Kim Sung-woo
The past two to three years have been a bumpy road for companies that have a global presence. In the midst of unexpected wars and looming crises over the global economy, overshadowed by inflation, what are global companies' thoughts on carbon neutrality?
In September 2023, Womble Bond Dickinson, a U.S./U.K.-based law firm, asked a total of 456 executives and project managers of investment firms and energy companies around the world: how their company’s energy transition strategy has changed over the past year in terms of operations and investments. Ninety percent of the respondents answered that they maintained (34 percent) or bolstered (56 percent) their existing strategy. The survey indicated two things. Companies acknowledge that uncertainties in government policies such as subsidies, license requirements, infrastructure, and reduction targets, as well as costs make it difficult to transition to a net-zero system. They, however, still believe in the huge growth potential in next-generation industries for carbon neutrality, such as bioenergy, waste recycling, energy and resource management, carbon capture, energy storage, and electric vehicles. It seems that companies are carrying on their carbon neutrality initiatives despite their surrounding business environment being in flux.
Mainly, I think three factors are driving the companies’ moves toward carbon neutrality. First, the price of relevant technologies has decreased. A decrease in price leads to an economy of scale which tends to further bring down the price, creating a positive reinforcement loop between price decrease and more widespread access to the technologies. Solar facilities have fallen in price by one-tenth over the past decade. Perhaps this was why as of 2022, four-fifths of the world’s new power plant installation capacity was renewable energy, and as of 2023, solar energy accounted for three-quarters of the world’s new renewable energy installation capacity — 510GW in total. The second factor is the government policy to promote relevant industries. As concerns of a global economic crisis are rising and competition between countries intensifies, governments around the world are stepping up their support to achieve their policy goals in key industries.
For example, the U.S. has already introduced more support for its clean energy industry through the Inflation Reduction Act (IRA), and the EU is rounding out similar legislation such as the Net-Zero Industry Act (NZIA). Government support enhances the economic feasibility of carbon neutrality and boosts related investments in the country. Lastly, many companies are highly motivated to be the first mover in next-generation industries. Last January, Ulsan for the first time in the world held a naming ceremony for a mega-container ship of 16,200 TEU in size, powered by methanol. This is the first of a total of 18 super-large container ships ordered by world-renowned shipping group, AP Moller–Maersk (“Maersk”) up to 2022. Methanol is an eco-friendly ship fuel that can drastically reduce pollutant emissions such as carbon. Maersk moved forward with placing an order for the ship to be a leader in the eco-friendly shipping market despite uncertainty in methanol supply and demand. This is like purchasing trillions of electric vehicles to prepare for an eco-friendly logistics market, without assurance as to whether a proper number of EV charging stations will be secured.
Korea is facing challenges. Unfortunately, Korea is unlikely to benefit from the factors driving the global carbon neutrality campaign. Korea has limitations in tapping in to the lower technology prices available in the global market because its power grid is not connected to other countries’ grids, its power market has not been opened up to other countries and thus is relatively inflexible, and its natural resources are limited, leaving little benefit to reap from the lower prices in technologies. In terms of industrial policy, the government has primarily been focusing on not losing exports rather than proactively promoting investments in carbon neutrality. Being a first mover in emerging industries would also feel remote to many Korean companies, many of which have traditionally been strong and fast followers.
This sentiment is well represented in survey results of the Carbon Neutrality Response Survey conducted by the Korea Chamber of Commerce and Industry in late March on 390 Korean companies with large greenhouse gas emissions. Nine out of 10 companies answered, “investing in carbon neutrality poses high risks” (72 percent) or “very high risks” (17 percent). Some added that they have reservations about how investments in carbon reduction will help companies’ bottom line and competitiveness while the economic outlook is becoming worse, government support has been lacking, and emission prices are low. In particular, many companies pointed to “carbon-free energy infrastructure (72.8 percent)” and “financial support such as subsidies and tax benefits (67.2 percent)” as the major differences between Korea and other advanced countries.
Recent changes in the business environment have deepened domestic companies’ concerns about carbon neutrality strategies. According to the Corporate Response to Carbon Neutrality and Power Demand Survey, released by the Korea Chamber of Commerce and Industry last February, nine out of 10 domestic manufacturing companies believe that other countries’ carbon neutrality policies such as the U.S. and the EU policies affect their business. Forty-one point three percent of manufacturing companies said they were already “directly or indirectly affected,” while 50.7 percent said they “would be affected in the future.” While we all know that the global transition to carbon neutrality will hit Korean companies which are hesitating to make the transition, the three factors to drive global companies’ early movement must be considered despite the challenges and concerns with the hope of seeing their government leveling the playing field with global competitors. We need to keep pace with the global goal of moving toward carbon neutrality whether we like it or not.
Kim Sung-woo is head of Environment & Energy Research Institute at Kim & Chang.
Keeping pace with global carbon neutrality drive
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07.04.2024
Kim Sung-woo
The past two to three years have been a bumpy road for companies that have a global presence. In the midst of unexpected wars and looming crises over the global economy, overshadowed by inflation, what are global companies' thoughts on carbon neutrality?
In September 2023, Womble Bond Dickinson, a U.S./U.K.-based law firm, asked a total of 456 executives and project managers of investment firms and energy companies around the world: how their company’s energy transition strategy has changed over the past year in terms of operations and investments. Ninety percent of the respondents answered that they maintained (34 percent) or bolstered (56 percent) their existing strategy. The survey indicated two things. Companies acknowledge that uncertainties in government policies such as subsidies, license requirements, infrastructure, and reduction targets, as well as costs make it difficult to transition to a net-zero system. They, however, still believe in the huge growth potential in next-generation industries for carbon neutrality, such as bioenergy, waste recycling, energy and resource management, carbon capture, energy storage, and electric vehicles. It seems that companies are carrying on their carbon neutrality initiatives despite their surrounding business environment being in flux.
Mainly, I think three factors are driving the companies’ moves toward carbon neutrality. First, the price of relevant technologies has decreased. A decrease in price leads to an economy of scale which tends to further bring down the price, creating a........
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