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| Park Jin-kyu, deputy minister at the Ministry of Trade, Industry and Energy, holds an online meeting with corporate officials in the steel industry to better cope with the scheduled implementation of the EU’s carbon border adjustment measure (CBAM) at the Sejong Government Complex, Thursday. Courtesy of Ministry of Trade, Industry and Energy |
The EU’s new tax to take effect starting in 2026
By Kim Hyun-binThe government and business circles are working together to cope with the implementation of the European Union’s carbon border adjustment measure (CBAM), which is expected to have a heavy impact on Korea’s steel and other industries that are not categorized as eco-friendly.
“Even though the CBAM is being implemented, cooperation between private sector and government could turn the crisis into an opportunity,” Deputy Trade Minister Park Jin-kyu said. “Our industry will preemptively prepare and counter the global trend of carbon neutrality to create a positive effect.”
The move came after the European Commission passed the world’s first carbon border tax on carbon-intensive products in five categories: steel, aluminum, cement, fertilizer and electricity, Wednesday (CET), in part to meet new climate change targets.
The new tax will be phased in from 2026, and is designed to protect European industries from lower-priced products produced by overseas competitors that have not been charged for their carbon emissions output, the EU Commission said.
Under the proposal, a transitional phase will be initiated from 2023 to 2025 that will require importers to monitor and report their emissions. It will become mandatory for importers to purchase digital certificates stating the tonnage of carbon dioxide emissions embedded in their products.
If they do not abide by the procedures, importing companies could be fined and other penalties are set to apply.
Against this backdrop, the Ministry of Trade, Industry and Energy held a meeting with related companies, Thursday, to devise strategies to better cope with the EU’s CBAM implementation. Key steel companies and committees took part in the online meeting, including officials from POSCO, Hyundai Steel, Dongkuk Steel and the Korea Iron and Steel Association.
“We will thoroughly analyze the CBAM bill and state our position as well as consult with the EU and the key related countries involved. We will explain our carbon neutrality policies and emissions trading system and will work so that our efforts towards carbon neutrality will be well recognized,” the trade ministry said.
According to data released by the Korea International Trade Association, the country’s steel exports to the EU reached $1.52 billion with over 2.2 million tons of steel, the highest among the five categories that are affected by the EU border carbon tax initiative.
Once implemented, local steel and aluminum firms are expected to be heavily affected by the new measures as well.
Steel production emits large amounts of greenhouse gases relative to other industries. The process of making steel involves heating iron ore, which produces carbon dioxide as a byproduct. Producing one ton of steel generates almost two tons of carbon dioxide.
Aluminum is Korea’s second-most-exported good to the EU, with an export volume of over 52,000 tons, valued at $186 million.
“The CBAM will take effect starting in 2026 and there is a three-year grace period starting in 2023, so there won’t be any impact on local companies until 2025. The EU did not specify how much the carbon tax will be when imposed, as the details of the other sectors included in the bill also need to be ironed out, so we will have to wait and see,” Hana Financial Investment senior researcher Park Sung-bong said. “However, there are studies from the Federation of Korean Industries that state that the CBAM will incur an additional 600 billion won annually in taxes for local companies.”
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| POSCO Center in Gangnam District, Seoul / Courtesy of POSCO |
This year, the government plans to come up with diverse support measures in the form of subsidies, tax breaks and aid for research and development in carbon neutrality for local companies that are likely to be impacted. In addition, the government plans to establish a ‘Green Steel Committee’ consultation channel, consisting of government officials, industry representatives and scholars, to discuss carbon emission issues in the local steel industry in detail.
Korea seeks preemptive measures against EU carbon border adjustment measure tax
Source: Buhay Kapa PH
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