading steel company, has received only 12 billion won in government support related to hydrogen reduction steelmaking development. This is just one-hundredth of Japan’s amount. An industry insider said, "The difference in policy support between the Korean and Japanese governments will change the future of the steel industries in both countries toward carbon neutrality," adding, "How can companies alone stay ahead in competition?"

With the implementation of CBAM in Europe, the domestic steel industry is under urgent pressure. Companies exporting products to Europe must pay a 'carbon tariff' starting three years from now if they fail to reduce carbon dioxide emissions. Since this cost is directly reflected in product prices, price competitiveness will inevitably decline significantly.

CBAM is a type of trade measure that imposes carbon costs on products produced or imported from countries with high carbon emissions to prevent carbon leakage across borders and to reward national reduction efforts. Following Europe, the United States has also announced the implementation of the Clean Competition Act (CCA), which contains similar provisions. This places a heavy burden on countries with carbon-intensive manufacturing industries, including China and Korean companies.

CBAM, which will be piloted from next month, will first apply to industries with large carbon dioxide emissions such as steel, aluminum, cement, fertilizer, electricity, and hydrogen sectors.

Companies in these sectors must report carbon emission information for products exported to Europe by the end of December 2025, the 'transition period.' Carbon dioxide emissions per ton of product will be calculated. From 2026, when full implementation begins, companies will be required to purchase 'CBAM certificates' for emissions exceeding the set standards.

In Korea’s case, steel accounts for 93.6% of exports among the six CBAM-applied items, and aluminum accounts for 6.4%. Cement and fertilizer exports are minimal, and there are no exports in electricity and hydrogen. Although the EU plans to expand the list of applicable products later, for now, it is essentially a problem exclusive to the steel industry.

The Ministry of Environment estimated that the cost of CBAM certificates for the domestic steel industry will range from a minimum of 69 billion won to a maximum of 578.8 billion won, depending on the free allocation rate of emission permits (Study on Carbon Border Adjustment Policy Trends and Cooperation Measures). This corresponds to about 1.5% to 12% of the 2021 steel exports to the EU, which amounted to 4.6219 trillion won.