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Korean steelmakers face tough path on EU's new carbon regulations

Published: 12 May. 2025, 18:18

Hydrogen production and storage facilities at Posco’s Pohang Steelworks in Pohang, North Gyeongsang [YONHAP]

Korean steelmakers, already grappling with export hurdles due to U.S.-imposed tariffs, are scrambling to prepare for the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM), which is set to take full effect in January.

The industry fears a one-two punch from existing tariffs and new carbon-related costs could further erode the price competitiveness of Korean steel products in international markets.

The EU is currently in a transitional phase for CBAM, during which companies must report their carbon emissions, but are not yet financially penalized, according to industry sources Monday. Starting next year, however, importers will be required to pay for the embedded carbon in products such as steel and aluminum — aligning their costs with those faced by EU domestic producers.

The Korean steel industry is on high alert, as about 70 percent of its steel is produced using blast furnaces, which emit up to five times more carbon dioxide than electric arc furnaces. Products made via blast furnaces — including hot-rolled steel sheets, heavy plates, galvanized steel sheets and color-coated steel sheets — are among Korea’s top steel exports to the EU. In 2023, 21 percent of Korea’s hot-rolled steel sheet exports went to the European bloc.

A 2023 report by the Korean Chamber of Commerce and Industry’s Sustainable Growth Initiative projected that Korean steelmakers may face at least 3 trillion won ($2.12 billion) in cumulative CBAM-related costs over the next decade. The carbon cost for the first year alone is estimated at 85.1 billion won, potentially rising to over 550 billion won annually by 2034.

Hyundai Steel's steel reinforcement rebar plant in Incheon, which was shut down on April 1 for a month due to weak demand. [YONHAP]

The United States is also moving toward stricter carbon regulations. Democrats have proposed the Clean Competition Act, while Republicans have introduced the Foreign Pollution Fee Act — both of which would effectively impose a carbon tariff. The steel industry expects Washington, which currently offers subsidies for eco-friendly facilities under the Inflation Reduction Act (IRA), to eventually apply carbon standards to imported goods.

In response, Korean steelmakers are accelerating their transition to low-carbon production processes. A key technology is hydrogen-based steelmaking, which replaces coal with hydrogen to produce reduced iron, which is then melted in electric arc furnaces to produce crude steel.

Companies are also working with the government to establish emissions measurement systems and seek international certification. Posco, for example, is collaborating with LG Chem on technology to capture carbon dioxide generated during the steelmaking process and convert it into syngas.

Hyundai Steel’s Incheon Works in Incheon [YONHAP]

Korean companies are also boosting international cooperation. Posco Group Chairman Chang In-hwa recently attended the World Steel Association’s general assembly, where he agreed with other global steel CEOs to jointly develop technologies for low-carbon steel production.

“Korean steelmakers are reviewing various strategies, including expanding low-carbon product lines and opening up proprietary technologies, in response to the EU’s upcoming CBAM,” said an industry insider. “Now is the time for government-level policy support to help the industry scale up low-carbon steel production.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY PARK YOUNG-WOO [[email protected]]