Korea can play strong role as global carbon pricing champion

 

In recent years, extreme weather disasters in both Korea and the EU have made our citizens acutely aware of climate change’s devastating effects. Our common drive to implement bold and decisive carbon mitigation strategies can help accelerate work to fight the drivers of this global deterioration.

Carbon pricing is an instrument that has had proven success. Korea’s Emissions Trading System (ETS) introduced in 2015 covers over 70 percent of greenhouse gas emissions. Some reforms are under consideration to boost its impact.

The EU’s pioneering EU ETS has been in place since 2005, helping to reduce emissions from power and industry plants by 37 percent. Moreover, the EU is extending carbon pricing to other economic activities including aviation, maritime transport, road transport and building heating.

But for our part, we cannot sit back and watch, while EU climate action is undermined by less ambitious policies elsewhere in the world. That’s why in October, we began implementing the ground-breaking EU Carbon Border Adjustment Mechanism or CBAM.

The new CBAM has two goals: to prevent so-called “carbon leakage,” or the relocation of production outside EU borders to countries with lower environmental standards, and to encourage industry worldwide to embrace greener technologies.

Designed to be compatible with World Trade Organization rules, CBAM is not about trade protection, but about protecting EU and global climate ambition, as determined at COP.

CBAM started applying in the EU as of Oct. 1 this year and its two-and-a-half-year transitional phase will last until the end of 2025. During this period, EU importers of CBAM goods (steel and iron, aluminum, cement, and fertilizers, as well as hydrogen and electricity) sourced in non-EU countries will only need to provide certain information on the carbon intensity of their products. But I want to reassure Korean firms that the burden imposed on them will be no heavier than that of EU producers.

The European Commission has provided extensive sector-specific guidance for industry on how CBAM will work during the transitional phase. We are also engaging with non-EU businesses so that they understand their role in supplying EU partners with relevant data on the greenhouse gas emissions being expended during production.

Korea is an important EU trading partner. Exposure to the CBAM is mostly concentrated in the steel sector, which represents around 3 percent of the total value of Korean exports to the EU.

So we do understand Korea’s strong interest in the mechanism and when designing the CBAM, it’s important to us that we do so in the fullest transparency.

That’s why we were happy to have a number of international observers, including Korea, on board during the design of the CBAM’s transitional phase. In mid-2025 we will draw the lessons of this period and use the information gathered to refine the mechanism’s methodologies and the definitive regime before its entry into force in 2026.

As of that time, EU importers will begin buying and surrendering “CBAM certificates” based on the embedded emissions of their imports.

We will also look at the possible extension of CBAM’s scope to a limited number of additional sectors at risk of carbon leakage which are also covered by the EU ETS. CBAM will never cover more than a small fraction of our trade with Korea.

We will once again value the input of Korean policymakers and business towards the design of that definitive regime. We want to listen to your feedback and concerns so that we can increase our mutual understanding, look for synergies and simplifications between our systems and see how we can lower any reporting burdens for the Korean companies concerned.

It’s my privilege to visit Seoul this week to get the ball rolling on that score with my interlocutors in the Korean government, business and society.

Korea has committed to carbon pricing as a key instrument in its de-carbonization journey. We welcome and encourage these actions. Effective carbon prices or taxes already paid in the country of production can be deducted from the CBAM payment.

For our part, the EU will remain fully engaged in international discussions in this area. We particularly look forward to working closely with Korea in the dedicated OECD Inclusive Forum on Carbon Mitigation Approaches and the G7 Climate Club.

Because we all have the same goals when it comes to climate change. As this important new climate measure takes effect, we want to work with our international partners to make sure we can all learn and reap the benefits.

Gerassimos Thomas is director-general for Taxation and Customs Union at the European Commission