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The Impact of Environmental Regulations on the South Korean Materials Industry: Effect Analysis of GHG Emissions-related Regulations

Author Jung Eunmi, Park Hoon, Kang Minsung, Cho Yongwon, Lee Jaeyoon, Lee Jayun , Hong Inkee Date 2016.12.27 Page
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The materials industry is largely divided into the sectors of metal, chemicals, textile, rubber and plastics, papermaking, and non-metallic mineral product manufacturing, providing basic materials essential for the production activities of the entire manufacturing industry and accounting for approximately 30 percent of total industry output. Industrial policy in South Korea, including the “Fourth Basic Plan for the Development of the Materials and Component Industries” (2016), has shifted the focus to the materials industry. However, as this industry is considered the business of large companies, it has often been neglected in major policy support and consideration. On the other hand, the industry has been subject to stringent environmental regulations and their application, which has raised concerns that the base for strengthening the industry’s long-term growth potential will be weakened. 

 

Meanwhile, to reach the targeted reduction of greenhouse gas(GHG) emissions by 2020, as proposed at the United Nations Climate Change Conference of the Parties held in Paris in December 2015, swift moves have been taken to improve environmental and energy policies for industry. The South Korean government has been implementing a GHG emissions and energy target management system since 2012 and introduced a GHG Emission Trading Scheme (ETS) in 2015. As a result, the South Korean materials industry, which takes up the greatest share of the total emissions by the entire manufacturing industry, needs to promptly adjust itself to drastically changing internal and external conditions as well as face the new challenge to cut these emissions.  

 

This study examined the applicable current regulation conditions regarding GHG emissions for the materials industry, analyzed the impact of implementation of emission permits subject to the ETS on the materials industry, and attempted to seek a desirable future direction for the system. We hope this study will provide an opportunity to identify effective and sensible procedures and ways to implement the ETS, which was introduced as an effective means of cutting GHG emissions. In addition, it was also anticipated that this study would be used as a basic foundation to predict and eliminate factors hampering expansion of the industry and effectiveness of South Korea’s climate change and industrial policies, as well as to establish strategies to promote industrial innovation.  

 

The scope of this study includes steel, petrochemicals, nonferrous metal, paper, and cement. Although the authors focused only on these five materials sectors due to the limitations associated with using basic data, these sectors constitute 15.5 percent of total manufacturing industry output and 58.4 percent of total GHG emissions. Therefore, it is deemed suitable to analyze structures and characteristics of energy consumption and GHG emissions. In terms of geography, the analysis focused on South Korea, but regarding ETS-related institutions and competitiveness by industry, analytic focus was limited to major economies including the EU and the US.  

 

This study is largely divided into four parts: the first part discusses current conditions of ETS at home and abroad, and backgrounds and grounds for the institution of ETS in other countries, and seeks a suitable direction for the ETS in South Korea; the second part examines the routes of GHG emissions and reduction tools in the five basic materials sectors, and then reviews major issues pertinent to emissions permits and permit markets; the third part analyzes characteristics of corporate responses to institutional changes regarding energy and GHG emissions under the Energy Target Management System introduced in 2012, a measure currently being used to achieve GHG reduction goals; the fourth part makes policy recommendations that should be implemented in tandem with environmental regulations so that the materials industry remains competitive.