Industry lobby balks at carbon goals

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Industry lobby balks at carbon goals

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The carbon credit trading system launched the beginning of this year may hinder foreign investments that require the purchase of extra carbon credits, according to the Federation of Korean Industries (FKI).

The nation’s largest business lobby group on Monday released a survey of foreign companies that say they would like to leave Korea because of the government cap on carbon emissions.

The FKI said many Korean offices of foreign companies have lost R&D projects to other Asia-Pacific branches with similar technology competency like Taiwan and China to avoid fines for using excess electricity.

The Korean office of a European company that asked not to be identified may lose an R&D project worth 900 billion won ($838.8 million) because the carbon trading system forces it to purchase extra carbon credits, according to the FKI.

The business lobby group pointed out this is because electricity use counts as an indirect carbon emission under the Korean system, unlike in the EU where electricity is excluded.

The FKI also said several foreign companies are pulling their production lines out of the country, canceling business expansion plans and reducing annual production goals in their Korean branches.

In the survey, another foreign company’s Korean branch, on condition of anonymity, complained that its overseas-based headquarters has postponed a production line expansion and canceled plans to hire 150 new workers in Korea. The company’s Korean office decided to move its entire production line to China, where carbon-related rules are more flexible, because it estimated it would have to close its factory 27 days a year to meet its carbon reduction goal. The company estimated that would result in sales losses of 6 billion won annually.

According to the business lobby group, more than 40 Korean and foreign companies in aluminum, petrochemical and waste processing industries, including Novelis Korea, an aluminum rolling company owned by Indian capital, are among those that sued the Korean government after their request to raise the emissions cap was rejected. They wanted to adjust caps based the type and size of a business.

The FKI called for extra carbon credits to be allocated to major manufacturing industries, including semiconductors, steel and petrochemicals, as part of efforts to accelerate transactions in the carbon trading market.

“Companies have been given small amounts of carbon credits, not even enough for their own use, so selling it in the market is impossible,” said Kim Joo-tae, head of the FKI’s industrial policy department. “Of 525 participants in the carbon trading market, only a few environmental companies have credits to sell, while the demand to buy credits is much higher.

“This means the only choice regular manufacturing companies have is to pay fines, which also are higher than in other Asian countries,” Kim added, saying current trading system is too rigid for Korea’s manufacturing-centered business environment, unlike other developed with mature service industries that emit less carbon dioxide.

While the Kyoto Protocol requires developed nations to follow emission goals, Korea is categorized as a developing country and therefore not subject to the requirement.

However, Korea has promised to lower its emissions to 30 percent of the 2012 by 2020.

But of the world’s 10 biggest emitting countries, Korea and Germany are the only two that have adopted a carbon credit trading system nationwide. The rest have implemented it as a test in some areas.

The FKI pointed out the government should at least reduce the amount of fines or scale back the carbon emission goal for 2020.

“While the government has put a strong drive in attracting foreign investment, the carbon credit trading system can be an obstacle,” said Yoo Hwan-ik, head of the FKI’s industry department. “If the government comes up with unachievable emission reduction goals for years beyond 2020, foreign investment companies will leave Korea, resulting in loss of jobs.”

“If foreign companies move their R&D centers and production lines to nearby countries, then it results in contraction in the local job market and production activity,” said Joo Won, head of the industry division at Hyundai Research Institute. “The issue of reducing carbon emissions is significant, but the government should consider how high the goal should be when domestic economy remains slow.”

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]

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