Gov't to allocate $313 bil. for low carbon transition in finance

Financial Services Commission Chairman Kim Joo-hyun, right, announces the government's allocation of 420 trillion won in public funds to promote green financing, at a meeting in Seoul Energy Dream Center, Tuesday. On Kim's right is Minister of Environment Han Wha-jin. Yonhap

The government pledged to allocate 420 trillion won ($313 billion) from the state budget into green financing, to finance projects that will help to meet its ambitious goal of reducing greenhouse gas emissions by 40 percent from 2018 levels by 2030.

Additionally, the banking industry is set to contribute by establishing a future energy fund valued at 9 trillion won. This fund aims to bolster the development and expansion of renewable energy infrastructure.

The Financial Services Commission (FSC) announced the decision at a meeting on Tuesday. Attendees included Kim Sang-hyup, co-chairperson of the Presidential Commission on Carbon Neutrality and Green Growth, as well as Environment Minister Han Wha-jin, CEOs from the top five commercial banks and the heads of state-run financial institutions.

"The unprecedented challenge of climate change we face today demands urgent action, not only to enhance the competitiveness of our companies but also to secure a sustainable future for generations to come," FSC Chairman Kim Joo-hyun said at the meeting. "Through this collaboration, the government, state-run financial institutions and banks have embarked on a meaningful step toward tackling the climate crisis."

By 2030, state-run financial institutions, including Korea Development Bank (KDB), the Industrial Bank of Korea and Export-Import Bank of Korea are set to supply a total of 420 trillion won designated for investments in low-carbon facilities, the production of eco-friendly products and technology support. The volume of this financial support represents a 67 percent increase compared to the last five years.

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The FSC forecasts that these measures will lead to a reduction of 85.97 million tons of greenhouse gases by 2030. This reduction would fulfill 29.5 percent of the government target to cut 291 million tons of emissions.

The private sector is also stepping up, through the establishment of the future energy fund.

To bolster the development of renewable energy facilities, KDB will contribute 1.8 trillion won and five major commercial banks will add 7.2 trillion won.

As the global regulations on carbon emissions become more stringent, the construction of renewable energy facilities by 2030 is estimated to cost around 188 trillion won, with the financial demand projected at around 160 trillion won. The FSC has pointed out the difficulties in fundraising for such projects, attributed to the lengthy process from loan issuance to repayment. Consequently, the fund will serve as a catalyst for capital financing, strategically targeting sectors characterized by longer payback periods and lesser appeal for private lending.

The FSC anticipates this initiative to contribute to a significant increase in the share of renewable energy within the power generation mix, aiming to elevate it from the current 9.2 percent to 21.6 percent by 2030.

Furthermore, the government and the banking industry are committed to investing 9 trillion won by 2030 in climate technologies, including carbon capture. Despite the sector being projected to grow at an average annual rate of 24.5 percent, it faces challenges due to an initial lack of economic viability. This has resulted in a technological gap of approximately three years between Korea and developed countries, the FSC explained.