Carbon neutrality and Korean manufacturing

In October 2021, the Korean government issued aggressive new greenhouse gas (GHG) reduction targets. These were accompanied by a scenario describing how the country could go carbon neutral by 2050.

For the industrial sector (to which the manufacturing industry belongs), the government pledged by 2030 to reduce GHG emissions by 14.5 percent compared to 2018 levels through increasing energy efficiency and by transitioning away from fossil energy to low-emission fuels. And in the medium to long term, Korea set a goal of cutting carbon emissions by 80 percent through the commercialization of innovative, carbon-free technologies.

This March, Korea will release its new 2030 roadmap outlining specific, year-by-year GHG reduction pathways for achieving its revised 2030 Nationally Determined Contribution (NDC) emissions reduction targets.

Compared to other major economies, promoting carbon neutrality in Korea is an especially challenging task given the strong export competitiveness of its manufacturing industry. In Korea, the manufacturing industry accounts for 28 percent of the gross domestic product (GDP). By this metric, manufacturing accounts for a bigger slice of the economic pie in Korea than it does in other major manufacturing powers, including Japan, Germany and the U.S. — only China is close.

Moreover, GHG-intensive sectors such as steel, petrochemicals, semiconductors, displays and oil refining constitute a bigger piece of the manufacturing industry in Korea than they do in any other major country, save again for China.

Yet technologies that can replace fossil-based energy in production processes and enable major GHG reductions remain in development. A lack of infrastructure for renewable energy and carbon capture and storage

(CCS) are also major barriers to cutting GHG emissions. Moreover, Korea is already energy-efficient; it is difficult to anticipate major GHG reductions through improvements to energy efficiency. So there is mounting concern that promoting carbon neutrality in manufacturing may result in production cuts and higher production costs in competitive industries.

Nevertheless, the Korean manufacturing industry must actively participate in the global decarbonization movement in order to secure its own long-term competitiveness. In Europe, governments are working with private companies to corner the market for green steel and have instituted climate trade policies such as the Carbon Border Adjustment Mechanism (CBAM), which is increasing demand for low-carbon products around the world.

To address this, the Korean government needs to redouble its efforts to support technological development in industries that have significant ripple effects on others in terms of GHG reductions. And both fiscal outlays and policy financing will be vital to eventually realizing the economic feasibility of new green products. Through these and other measures, Korean manufacturing may very well remain a powerhouse in the net-zero era.