Stronger tax support for decarbonization facility conversion, support for purchases of highly energy efficient products, and stronger competitiveness for energy intensive industries. These are the three tasks named in "Overseas Energy Crisis Response Policies and Implications," released by the Federation of Korean Industries on August 6. The report was written by Kim Jin-soo, professor of resources and environmental engineering at Hanyang University. It calls for changing the oil dependent industries themselves, since short term supply and demand measures alone cannot cope.
The International Energy Agency has set out demand restraint, use of stockpiled oil, increased production, and fuel switching as emergency responses. Among these, what the IEA rated most effective was demand restraint, which makes people use less oil. The report noted that the four pillars need to be reflected in actual policy design.
The tax demands are specific.
The proposal is to apply tax credits at the current new growth and source technology level when companies switch to production facilities for E-naphtha, made through electrochemical catalytic processes, and bio-naphtha. In Europe, conversion of petrochemical facilities also qualifies for credits once the requirements are met, but Korea's Restriction of Special Taxation Act supports only listed facilities, and petrochemical feedstock conversion facilities are not on that list. The report also included the point that the European Union subsidizes 45-100% of the cost when facilities are converted to produce low carbon fuels such as green hydrogen or synthetic fuels. The base year for this ratio is not marked in the report.
It also pointed to a gap in support for energy intensive companies. Under the Korean system, a company qualifies only if it improves energy efficiency by an annual average of 1% or more over 2023-2027, and what it receives stays at the level of long term low interest loans. When prices jumped because of the war between Russia and Ukraine, the United Kingdom refunded grid usage fees to energy intensive industries such as petrochemicals, steel and cement, and exempted them from renewable energy levies. Apart from urgent steps such as tax cuts, the EU has been increasing investment support for clean industries such as batteries and solar power.
Taiwan was cited as an example on the household side. It is running a program through 2029 that adds 3,000 Taiwan dollars, about 140,000 won in Korean money, per unit for purchases of high efficiency home appliances. Korea's "Top Efficiency Home Appliance Refund" is a temporary program that closes even within the year once the budget runs out. Also introduced were the way CPC Corporation, Taiwan absorbs 60-75% of increases in international oil prices to hold down domestic prices, and the switch of all city buses to electric buses to cut private oil demand.
A response sequence assuming a major supply blockage was also presented. The explanation is that in the early stage of an event such as a blockade of the Strait of Hormuz, the response is voluntary management such as expanded use of public transport and driving restrictions, and once the situation drags on it moves to mandatory measures such as a five day vehicle rotation and limits on fuel purchases, which are the stages accepted internationally.
Kwon Hyuk-min, head of the FKI's growth strategy division, said that energy supply crises have recurred and so could shake the domestic economy again. His argument is that industries leaning on oil should be changed bit by bit through medium and long term responses such as support for facility conversion.
On the government side, a similar discussion is moving along a different channel. At the "Industrial Sector Low Carbon Transition Policy Forum," held by the National Climate Crisis Response Committee at the Korea Chamber of Commerce and Industry in Seoul on July 29, the Ministry of Industry and Trade, the Ministry of Climate, Energy and Environment, and the Ministry of Planning and Budget presented policies. Enactment of an industrial green transition promotion act, carbon contracts for difference, and voluntary carbon markets were raised, and the industry ministry said it would help demonstrate reduction technologies in high emitting sectors and push a subsidy auction that picks out facility investments with high reduction efficiency. The steel and petrochemical industries called at this forum for carbon free power, hydrogen infrastructure, early demand for low carbon products, and predictability in policy.
The tax measures the report called for and the subsidy auction the government is preparing target the same facilities in the end.
