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 to Cope with Climate Crisis (“Framework Act on Carbon Neutrality”), is a national plan for responding to the climate crisis and sustainable development. Including annual reduction goals and implementation measures for each sector (e.g., industry and transportation), the Basic Plan will be updated every five years over the next 20 years between 2023 and 2042. In addition, this Basic Plan will facilitate the establishment of subordinate plans (e.g., measures to adapt to the national climate crisis, 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., 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 National Determined Contribution (“NDC”) announced in October 2021 to achieve the mid- to long-term national greenhouse gas (“GHG”) reduction target as set forth under the Framework Act on Carbon Neutrality (i.e., a 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 for each sector and proposes 45 policy objectives for six major sectors (i.e., climate adaptation, green growth, righteous transition, regional-led, personnel training and awareness raising, and international cooperation) in order to lay the foundation for transitioning into a carbon-neutral society. The key details of the Basic Plan are as follows:
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Mid- to long-term Reduction Goals by Sectors
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The Basic Plan maintains the mid- to long-term NDC at 40% but adjusts each sector’s reduction and absorption/removal targets. In particular, the reduction rate in the industrial sector will be reduced (14.5% to 11.4%) from the current NDC targets, while increasing the reduction contribution for the transition sector (44.4% to 45.9%) and the international reduction sector (33.5 million tons of CO2 equivalent (“tons”) to 37.5 million tons).
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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 as compared to 2018 levels (i.e., 145.9 million tons – additional 4 million tons of GHG emission reductions compared to before).
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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% power generation using nuclear power plants and 21.6% (+α) power generation from renewable energy by 2030 (this is consistent with the 10th Basic Plan for the Supply and Demand of Electric Power, but (+α) has been added for renewable energy, specific figure of which has not been determined yet) |
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Strengthen the RE100 support for businesses: Provide preferential treatment of interest rates and insurance, expand recognition of GHG emissions reduction performance, create related funds, and prioritize loan support for power generation projects |
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[INDUSTRY] The Basic Plan pursues a low-carbon structural conversion through a system overhaul, such as the emissions trading scheme (“K-ETS”), and technological development. The new NDC target for GHG emissions is now set at a 11.4% reduction by 2030 compared to 2018 levels (i.e., 230.7 million tons – reduction of 8.1 million tons of GHG emissions compared to before).
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Improve the K-ETS: Recognize various GHG reduction performance, expand incentives for emissions reduction, gradually increase onerous emission permits ratio, expand the application of allocation method based on emission efficiency standards (“Benchmark Allocation”) to at least 75% of the total emissions volume of all businesses eligible for allocation, and 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 the support for tax on carbon reduction technology, financial policy on carbon neutrality, loan projects, and standard development |
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[TRANSPORTATION] The Basic Plan implements eco-friendly transition across the land, maritime, and air mobility. The new NDC target for GHG emissions is set at a 37.8% reduction by 2030 compared to 2018 levels (i.e., 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: Provide purchase subsidies, grant tax exemptions, expand the scope of vehicle models that must be purchased by the public sector, establish a roadmap for commercial vehicle conversion, and strengthen the certification system for automobiles and parts |
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Review the Life Cycle Assessment of internal combustion vehicles (e.g., production, operation, and recycling): Strengthen the standards for GHG emissions and fuel efficiency, reform the automobile tax system to reflect GHG emissions, and develop light-weight materials and low carbon fuel technologies |
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Review other transportations: Introduce eco-friendly trains, expand the use of bio-aviation fuels and eco-friendly fuels (SAF), and convert 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 as compared to 2018 levels (i.e., reduction of 9.1 million tons of GHG emissions).
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Reduce the waste source during the stages of production, distribution, and consumption: Establish waste reduction target for the national and local governments, introduce a resource efficiency rating system that evaluates resource efficiency for each product, restrict the use of mixed petroleum-based bioplastics, and expand the biomass plastic content standard |
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Promote resource circulation: Expand the unit price of recycling subsidy and the allocation ratio of subsidy to promote physical/chemical recycling of plastics, allocate a target to use recycled materials to place product manufacturers, establish a system to manage waste batteries from electric vehicles across the entire lifecycle, promote the recycling of solar panels through the Extended Producer Responsibility system, and expand biogas production through organic wastes (e.g., food wastes) |
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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 demonstration/commercialization. The new NDC target for GHG absorption/removal is 11.2 million tons by 2030, which was increased by 900,000 tons from the previous NDC.
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Enact a law on Carbon Capture, Utilization, and Storage (“CCUS”) (including provisions on fostering the CCUS industry, safety and environmental management, and certification standards), establish a foundation for CCUS-related national GHG statistics, and 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 37.5 million tons by 2030, which was increased by 4 million tons from the previous NDC.
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Establish specific guidelines for international reduction projects, establish and operate an international reduction register, sign cooperation agreements on climate change with major stakeholder countries, and identify and promote international reduction projects by ministries |
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The Government also announced policy directives and objectives for each sector, including improvement of building energy efficiency by improving the performance and standards (building sector); realization of sustainable agricultural, livestock, and fisheries industry through low-carbon structural conversion (agricultural, livestock, and fisheries sector); establishment of hydrogen economy-based ecosystem (hydrogen sector); and strengthening of the forests’ absorption and storage function 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 the relevant systems.
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Establish a basic plan for climate technology, establish a roadmap for carbon-neutral technology innovation, select 100 core carbon-neutral technologies tailored to Korea, develop a comprehensive strategy to promote climate technologies jointly by private/public sectors |
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Discover/foster new green industries, such as industries on low-carbon materials, parts, and equipment (e.g., environment-friendly and high-value-added bio-materials, next-generation secondary batteries, next-generation semiconductors, waste plastics/waste batteries/waste panels, circular resources, etc.); climate-impacting service industries; climate change adaptation industries; and smart green industries |
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Expand financial support for carbon-neutral and green industries, develop related financial products, expand the scope of businesses required to disclose sustainable management reports and environmental information, apply green classification system to financial products other than bonds, and implement ESG disclosure system |
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Strengthen the evaluation system for green-certified technologies and products, and rationalize regulations through regulatory sandboxes, transitioning from negative regulations, relaxation of regulations on locations, and one-stop services for licenses and permits |
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The Government also announced policy directives and objectives for each sector, including the establishment of a preemptive support system for businesses and workers at risk due to carbon neutrality transition (righteous transition sector), expansion of the adaptation infrastructure to preemptively respond to abnormal climate phenomena (climate adaptation sector), establishment of a carbon neutrality and green growth implementation system led by each region (regional-led sector), fostering of professionals in carbon neutrality and enhancement of public awareness (personnel training and awareness raising sector), and strengthening of 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, industrial, transportation, waste, hydrogen and CCUS sectors. Accordingly, it warrants a much closer monitoring and analysis of policy directives for each sector (including the support plans for developing green technology, fostering new industries, and implementing a righteous transition) as well as the improvement plans for the relevant systems (e.g., K-ETS and environmental information disclosure system) to identify potential risks and business opportunities.
