With the growing interest in environment, environmental regulations impacting business activities have also been changing. The Korean government (the “Government”) announced its work plans for 2022 under the “Korean New Deal, Carbon Neutrality” on December 28, 2021 (jointly by the Ministry of Environment (the “MOE”); the Ministry of Trade, Industry and Energy (the “MOTIE”); the Ministry of Oceans and Fisheries; the Ministry of Science and ICT; and the Ministry of Education) and the “K-Circular Economy Implementation Plan” on December 30, 2021 (jointly by the MOE and the MOTIE). Further, by publishing the “Key Business Implementation Plans for 2022” on January 11, 2022, the MOE proposed to accomplish the following tasks: (i) full-fledged implementation of carbon neutrality, (ii) expansion of integrated product management results, and (iii) expansion of inclusive environment services.
Based on the Government’s plans above, we drafted the key aspects of the Carbon Neutrality and K-Circular Economy that would likely impact your business activities. Please refer to this Outlook to respond to the changing regulations on the environment.
1. Full-fledged Implementation of Carbon Neutrality
We expect carbon neutrality to be a key agenda as the MOE listed “full-fledged implementation of carbon neutrality” as the first key task of 2022. Until now, the MOE’s policy focused on laying the foundations for the implementation of carbon neutrality (e.g., declaring carbon neutrality by 2050 (October 2020), enacting the Act on Carbon Neutrality and Green Growth against Climate Crisis (the “Act”, September 2021). However, the MOE will begin to implement its carbon neutrality policies in 2022.
Programs on Carbon Neutrality Implementation
(Roadmap) To achieve 2050 carbon neutrality and 2030 NDC (40% reduction from 2018), the MOE will devise strategies and basic plans for national carbon neutrality and green growth by March (plans to conduct social opinion collection process and subsequently deliberate and finalize through the 2050 Committee on Carbon Neutrality and Green Growth (the “Committee”) and the National Assembly in June).
(Finance and Policy) The greenhouse gas reduction budget system, which is designed to direct the national finance to reduce greenhouse gas, is expected to be implemented in January with the Act becoming effective on March 25 (see Article 9 Clause 2 of the Enforcement Decree of the National Finance Act that must be included in the budget and fund management plans of the greenhouse gas reduction). Further, the climate change impact assessment system, which evaluates potential climate impact (mitigation, adaptation) on major plans and development projects, will be implemented in September.
Industry and Finance
(Industry Sector) Various supports will be promoted to support green conversion within the industry sector (e.g., support for carbon neutral facilities in businesses (98 facilities), support for converting into smart ecosystem plants (60 plants), and comprehensive consulting (new) for SMEs). Further, the MOE amended the “Guidelines on Reporting and Certification of Emissions under the Greenhouse Gas Emission Trading System” to recognize supporting SMEs’ reduction activities and purchasing energy production power, etc. as reduction performances (effective January 1, 2022).
(Finance Sector) According to Article 22, Clause 10 of the amended “Environmental Technology and Industry Support Act,” companies with a total asset of at least KRW 2 trillion must prepare and disclose the environment information set forth by the MOE (the Government plans to subject all KOSPI-listed companies to this requirement by 2030) and establish reliable environment assessment standards during the second half of the year.
(Organic Resources) The law, promoting biogas production using organic waste resources, will be prepared to mandate biogas production by both the public and private sectors.
(Vehicles) Starting from January 1, 2022, supply performance will be utilized to calculate the supply contribution to promote distribution of low-emission vehicles (the “LEV”) for those vehicle sellers who fail to meet the LEV supply target (Article 58, Clause 4 of the Act, contribution will be imposed starting in 2023). For your information, the 2022 supply target of LEV will be increased from 4-10% to 8-12%.
Securing Alternative Water Resources
(Sewage Reuse) Article 49, Clause 2 of the Water Supply and Waterworks Installation Act, which allows water service providers to supply reused water as industrial water, became effective on January 11. The Government expects to devise a plan to expand supply to industrial complexes across the nation by December.
2. Details of K-Circular Economy for Carbon Neutrality
The MOE and MOTIE announced the Implementation Plans for K-Circular Economy for Carbon Neutrality (the “Plan”) on December 30, 2021, following deliberation by the Committee. The purpose of the Plan is to reduce waste and strengthen the resource circulation throughout the entire process of production, distribution, consumption, and recycling, as well as to lay the legal foundation for the activation of the circular economy. Further, the Plan aims to significantly reduce greenhouse gas emission by minimizing incineration and landfill and by ensuring circular use of waste resources within the industry sectors through (i) enhancing recyclability of resources in the production and distribution stage, (ii) promoting eco-friendly consumption, (iii) expanding recycling of waste resources, and (iv) establishing stable treatment system. The key initiatives to be implemented by the Government in 2022 are summarized as below.
Enhancement of Raw Material Circulation
(Conversion of Bioplastics) As the amendment [Annex] to the “Guidelines on Separate Discharge Labeling” takes effect on January 1, bioplastics that can generally be recycled for having the same physical and chemical properties as petroleum-based plastics must be labeled as “BioHDPE”, “BioLDPE”, “BioPP”, or “BioPS.”
(Using Plastic Recycled Materials) As a step prior to imposing the obligation to use recycled materials on plastic manufacturers (30% by 2030), the Government plans to establish a legal basis for indicating the use ratio of recycled materials on products/containers and a quality certification system for recycled materials in connection with the certification of Good Recycled Products (the “GR”) starting in 2023. Such plans will be reflected in the Korean Standards and collective standard specifications.
Enhancement of Resource Circulation at the Production Stage
(Introduction of Eco-design) To promote product circulation (i.e., raw materials → production → use → recycle → raw materials), the Government will prepare product circulation guidelines by 2023 so that manufacturers or importers can utilize them in advance when designing production structures, and implement eco-design application evaluation by selecting product groups with high distribution and consumption starting in 2022.
Enhancement of Resource Circulation at the Distribution Stage (consumption and packaging)
In the consumer sector, the proposed amendment to the Act on the Promotion of Saving and Recycling of Resources will take effect on June 10, which focuses on circular resource deposit system (cup deposit) designed to retrieve disposable cups. Further, the scope of items and businesses subject to the regulation on disposable products will be expanded starting from November 24 to prohibit the use of plastic bags in convenience stores and marts and the use of paper cups in food service businesses (e.g., cafés).
If a plastic cannot be recycled because it was mixed, applied, or pasted with other materials, the Government plans to require labeling of the plastic to be discharged in standard plastic garbage bags. Further, the Government plans to strengthen the recyclability categories and have the lowest recyclability grade products to indicate such grade on the surface of the product.
The Government will establish a packaging information system and a pre-evaluation system for excessive packaging of agricultural products and parcels by the end of the year to reduce wastes.
Expansion of Recovery and Recycling of Waste Resources
(Additional Use and Method of Waste Recycling) The Government will allow recycling medical wastes (e.g., waste fat and waste teeth) likely through the amendment of the Wastes Control Act, and establish standards for recycling incinerator ash.
(Urban Oilfields) The Government will promote establishing a new type of recycling facilities to allow petrochemical companies to use thermal cracking oil as a raw material. Further, the Government plans to mandate heat recovery for incineration facilities during the second half of the year.
Introduction of Circular Economy Sandbox for Regulating New Technology and Services
The Government plans to provide regulatory exemptions to promote technologies and services that contribute to the promotion of circular economy (e.g., thermosetting plastic → gasification, plastic → ethanol, food waste → hydrogenation).
Activation of Circular System and Recognition System
(Expansion of Items Recognized as Circular System) Items previously recognized as circular resources (e.g., waste paper, scrap metal, royal fish, and rice bran) will be comprehensively recognized as circular resources.
(Recycled Aggregate) By upgrading the quality certification system by use and implementing real-name quality system, certified recycled aggregates with high-quality will be excluded from the definition of wastes.