Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Reporter's Notebook Korea urged to speed up green tax overhaul
From left, European Commission Vice President Frans Timmermans, European Commission President Ursula von der Leyen and EU Commissioner for Economy Paolo Gentiloni, attend a press conference at the EU Parliament in Brussels, where the Carbon Border Adjustment Mechanism (CBAM) was announced, July 14. AFP-Yonhap
By Yi Whan-woo
By Yi Whan-woo
The carbon border tax being sought by the European Union (EU) and the United States, respectively, poses a question: Is Korea's tax policy in tandem with the accelerated international efforts to become carbon free by 2050?
True, Korea plans to revamp its tax policy on carbon emissions as announced by the government in December 2020, to help its backbone industries shift away from their existing fossil fuel-dependent, high-carbon emitting structure.
Among the measures to be taken are the overhaul of a carbon pricing system and the establishment of the tentatively named Climate Response Fund.
The campaign is in line with President Moon Jae-in's Green New Deal initiative that has the goal of cutting greenhouse gas emissions in 2030 by 24.4 percent from 2017 levels.
“But those measures appear to be too vague to help industries keep up their market competiveness in the EU and the U.S., considering the two economic blocs push to implement a carbon border free tax on imports,” said Shin Yul, a political science professor at Myongji University.
He was referring to the EU's sweeping new plan introduced July 14 to tackle climate change, including a carbon tariff on imports from countries that fail to take similarly aggressive steps to cut their greenhouse gas emissions.
Such a tariff, officially known as the Carbon Border Adjustment Mechanism (CBAM), will be the first of its kind if it is implemented.
The EU proposed the tariff to take effect in 2026, with five sectors ― iron and steel, cement, fertilizer, aluminum, and electricity generation ― being the first target groups.
Of the five, steel and aluminum are Korea's major export items to the EU. Accordingly, speculation has been rampant that Korean manufacturers will suffer.
The Federation of Korean Industries (FKI), a business lobby group, said that up to 50 out of the 100 largest enterprises will find their carbon tax payments exceed operating profits if it is levied.
In the U.S., the Democrats came up with a proposal July 19 to impose a tax on imports from China and other countries that do not actively join the carbon neutrality campaign.
The proposal is in accordance with U.S. President Joe Biden's climate moves and is expected to raise as much as $16 billion annually if it is successfully implemented.
The situation apparently makes it more critical for Korea's industries to come up with or enhance tax plans on greenhouse gas emission to the level of the EU and the U.S.
Yun Sun-jin, chairwoman of the Presidential Panel on Carbon Neutrality, suggested a tax for greenhouse gas emissions to be added to electricity and other utility bills.
Rep. Kim Young-bae of the ruling Democratic Party of Korea (DPK) proposed a bill to revise the tax law on property and acquisition by offering tax benefits to businesspeople whose plants and offices are certified by the government as environment-friendly.
If the bill is passed, the rate of reduction for beneficiaries' acquisition tax will go up from the current range of 3 percent to 7 percent, to 10 percent to 20 percent.
On property tax, the benefit rate will go up from current range of 15 percent to 20 percent, to 15 percent to 30 percent.