S. Korean exporters fear impact of strengthened EU carbon border tax

The European Union’s move to strengthen its carbon border adjustment mechanism (CBAM) through an amendment of the CBAM is expected to hurt South Korea's exports, as more local exporters face the EU's carbon taxes.

The International Institute of Trade, a research arm of the Korea International Trade Association (KITA), released a report entitled "Evaluation and Implications of the EU's CBAM Amendment," stating that the CBAM amendment passed by the EU Parliament in December is aimed at boosting regulatory levels.

According to research conducted by the International Institute of Trade, the five draft categories under CBAM regulations accounted for $3 billion in annual exports to the EU from 2019 to 2021, accounting for 5.4 percent of Korea's total exports to the EU.

CBAM application categories were enlarged as a result of the modification. CBAM was initially applied to five categories: steel, electricity, fertilizer, aluminum, and cement; however, during the parliamentary amendment process, four additional categories were added: organic chemicals, plastics, hydrogen, and ammonia, bringing the total regulatory categories to nine.

However, if the amendment's scope is enlarged to nine products, it will account for $5.51 billion, or 15.3 percent of total EU exports during the same period, nearly triple what it is now.

Furthermore, the initial draft only listed direct emissions, which are emitted during the manufacturing process. However, the amendment also covers indirect emissions, which include greenhouse gases released during the production of commodities using energy.

S. Korea emits 472.4 grams of carbon dioxide per kilowatt-hour (kWh) of energy produced in 2020, which is two to four times more than advanced markets such as the EU, which emits 215.7 grams, and Canada, which emits 123.5 grams.

The amendment also aims to move the complete implementation of CBAM from 2026 to 2025, one year earlier.