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Climate Change

South Korea fears EU green plan as China starts carbon trading

Seoul summons steel makers for talks on coping with carbon border tax

TOKYO/SEOUL -- South Korea's government hosted emergency talks with the country's steelmakers on Thursday after the European Union put forward wide-ranging plans to decarbonize its economy, in a first sign of how the green policies could rebound on Asian exporters.

Meanwhile, China plans to launch its national carbon trading market on Friday, as a key instrument to cut carbon output by the world's biggest emitter.

The moves by two of the world's leading economic powers show how decarbonization has moved up the global agenda. The EU's planned carbon border tax, or Carbon Border Adjustment Mechanism (CBAM), would start to be implemented from 2023 and would try to ensure that big carbon emitters from outside the bloc paid a price for their emissions comparable to the levies on the EU's own industries.

Initially the scheme would cover steel, cement, aluminum and fertilizer producers.

In a sign of concern about the potential impact on South Korea, a big steel exporter, vice industry minister Park Jin-kyu said that "the country can change the crisis into a chance, if the private sector and the government cooperate and cope with the carbon border adjustment mechanism." He asked executives from Posco and Hyundai Steel, among others, to be prepared.

South Korean steel exports to the EU were worth $1.5 billion in 2020, the industry ministry said.

The ministry said that it will support industries affected by the CBAM through tax measures, financial help and research and development efforts that would lead to carbon neutrality.

The government said that it will try to get equal treatment with EU countries by explaining South Korea's own carbon trading system and carbon neutrality policies to the EU.

In Japan, Nippon Steel declined to comment, saying it was looking into details of the EU announcement.

Japan's "exports to the EU in areas such as steel are limited, so the overall impact may not be so big," said Koichi Oyama, a partner at EY Japan, a professional services company. He said that global manufacturers, such as in the auto and electronic industries, may be more directly affected by EU emission reduction measures.

Nevertheless, the EU's CBAM could push more countries to implement emission constraints in a bid to avoid taxation. One way is through a carbon trading system, which lets companies trade allowances. Companies that exceed limits need to pay by buying allowances from the market.

In China, the first transactions in its national carbon trading scheme are set to begin on Friday morning, according to a brief announcement late Thursday from the new Shanghai Environment and Energy Exchange. The launch has long been anticipated, and the previous plan to start in June was delayed. Details of the trading schemes are expected to be released after the market opens.

While China has had regional trial carbon markets before, the national system would immediately become the world's biggest, surpassing the EU's Emissions Trading System (ETS). Initial participants in China's new market would be 2,225 electricity companies, which emit about 4 billion tons of carbon dioxide every year in total, according to state-backed media China Daily.

Experts expect transactions in China's new ETS will initially be limited due to generous allowances. Prices are estimated to begin under 10 dollars per ton, much lower compared to over 50 euro ($59) in the EU.

"The results will come over time, not overnight," said Prakash Sharma, head of markets and transitions in Asia-Pacific at research company Wood Mackenzie.

Additional reporting by Rurika Imahashi in Tokyo and CK Tan in Shanghai

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