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(EDITORIAL from Korea Herald on July 20)

All News 07:04 July 20, 2021

Growing carbon risks
:EU seeks to adopt carbon border tax; steps needed to ease business burden

The European Commission on Wednesday unveiled a proposal to adopt a "carbon border adjustment mechanism." This is a new charge on selected imports from countries that aren't taking steps as aggressive as the EU's to slash carbon dioxide emissions. If more emissions were generated in the process of manufacturing the imports than equivalent products made within the bloc, it would slap a carbon levy on them. This mechanism first targets aluminum, cement, fertilizer, power, steel and iron. The carbon border tax would be imposed in 2026 after a three-year transition beginning in 2023.

Democrats in the US included a similar carbon levy proposal in their $3.5 trillion government spending package. Border carbon adjustments are emerging as a new sort of trade barrier against polluting countries deemed to have a carbon-cost advantage.

South Korean exporters have so far faced few regulations in connection with climate change, but now that the EU is set to put the mechanism in place they suddenly face a problem. Carbon-intensive steel and aluminum exports are set to be hit directly by the border levy.

According to the Korea International Trade Association, the country exported $1.52 billion worth of steel and iron to the EU last year. Aluminum and fertilizer exports amounted to $186 million and $2 million, respectively. No cement or power was exported there.

Though details are still not known, a local consultancy estimates that the carbon tax on Korean steel products would amount to about 5 percent of the export value if the rate were set at $30.60 per ton. This would raise Korean steel prices and lower their competitiveness.

For Korean businesses, a carbon border tax is cause for concern. Domestic bills amplify those concerns. A bill proposed by Rep. Yong Hye-in of the Basic Income Party would set the price of carbon at 40,000 won ($34.90) per ton this year and raise it in stages to 80,000 won by 2025. Revenues from this carbon tax would be returned to the people in the form of basic income. This idea is advocated by Gyeonggi Province Gov. Lee Jae-myung, a leading contender in the ruling party's race for a presidential candidate.

If her bill passed, the estimated annual carbon tax on businesses would total 36.3 trillion won. This is about half of the country's corporate tax revenue in 2019. It would be a tremendous burden for businesses.

Energy is the top contributor to greenhouse gas emissions. Under the bill, a state-owned electric power enterprise and its affiliates could be expected to pay a total of 12 trillion won in carbon taxes. Inevitably, this would drive up electricity costs.

If a heavy carbon tax is imposed at home while at the same time carbon taxes become an effective trade barrier abroad, energy-intensive businesses will likely be driven to the brink of collapse. To ease the burden on businesses, some countries have taken steps to reduce corporate or energy taxes after introducing a carbon tax. Bold carbon-reduction measures are effective in saving the Earth from the climate crisis, but it is necessary to adjust their speed.

Korea cannot remain an exception to global efforts to achieve net-zero carbon emissions. The EU mechanism must serve as an occasion to wake up to the issue. The matter, which once looked distant, has become pressing. Ever-tighter control of emissions points toward unavoidable changes looming in international trade and industrial standards. If Korea lags behind in adapting to them, its exports will stagger and its companies will lose competitiveness. It needs to take proactive steps.

The government has unveiled a blueprint to attain carbon neutrality by 2050, and businesses are actively integrating environmental factors into their performance analyses. Companies should individually try harder to reduce their carbon footprints, and the government must help them with a sufficient supply of low-carbon power. To do this, nuclear power plants are essential. They produce no greenhouse gas emissions.

However, the Moon Jae-in administration is phasing out nuclear energy and seeks to replace it with solar and wind power. But renewable energy can hardly be a viable alternative in Korea, given its unsuitable geographical features. The nuclear phaseout policy is going to hurt Korea's export competitiveness.

He should cast it off. It's time to lead businesses away from growing carbon risks, such as the border levy, as well as from power shortages and electricity rate hikes due to a nuclear phaseout.
(END)

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