On April 11, 2023, the Korean Government published the 1st National Basic Plan for Carbon Neutrality and Green Growth (hereby referred to as the “Basic Plan”). The Basic Plan, established pursuant to Article 10 of the Framework Act on Carbon Neutrality and Green Growth for Coping with Climate Crisis (the “Framework Act on Carbon Neutrality”), is a national plan for responding to the climate crisis and promoting sustainable development. With annual reduction targets and implementation measures for each sector (e.g., industry and transportation sectors), the Basic Plan will be updated every five years over the next 20 years, from 2023 to 2042. In addition, this Basic Plan will facilitate the establishment of subordinate plans (e.g., measures to adapt to the national climate crisis, and basic plans for carbon neutrality and green growth for local cities, provinces, counties, and districts) and will have a substantial impact on other mid to long-term administrative plans (e.g., the basic plan for supply and demand of electric power, the comprehensive national territorial plan, and the basic plan for resource circulation).
The Basic Plan adjusts the Nationally Determined Contribution (“NDC”) announced in October 2021 to achieve the mid- to long-term national greenhouse gas (“GHG”) reduction targets set forth under the Framework Act on Carbon Neutrality (i.e., 40% reduction of the national GHG emissions by 2030 compared to emissions in 2018). Further, the Basic Plan provides 37 mid- to long-term GHG reduction policy objectives by sector and proposes 45 policy objectives in six major sectors (i.e., climate adaptation, green growth, just transition, regional leadership, training personnel and raising awareness, and international cooperation) in order to lay the foundation for transitioning into a carbon-neutral society.
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Mid to Long-term Reduction Targets by Sector
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The Basic Plan maintains the mid to long-term reduction targets at 40% but adjusts each sector’s reduction and absorption/removal targets. In particular, the reduction rate in the industrial sector will be reduced from the current NDC targets (from 14.5% to 11.4%), while the reduction contribution for the transition sector (44.4% to 45.9%) and the international reduction sector (33.5 million to 37.5 million tons of CO2 equivalents) will be increased.
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The following are the key mid to long-term policy objectives, which may have an impact on businesses:
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[TRANSITION] The Basic Plan expands the use of nuclear power plants and renewable energy. As such, the new NDC target for GHG emissions is now set at a 45.9% reduction by 2030 compared to the 2018 levels (i.e., a reduction of 145.9 million tons of CO2 equivalents (“tons”), an increase of 4 million tons compared to the previous NDC).
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Reduce coal power generation and expand the use of nuclear power and clean energy (e.g., solar power, offshore wind power, hydrogen, etc.): Achieve 32.4% of total power generation using nuclear power plants and 21.6% (+α) of power generation from renewable energy by 2030 (this is consistent with the 10th Basic Plan for the Supply and Demand of Electric Power, while in the case of renewable energy, (+α) has been added but the specific figure has not been determined yet). |
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Strengthen support for RE100 members: (i) Provide preferential interest rates and insurance, (ii) recognize performance on GHG emissions reduction, (iii) create related funds, and (iv) prioritize loan support for power generation projects. |
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[INDUSTRY] The Basic Plan pursues transition to a low-carbon structure through technological development and an overhaul of systems such as the Korean Emissions Trading Scheme (the “K-ETS”). The new NDC target for GHG emissions is now set at a 11.4% reduction by 2030 as compared to 2018 levels (i.e., a reduction of 230.7 million tons of GHG emissions, a decrease of 8.1 million tons compared to the previous NDC).
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Improve the K-ETS: (i) Recognize various GHG reduction achievements, (ii) expand incentives for emission reduction, (iii) gradually increase the ratio of paid allocation of emission permits, (iv) expand the application of allocation based on emission efficiency standards (“Benchmark Allocation”) to at least 75% of the total emissions volume of all eligible businesses, and (v) adjust the Benchmark Allocation to a level higher than the average emission source units for the same process. |
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Support technological development: Strengthen tax support for carbon reduction technologies and provide support for carbon neutrality-related policy financing, loan projects, and standard development. |
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[TRANSPORTATION] The Basic Plan implements an eco-friendly transition across the land, maritime, and air mobility sectors. The new NDC target for GHG emissions is set at a 37.8% reduction by 2030 as compared to 2018 levels (i.e., a reduction of 61 million tons of GHG emissions).
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Supply 4.2 million electric vehicles and 300,000 hydrogen vehicles by 2030: (i) Provide purchase subsidies, (ii) grant tax exemptions, (iii) expand the scope of vehicle models that must be purchased by the public sector, (iv) establish a roadmap for commercial vehicle conversion, and (v) strengthen the certification system for automobiles and parts. |
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Review the Life Cycle Assessment (“LCA”) of internal combustion vehicles (e.g., production, operation, and recycling stages): (i) Strengthen the standards for GHG emissions and fuel efficiency, (ii) reform the automobile tax system to reflect GHG emissions, and (iii) develop light-weight materials and low-carbon fuel technologies. |
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Review other transportation methods: (i) Introduce eco-friendly trains, (ii) expand the use of bio-aviation fuels and eco-friendly fuels (sustainable aviation fuels “SAF”), and (iii) promote a conversion to low-carbon and carbon-free vessels. |
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[WASTE] The Basic Plan seeks to reduce waste sources and facilitate resource circulation. The new NDC target for GHG emissions is set at a 46.8% reduction by 2030 compared to 2018 levels (i.e., a reduction of 9.1 million tons of GHG emissions).
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Reduce the waste created during the stages of production, distribution, and consumption: (i) Establish a waste reduction target for the national and local governments, (ii) introduce a resource efficiency rating system that evaluates resource efficiency for each product, (iii) restrict the use of mixed petroleum-based bioplastics, and (iv) expand the biomass plastic content standard. |
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Promote resource circulation: (i) Expand the unit price of recycling subsidies and the allocation ratio of subsidies to promote physical/chemical recycling of plastics, (ii) set a target rate for renewable material use for manufacturers of finished plastic products, (iii) establish a life cycle management system for electric vehicle waste batteries, (iv) promote the recycling of solar panels through the Extended Producer Responsibility system, and (v) expand biogas production through organic waste resources (e.g., food waste). |
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[CARBON CAPTURE, UTILIZATION, AND STORAGE] The Basic Plan facilitates the enactment of a single overarching law and supports technological development and commercialization. The new NDC target for GHG absorption/removal is set at 11.2 million tons by 2030, which entails an increase of 900,000 tons compared to the previous NDC.
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(i) Enact a law on Carbon Capture, Utilization, and Storage (“CCUS”) including provisions on fostering the CCUS industry, safety and environmental management, and certification standards, (ii) establish a foundation for CCUS-related national GHG statistics, and (iii) promote 3050 CCU technology development and integrated verification projects. |
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[INTERNATIONAL REDUCTION] The Basic Plan establishes the foundation for implementing international reduction projects. The new NDC target for GHG absorption/removal is set at 37.5 million tons by 2030, marking an increase of 4 million tons compared to the previous NDC.
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(i) Prepare specific guidelines for international reduction projects, (ii) establish and operate an international reduction register, (iii) sign cooperation agreements on climate change with major stakeholder countries, and (iv) identify and promote international reduction projects by relevant ministries. |
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The government also announced policy directives and objectives for each sector, including (i) increased energy efficiency by improving performance and standards (building sector); (ii) realization of sustainable development in the agricultural, livestock, and fisheries industries through conversion to a low-carbon structure (agricultural, livestock, and fisheries sectors); (iii) establishment of a hydrogen economy-based ecosystem (hydrogen sector); and (iv) strengthened absorption/storage function of forests and expansion of new absorption sources (absorption source sector).
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Foundation for Transitioning into a Carbon-Neutral Society
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[GREEN GROWTH] The Basic Plan seeks to develop core green technologies and foster new green industries. In this regard, the Basic Plan facilitates policy and private financing support and intends to improve relevant systems.
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(i) Establish a basic plan for climate technology, (ii) establish a roadmap for carbon-neutral technology innovation, (iii) select 100 core carbon-neutral technologies tailored to Korea, and (iv) develop a comprehensive strategy for the private/public sectors to jointly promote climate technologies. |
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Discover/foster new green industries such as (i) low-carbon materials/parts/equipment industries (e.g., eco-friendly and high value-added bio-materials, next-generation secondary batteries, next-generation semiconductors, waste plastics/batteries/panels, circular resources, etc.); (ii) climate impact service industries; (iii) climate change adaptation industries; and (iv) smart green industries. |
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(i) Expand financial support for carbon-neutral and green industries, (ii) develop related financial products, (iii) expand the scope of businesses subject to disclosure of sustainable management reports and environmental information, (iv) apply a green classification system to financial products other than bonds, and (v) implement an ESG disclosure system. |
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(i) Strengthen the evaluation system for green-certified technologies and products, and (ii) rationalize regulations through (a) regulatory sandboxes, (b) conversion to negative regulations, (c) relaxation of regulations on location, and (d) a one-stop service for licenses and permits. |
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The government also announced policy directives and objectives for each sector, including (i) the establishment of a preemptive support system for businesses and workers at risk due to carbon neutrality transition (just transition sector), (ii) expansion of the adaptation infrastructure to preemptively respond to abnormal climate phenomena (climate adaptation sector), (iii) establishment of a carbon neutrality and green growth implementation system led regionally (regional leadership sector), (iv) fostering of professionals and public awareness enhancement regarding carbon neutrality (training personnel and raising awareness sector), and (v) strengthened bilateral/multilateral cooperation among countries (international cooperation sector).
As the Basic Plan is now finalized, it is expected to have a substantial impact on various sectors such as the transition, industry, transportation, waste, hydrogen and CCUS sectors. Accordingly, it warrants a much closer review and analysis of the policy directives for each sector (including formulating support plans for developing green technologies, fostering new industries, and implementing a just transition) as well as improvement plans for relevant systems (e.g., K-ETS and environmental information disclosure system) to identify potential risks and business opportunities.
