Q&A with Plan 1.5 on the future of steel decarbonisation in Korea
Sejong Youn is the Director of Plan 1.5, a non-profit organisation focused on policy advocacy for effective and just climate policies in Korea with an aim to limit global average temperature rise to 1.5℃
How do you see the state of play on steel decarbonisation in Korea?
The bottom line it is a lot of words and no action. The steel companies are talking a lot about new technologies like hydrogen production and innovation, but they are not really taking action to reduce their carbon emissions using the technologies and methodologies that are already developed and available. At a corporate level, we feel, there is a ‘not in my term of office’ situation. The CEOs, the boards, and the strategy makers at the company talk about carbon neutrality, they set fancy goals, but all the actions are pushed back into the 40s when they are no longer in office or the position of decision-making because they know they need to invest and change the things they do right now if they are to actually reduce their emissions.
What do you see as the key challenges to decarbonising the sector?
From a civil society perspective, this is a very technical area. Where we want to pressure the companies and where we want to change the policies, we need to come up with alternatives; how things should be done instead of how it is done right now. But because it is a very technical sector, there is an information asymmetry. The corporations, the researchers, and the R&D teams know a lot more than we do about what’s possible and how much it will cost, so they will always come back with why it is impossible, and why it is too expensive. And it is really hard to counter that because obviously, they have more resources. The second thing about the Korean steel industry is that is a very heavily trade-dependent sector. Most of the products are internationally traded. It is not just about the Korean market, it is about the global market. The global producers - their competitors. How they are doing, and often the demand side. Is the global market wanting greener steel? Is there sufficient market drive to take that road?
And, what do you see as the opportunities for steel decarbonisation?
Specifically for Korea, the steel sector is so large in terms of emissions; it makes up about 14 per cent of national emissions. In the year 2020, POSCO the largest producer alone produced 13 per cent of the national emissions so it is impossible to talk about carbon neutrality or any meaningful reduction without touching on the steel sector. That is why the steel sector will continue to be a key topic for Korean decarbonisation, and that is a pressure that we can use.
On the industry side, there are opportunities because climate change-related risk is materialising very quickly in the sector. The largest steel yard in Pohang, for POSCO, was flooded last year by a very strong typhoon. It was unusually strong, and they actually had flooding in one of their furnaces. And the problem is that when they have to shut a furnace down for a long period of time, they have to discard the steel being produced, they cannot recover it. They were jumping through hoops, putting thousands of people, working overnight to recover it, and they did, fortunately. But that must have been a really big wake-up call that the physical risk of climate change is actually at their doorstep. They lost more than US$2 billion from that incident alone. That is a huge change. And the transitional risk is coming from the market. The Carbon Border Adjustment Mechanism (CBAM) coming from the EU is going to be a big game-changer. The steel industry argues that the EU market only takes about 10 per cent of our export, but it is a market trend, and it is just the beginning of that change. If border adjustments, carbon pricing and all these types of pressures increase in the global market, they will face a situation where they decarbonise and continue their success or phase down. I think that would be another opportunity that we could use.
What actions are needed from the government and private sector to ensure steel decarbonisation?
The actions that we need to see to make real change, from the government side the critical point is regulation; the national greenhouse gas targets and the regulations that follow. Over the years the steel sector has largely been ignored by these regulations because they had a very strong narrative that they agree with the carbon neutrality direction but there is not much they can do in the short term. That’s why all the regulations, sector targets and emission trading scheme allowances have been very lax for the steel sector. The new carbon neutrality plan by the Korean government was announced, but again the industrial sector got the lowest reduction rate. They are required to reduce by only 1.5 per cent per year by 2023 and that is not going to be a signal strong enough to trigger any meaningful reduction efforts, and the change will only come later.
From the private sector, I think creating a market for greener steel is going to be the most important. Steel production is a b2b business. We as consumers don’t buy steel from the supermarket, it is going to be sold to construction companies, automakers, and shipbuilders. We need to have these companies, these markets, that consume steel products to ask for greener steel. And to do that, we as consumers need to push these industry sectors to have a connection with us to make our products greener.
What impact could the changes to the emissions trading scheme in Korea have on the steel sector?
The Emissions Trading Scheme in Korea covers 75 per cent of national emissions. It is the single most important piece of regulation that touches on greenhouse gas emissions and is the only one that has some teeth to it. We’ve had an ETS since 2015, it has been running for eight years now and is one of the oldest emissions trading schemes in the world. But it has not really been effective because the targets were so lax, and companies were not really required to undertake reductions. This is especially true for the steel sector, where the targets were so lax that companies were actually making money from selling off their surplus allowances. POSCO, between 2015 and 2021, from our calculation, made more than US$100 million selling off their surplus allowances while they remained the largest emitter in the country. This clearly shows that this scheme is not really working, and we need to fix this. To fix this, the most important thing will be reducing the allowance piece of the pie and also to start auctioning the allowances, making them buy them, rather than just grandfathering and then placing them for free, so putting that carbon price on their balance sheets and budgets. This will then start making sense for them to start to reduce their emissions. We need to make that into a business case that makes sense to them and also for the climate, to actually trigger decarbonisation of the sector.
