Courtesy of the Presidential Committee on Green Growth

Pushy government, reluctant businesses

By Kang Ye-won

Since the Lee Myung-bak administration's green growth initiative was put in place in 2008, the government and large corporations have invested in developing many green technologies in low carbon and renewable energy.

But going into its fourth year, the government's top-down approach fell short in embracing small- and medium-sized companies, while carrying out its grand mission in achieving both economic expansion and environment-friendly technology advancement.

To leave a significant legacy before his presidential term ends, it was "inevitable" for Lee to push the agenda over a relatively short period of time, said Kang Sung-jin, an economics professor at Korea University. As a result, the private sector has been slow in tapping into green technology markets.



"The task for the government this year is to show what they've done in the past four years," Kang said.

"We want to see some outcome by now rather than (the government's) new planning."

Aim for leap in renewable technology

To catch up with foreign leaders in renewable energy, the Presidential Committee on Green Growth is preparing to open a green technology center this March.

With the goal of taking 15 percent of the global market share in wind and solar power, the government will push for developing 27 key green technologies, said Young Soo-gil, chairman of the Presidential Committee on Green Growth. They include rechargeable batteries, LED lighting, photovoltaic or solar cells, and carbon capture and storage.



"We made significant progress in closing the gap in our green technologies — up to 35 percent with developed countries, compared to a 50 percent lag when the committee was first launched," Young said.

Specifically, in the next three years, the government will make an investment of up to $40 billion in the alternative energy sector, said Choi Kook-young, a manager of the renewable energy policy department at the Korea Energy Management Corp. (KEMCO), a state-funded energy agency. Of the total, it will subsidize $7 billion, and $33 billion will come from the private sector, Choi said.

Global renewable energy markets are growing at 35 percent each year and are expected to reach $400 billion by 2015, Choi said, citing a research note.

However, the current situation is in stark contrast to what the agenda forecast.

In 2010, Korea's renewable energy accounted for merely 2.6 percent of total energy sources while the government said it was shooting for 11 percent by 2030. The European Union is targeting 20 percent by 2020; and China, 15 percent over the same period, Choi said.

In wind energy, for instance, Korea has just passed the initial stage and lags far behind industry leaders including China and the U.S., according to Kang Hee-chan, head of climate change at the Samsung Economic Research Institute, in a research note.

Most wind turbines used in Korea are European imports and the few made by big Korean companies lack price competitiveness in the relatively small domestic market, Kang said. "It's a vicious cycle. Because of the lack of demand (for local products), prices do not come down."

Hurdles with CO2 reduction

Korea set ambitious targets to cut green house gas emissions by 30 percent than baseline trends by 2020. The government has attempted to adopt two market-based regulations — the renewable portfolio standard (RPS) and the emission trading system (ETS).

Kicking in this March, the RPS will require power producers with a capacity greater than 500 megawatts to generate 2 percent of their total power from renewable energy sources and raise it to 10 percent by 2022, according to Yoo Jun-hyuk, a senior consultant of climate change and sustainability services at Ernst & Young, a global accounting firm.

But market analysts predict that companies are likely to fail to meet the obligation.

"We anticipate a bumpy road in the first year," Yoo said. "The biggest challenge for companies is to find the appropriate sites for solar panels and wind farms, and to get them authorized, which takes a long time in Korea."

The government is also seeking to pass the emission trading system by 2015. First adopted by the European Union in 2005, the system allocated a certain amount of allowed emissions called a baseline and lets polluters buy and sell a quantity of permits, each representing a ton of carbon dioxide. In other words, the regulation places a value on emissions so that companies get incentives if they save energy and produce less pollution.

If the bill is passed, Korea will become the third Asian-Pacific country to taxpolluters after Australia and New Zealand, Yoo said.
However, major industry leaders have remained firm with their longstanding opposition, due to the hefty upfront cost.

Just last month, five economic organizations, including the Korea Chamber of Commerce and Industry (KCCI), submitted a petition to the National Assembly to request a delay in the pending bill.

However, some say that whether they like it or not, Korean companies, especially export-heavy firms will get hurt if they don't follow the global trend.

Kang of Korea University said Korea needs to act promptly.

"Domestic manufacturers, especially small- and medium-size companies need to realize the urgency of what's called green protectionism."

Despite harsh criticism from countries including China and the U.S., the European Commission this January started to levy a green tax on any airlines flying in and out of the European Union airports. It will cost about $5.6 million for local carriers this year and the amount will double next year, according to Yoo in a research memo. The measure also applies to corporate jets.

Many large companies declined to comment on their stance on the government's push for carbon emission reduction.

"There's a conflict of interests between the government and businesses when it comes to greenhouse gas reduction, but there's growing interest globally, and we're in discussion with the government," said an industry spokesman on condition of anonymity.

Young of the Green Growth Committee said the heightened regulations will create demand and motivate companies to invest in green technologies, thus help them gain global competitiveness in the long run.

"We expect the nurturing period (of the green growth initiative) under government leadership to take from five to 10 years, then the private sector should take it from there," Young said.