By Troy Stangarone
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The United States and China are by far the world's largest emitters of CO2, but South Korea is the world's eighth-largest emitter of carbon, according to the Union of Concerned Scientists. South Korea's relatively large carbon footprint is a result of an economy built around carbon intensive industries such as automobiles, steel, and petrochemicals.
To meet global goals for carbon reduction necessary to keep temperature increases below 1.5 degrees Celsius the International Monetary Fund (IMF) estimates that the world average price for carbon will need to rise from a global average of $2 across various tax and emission trading schemes to $75 by 2030. This has significant implications for South Korea's carbon intense economy where firms subject to its emissions trade scheme pay prices well below $75 for carbon credits.
To meet this challenge South Korea has taken steps to begin decarbonizing its economy. Its initial Paris Climate Accord National Determined Contribution (NDC) committed South Korea to reducing greenhouse gas emissions 37 percent below business as usual levels by 2030.
More recently, the Moon Jae-in administration has focused on increasing South Korea's use of renewable energy. The administration developed a roadmap for transitioning parts of the economy away from fossil fuels to hydrogen. This includes the goal of having nearly 3 million hydrogen fuel cell vehicles on the road by 2040 and increasing South Korea's capacity to generate and supply hydrogen as a fuel source.
The Green New Deal, part of South Korea's COVID-19 stimulus, will provide $35 billion in funding for renewable energy and energy efficient infrastructure over the next five years. President Moon also announced that South Korea would commit to becoming carbon neutral by 2050 and to revising its goals for emission cuts in a new NDC.
Despite efforts to reduce its own dependence on carbon, South Korean banks have also traditionally been an important source of financing for the construction of coal power plants in developing countries. Reducing emissions at home while supporting their use abroad runs counter to global goals for development and dealing with climate change.
Legislation is pending in the National Assembly to prohibit South Korean state banks from funding coal power plants abroad and South Korea's largest asset managers have indicated that they will end funding construction abroad as well. While these domestic steps are important, they should be coupled with a shift to supporting the construction of renewable energy sources abroad.
As part of its COVID-19 recovery recommendations the IMF called on countries to pursue a green recovery. It estimates that transitioning to a low carbon economy will require investments of $2.3 trillion a year for a decade.
Supporting a transition to renewable energy makes financial sense for South Korea. While demand for coal is expected to continue to rise in Southeast Asia, the International Energy Agency (IEA) notes that Vietnam, Bangladesh, and the Philippines have downgraded their plans for coal.
The IEA also projects demand for coal to plateau in 2025 as developed nations retire their coal power plants, renewable energy continues to drop in price, and renewables and LNG challenge coal for the cheapest energy source. Broader long-term energy trends could reinforce the shift to renewable energy in the region as the IEA also expects 90 percent of all new growth in energy demand to be filled by renewables.
A recent report by Greenpeace estimates that there will be a need of $205 billion in financing for renewable energy projects in Southeast Asia over the next decade, more than two and a half times the funding for coal over the last decade. There are clear opportunities for banks in South Korea to transition to funding cleaner energy projects in the one region of the world where coal is expected to remain a growing source of power and provide a better alternative.
South Korea has traditionally lacked a strategy to fund renewable energy projects abroad. In order to tap into this potential and fund renewable energy projects in Southeast Asia there will need to be a shift in state policy to prioritize the funding of renewable energy projects. In addition, support for commercial banks that are primarily experienced in supporting renewable energy projects domestically may be necessary.
If the world is to keep global temperature rises below 1.5 degrees Celsius, countries like South Korea will need to do more than reduce their own carbon emissions. Helping developing countries that are dependent on coal for power transition to renewable energy will not only be profitable, but also an important part of reducing global carbon emissions.
Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.
