Navigating The Net Zero Transition - Chapter 5: the Republic of Korea

Among the largest economies in the world by GDP and a powerful member of the G20, the Republic of Korea has developed a strong industrial activity sector in recent decades. Yet without urgent action to transition to a more sustainable economy, it could lose 3.73% of annual GDP by 2050.

Climate change threatens devastating impacts to its 51.6 million population. By 2050, heatwaves are expected to last 1,563% longer, ocean acidification will reduce fish catch potential and destructive flooding could affect an estimated 0.42 million people.

Urgent investment in a low-carbon future could limit economic costs to 1.15% by 2050. Renewable energy sources can also help the Republic of Korea to hedge against price volatility and achieve energy security, given it imports almost all of its coal.

The government has committed to carbon neutrality by 2050. This ambitious goal, set in October 2022, faces challenges from the country’s energy-intensive manufacturing sectors, growing population and reliance on exports.

But the government's extensive efforts include plans to establish hydrogen cities and transform industrials under its Green New Deal. The Republic of Korea is finalising the next iteration of its strategies under its legally-binding National Plan for Carbon Neutrality and Green Growth (2023-2042).

[B]eing left behind in the transition could mean losing a competitive edge in the global value chain.” - The Republic of Korea government

Navigate the opportunities and challenges in the net zero transition:

Energy Transition | Carbon Markets | Financing | Transport | Housing and Buildings | Agriculture | International Collaboration

The electricity and heat generation sector is the Republic of Korea’s highest emitting sector due to the dominance of fossil fuels in the energy mix. Since signing the Global Coal to Clean Power Transition Statement at COP26, the Republic of Korea has tightened its coal-exit strategy ‘to dramatically phase down coal-fired power generation while ramping up renewable power’.Coal power will reduce to less than a third of generation by 2030 with 28 coal-fired power plants decommissioned by 2036. The complete phase-down of coal is planned by 2050, under the national roadmap to achieve net zero by 2050.

Natural gas ‘will continue to play a greater role in the future’, and is included in the Korean Green Taxonomy (K-Taxonomy).

Sustainable growth and enhancing quality of life are key energy transition objectives, as set out in the 3^rd National Master Plan for Energy (3^rd Energy Master Plan).

Opportunities

The Republic of Korea is aiming to have roughly a third of all energy generated by renewable energy sources by 2040 under its third Energy Master Plan – a dramatic almost five-fold increase from 7.6% in 2017.  Stable electricity supply and demand to strengthen energy security are a top priority in the Republic of Korea’s 10^th Basic Plan for Long-Term Electricity. Currently, renewable energy accounts for just 8% of the power generation mix, followed by nuclear at 27%, gas at 29% and coal at 34%. But by 2036, the share of renewable power generation is expected to increase to 30.6%.

A significant scale-up in investment in clean energy sources is needed for the Republic of Korea to reach its targets. Renewables aside, the Republic of Korea is among nations prioritising clean hydrogen technology in a bid to ‘take the lead in spearheading the global hydrogen economy’. Renewable energy certificates are the primary driver of renewable capacity installation in the Republic of Korea.

The renewable portfolio standard (RPS) scheme was introduced in 2012 to replace the feed-in tariff program. The RPS requires large-scale power generators or integrated energy operators with an installed power capacity of 500MW or more to procure a government-mandated percentage of electricity from renewable sources via certificates. The annual RPS mandate increased to 12.5% in 2022, with an ambition of 25% by 2030.

• The Northeast Asia Super Grid project seeks to connect the Republic of Korea’s power grids with neighbouring countries such as Japan, China, Mongolia and Russia. This project appears to have stalled since the last research report was published in July 2019.
• Community projects in farming areas (residents) and industrial complexes are supported via loans to those that elect to participate in community benefit sharing for renewable energy projects.
• Solar PV and wind power will dominate due to strong policy backing and widespread availability. This is despite the Republic of Korea having one of the highest costs of building solar and wind projects in the world due to market distortion from subsidies (like the RPS), its mountainous landscape and smaller average project size.
• Transmission and distribution capacity infrastructure investment is critical to support the uptake of renewable energy.

• Hydrogen: The Republic of Korea expects to generate up to 43t won from hydrogen by 2040. By 2030 it anticipates producing 1.9m tons of clean hydrogen a year domestically and importing 1.96m tons per year. The nation’s hydrogen roadmap includes setting up hydrogen cities and a new hydrogen certification system (from 2024).
  • The establishment of a hydrogen value chain is key - from production and storage, to transport and utilisation.
  • Hydrogen vehicles and fuel cell technologies will form the backbone of the hydrogen economy.
  • The Republic of Korea government will (under the first draft of the National Plan for Carbon Neutrality and Green Growth) demonstrate key technologies, establish necessary infrastructure, diversify hydrogen transportation and expand utilisation such as through the construction of hydrogen cities and clusters. 

The Republic of Korea’s key market-based solution is its carbon price. An Emissions Trading Scheme (K-ETS) launched in 2015, covering 74% of national GHG emissions. Suboptimal performance led the government to cancel auction plans for 3.7m permits in early 2023.

In February 2023 the Ministry of Environment announced several financial incentives to promote the growth of green industries, including expanding support for greenhouse gas reduction facilities to 138.8b won in 2023, almost tripling the budget for official development assistance projects to 12.4b won in 2023 for international environmental cooperation, and amplifying open-call projects to reduce international greenhouse gas emissions.

Boosting private investment, quashing greenwashing: K-Taxonomy

The K-Taxonomy aims to give investor and stakeholder clarity and confidence on what qualifies as a ‘green’ economic activity – therefore boosting investment. To achieve ‘green’ status, an activity must satisfy all three principles:

1. Contribute to at least one of six environmental goals
2. Do not cause any serious environmental damage at the detriment of the other environmental goals while achieving the target environmental goal/s
3. Do not violate laws and regulations related to human rights, labour, safety, anti-corruption and cultural property destruction.

The K-Taxonomy classifies green economic activities that contribute to achieving 6 environmental goals:

1. greenhouse gas reduction
2. adaption to climate change
3. sustainable water conservation
4. recycling
5. pollution prevention and management, and
6. biodiversity.

A pilot that ran from April to November 2022 saw six banks and companies issue green bonds totalling 640b won for projects including renewable energy generation and zero-emission vehicle infrastructure.

The K-Taxonomy Guideline (Guideline) further helps interpretation – in turn, promoting capital flows towards green projects, industry and technologies, and tackling greenwashing.

Estimate to transition the transport sector to net-zero
(excludes infrastructure or fleet replacement)

The Republic of Korea is poised to become among world leaders in ‘green’ car manufacture and supply. During the first half of 2023, the country’s green car export value rose to US$12.4b (from US$35.7b total automobile exports - a record high) – making eco-friendly cars, whether EV, hybrid, plug-in or hydrogen, account for 25% of car exports.

The Republic of Korea has among the highest proliferation of hydrogen fuel cell vehicles: out of the 15k new fuel cell cars that hit the road in 2022, two-thirds were in the Republic of Korea. Yet it also has ambitious short-term targets to increase EVs (including cars, buses and freight vehicles) on roads, including by installing 45k charging stations by 2025. An EV subsidy scheme has resulted in the Ministry of Environment facilitating the supply of over 402k EVs. Key subsidies for 2023 include:

Passenger cars: Increase subsidised EVs by approximately 31% (215k units), 1.4m won to manufacturers to increase low-emission vehicle supply (Hyundai, Kia, Ssangyong, Renault, GM Korea, Mercedes Benz, BMW, Volkswagen, Toyota and Honda), 200k won for charging infrastructure for EV manufacturers that have installed a minimum of 100 fast chargers over the past 3 years.

Vans and buses: preferential treatment (support for 3m won) for manufacturers if they submit a certified ‘traction battery safety test’ report.

Trucks: 12m won and an increase in the units of from 40k to 50k, plus additional 30% of the grant amount (up from 10%) to vulnerable groups and small business owners.

Zero-energy new buildings and ‘green’ retrofitting for old buildings are key priorities for the Republic of Korea.

• Newly constructed buildings will be ‘zero-energy buildings that self-sufficiently generate their energy needs’ from 2030. This is expected to increase zero-energy buildings from 2,950 in 2022 to 47k by 2030.
  • This expands existing Building Energy Management System (BEMS) requirements to use various equipment (eg lighting, heating and cooling, ventilation and outlets) to reduce building energy consumption and enhancing energy efficiencies.
• Old private buildings with green remodelling from government support will increase from 73k cases in 2022 to 1.6m cases by 2030.
  • Rooftop solar panels will attract 244.7b won under the government’s PV system rebate scheme and other small renewable energy systems.
  • Public facilities take first priority in the Green New Deal, focusing on improving the energy efficiency. A minimum of 2,890 school buildings will have solar panels installed and eco-friendly insulation by 2025. These projects will be funded both by government finance and public-private partnership via the Build-Transfer-Lease model.

Agriculture accounts for less than 5% of emissions in the Republic of Korea and an even smaller proportion of its GDP. Climate measures are focused largely on research and development towards adapatation. The private sector drives incentives towards sustainable farming, as retailers set targets that trickle up the supply chain.

There is a national framework for the sustainable development of the agricultural sector under which five-year plans are set. This has included targets for sustainable innovation. But the OECD has called for more investment and support towards adaptation and incentives to help farmers to adopt climate-resilient systems. The OECD has also called for sustainable water use.

One key government measure is in the Renewable Energy 3020 Plan, via solar PV in rural areas. Active participation from the nation’s farmers is required and long-term, low-interest loans enable them to combine PV installations with farming activities.

Significantly, forest and land use in the Republic of Korea acts as a carbon sink. The Republic of Korea is a signatory to the Glasgow Leaders’ Declaration on Forests and Land Use signed at COP26, committing to forest conservation, promotion of sustainable development and commodity production, improving rural livelihoods and incentivising sustainable agriculture.