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Chaebols may hinder Green New Deal progress

South Korea’s conglomerates do not appear enthusiastic about curtailing carbon emissions, and their dominance crowds out more innovative contributors

South Korea’s Green New Deal risks being derailed by legacy players keen to use the long timescale required to build a hydrogen economy as a way of postponing meaningful action on emissions.

The industrial establishment favours the hydrogen economy option due to the extended period that would be needed to build it, says Melissa Brown, director of energy finance studies, Asia at research body the Institute for Energy Economics and Financial Analysis in Hong Kong. South Korea’s state-controlled power companies are “inherently conservative and backward looking”, she says.

President Moon Jae-in’s mandate for reform was strengthened by an absolute majority for the ruling Democratic Party in parliamentary elections in April. A pledge to reach zero emissions by 2050 was part of the manifesto, with details of the package due to be announced in early June.

Moon’s mandate stems from the South Korean public’s perception of being “preyed upon” by air pollution emitted by coal-fired plants and the seasonal impact of Chinese desertification, Brown says. One solution is renewable energy, but this represents “a threat to legacy players”, she adds, while hydrogen avoids this problem.

“Simply letting legacy institutions carry on as before would not enable innovation to be unlocked” Brown, Institute for Energy Economics and Financial Analysis

The country’s chaebols—family-controlled business conglomerates—still stubbornly dominate the economy. Their size gives them advantages of scale, and their predominance in the country’s economy tends to crowd out smaller, more innovative businesses. 

This means there is a danger that taxpayers’ money will be used to support underperforming private-sector companies while what is needed are incentives to innovate. “Simply letting legacy institutions carry on as before would not enable innovation to be unlocked,” Brown says. “That would be the most frustrating scenario.”

Industrial resistance

There is a clear rationale for South Korea to develop hydrogen. The country already has the required infrastructure, and existing assets would not have to be written off, Brown says. South Korea is also a significant holder of hydrogen intellectual property patents and has a “great opportunity” to build a hydrogen economy.

Sanghyun Park, an independent equity analyst in Seoul, cites public approval for the administration of around 60-65pc as evidence the administration’s proposals would work. It is surprising that even the opposition is not making strong objections, he adds.

Despite that, consensus-building within the ruling party and executive will be needed to push forward “a deal with actual substance”, says Joojin Kim, managing director at Seoul-based NGO Solutions for Our Climate. There is “reason to doubt whether the Green New Deal will be sufficiently ambitious—and if sufficiently ambitious, whether it will be effectively implemented,” he says.  

2050 – Target year to achieve net-zero emissions

South Korea’s dominant electricity utility, Korea Electric Power Corporation (Kepco), is a “status quo” player that has been “forced to pay attention” to the administration’s strategy in a painful process, Brown says. Kepco is loss-making and would need to increase its tariffs, but Brown does not see any evidence the government wants to urgently communicate this necessity.

The public is sensitive about rises in electricity prices, which are currently being held down for political reasons, Kim says. “This has prevented sufficient investment into the infrastructure needed to integrate renewables.” Securing the budget to implement transformation will be the biggest challenge, Kim argues.

Previous governments have made big promises on clean energy that came to little. Kim remains doubtful of success given the Moon administration's history of failing on climate commitments. He cites the decision to allow banks to provide relief financing to coal plant manufacturer Doosan Heavy Industries & Construction with no consideration of the impact on emissions.

The administration has generally been reluctant to stop new domestic coal power projects and to end overseas coal financing to support Doosan Heavy, says Kim, who expects Kepco and Doosan to use their muscle to try to water down the coming proposals. 

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