The September 2009 issue of H&W’s Renewable Energy Quarterly included a Special Feature on the Asian Market, in which we reported on progress to date in implementing China’s Energy Law of 2006, and renewable energy development prospects of Southeast Asia’s “Green Tigers” — Indonesia, Philippines and Thailand. In this issue, we continue our Asian market focus with a report on the Republic of Korea’s (“ROK”) recently adopted policies designed to mitigate the effects of climate change by laying the foundation for a dramatic shift of the nation’s domestic energy infrastructure from a heavy dependence on fossil fuels toward green and renewable energy sources; and to stimulate an equally dramatic shift in its export-driven manufacturing base toward a “knowledge economy” poised to lead the world in the development and deployment of “green” technologies domestically and abroad.
ROK Energy Sector and Green Growth Policy Background
South Korea currently imports 97 percent of its energy supply, with 84 percent derived from fossil-based fuel sources. To support its objectives of reducing dependence on imported fossil fuels to enhance national security, adopting a proactive stance on environmental sustainability and combating global climate change, and of re-casting its export-driven economic base to compete on a global scale in the developing green-tech field, South Korea’s Presidential Commission on Green Growth (“PCGG”) recently adopted a strategy modeled on the five-year planning approach that was so successful in elevating its postwar economy to 1996 admission in the Organisation for Economic Co-operation and Development (“OECD”).1
ROK’s push to wean itself of dependence on foreign fuel supplies and to lay the foundation for green growth actually dates back to at least the early 1990s, when it adopted its Five-Year National Plan for Energy Conservation Technology Development (1992–1996). This was followed by a Ten- Year Basic Plan for New and Renewable Energy RD&D (2003–2012), which focused on diversifying the nation’s energy mix, establishing clean energy technology development targets and identifying priorities for green energy R&D 1 Presidential Commission, Republic of Korea, “Road to Our Future: Green Growth, National Strategy and the Five-Year Plan (2009–13),” (PCGG, 2009).
and commercialization; and by the Korea Institute of Energy Research’s 2006 long-term “energy technology roadmap.” As of 2007, however, less than 1 percent of South Korea’s approximately 66 GW of installed electric-generating capacity was derived from renewable resources.2 Korea Electric Power Corporation (KEPCO) and its six subsidiaries (Korea Hydro & Nuclear Power Co., Korea South-East Power Co., Korea Midland Power Co., Korea Western Power Co., Korea Southern Power Co. and Korea East-West Power Co.), for example, reportedly generated just over 587 MW of electricity from renewable resources in 2008, for a total of 0.92 percent of combined power output. Of this, the vast majority was hydroelectric (approximately 550 MW), with 24.75 MW coming from wind and 11.42 MW from solar generation.3 By contrast, nuclear energy represented 26 percent of South Korea’s electricity generation in 2009.4
New Green Growth “Five-Year Plan”
Against this backdrop, on August 15, 2008, the 60th anniversary of the founding of the Republic of Korea, President Lee Myung-bak announced a new national policy vision of “Low Carbon, Green Growth.” The initiative is intended to pursue three primary objectives: (1) promotion of “eco-friendly new growth engines” for the national economy, (2) enhancement of South Korea’s quality of life and (3) contribution to international efforts to fight climate change. To achieve this ambitious vision, the Presidential Commission on Green Growth (PCGG) was established, and a Framework Law on Green Growth has been submitted for deliberation in the National Assembly.
In short order, the PCGG adopted a long-term National Strategy for Green Growth (2009–2050) and a Five-Year Plan for Green Growth (“Five-Year Plan”). This first Five-Year Plan covers the period 2009–2013, comprises a manifest of political commitments and a blueprint for government action, contains budgetary earmarks and tasks delegated to relevant ROK ministries, and targets spending of 2 percent of the nation’s GDP on green growth. Given the global economic downturn that impacted South Korea during the genesis of this ambitious policy initiative, its rollout has been touted domestically as a “Green New Deal.” As such, investment will be initially weighted toward infrastructure projects to help combat the sagging economy, with spending shifting toward export-focused green-tech R&D over time.5
Within the Five-Year Plan, the PCGG announced 10 policy categories intended to achieve the stated objectives of the government’s Low Carbon, Green Growth initiative:
- Effective mitigation of greenhouse gas (“GHG”) emissions
- Reduction of fossil fuel use and enhancement of energy independence
- Strengthening the nation’s capacity to adapt to climate change
- Development of green technologies
- The “greening” of existing industry and promotion of green industries
- Advancement of the industrial sector
- Engineering a structural basis for the new green economy
- Greening the land and water and building the green transportation infrastructure
- Bringing green revolution to the daily lives of the nation’s citizens, and
- Becoming a role model for the international community as a green-growth leader.
Several of these policies focused on GHG mitigation and green-energy/green-tech deployment are considered further below.
GHG Emissions Cap-and-Trade Program Developments
Under the first of these policy categories identified in the Five-Year Plan, specific actions include building a national GHG inventory reporting system and emissions trading mechanism; developing cost-effective mitigation strategies for buildings, transportation and industry; and pursuing forestation and sustainable forestry management programs to increase carbon absorption. Similarly, under the seventh policy category, ministry activities identified by the PCGG include gradual introduction of a GHG emissions trading system with an estimated trading volume of 500 billion KRW (0.4 billion USD) in 2013 and 2 trillion KRW (1.6 billion USD) by 2020; providing public credit guarantees to the green-tech and green-industry sectors, with investment increasing from 2.5 trillion KRW (2 billion USD) in 2009 to 7 trillion KRW (5.6 billion USD) in 2013 and 8 trillion KRW (6.4 billion USD) by 2020; and overhauling the nation’s taxation system to encourage GHG emissions reduction, energy efficiency and other “green” economic activities.6
In 2007 South Korea’s Ministry of Knowledge Economy (“MKE”) and the Korea Energy Management Corporation (“KEMCO”) launched a voluntary CO2 emissions-reduction program, known as the Korea Certified Emission Reduction (“KCER”) system, which reportedly generated two million tons of CO2 emissions reductions in the first half of 2009.7 And, although considered a developing country and hence not obligated to adopt mandatory GHG emissions reductions pursuant to the Kyoto Protocol, in August 2009 South Korea pledged for the first time to set a 2020 emissions-reduction target, with proposals ranging from an 8 percent increase to a more ambitious 4 percent cut from 2005 baseline GHG emissions levels. Shortly after this announcement, PCGG Secretary General Woo Ki-Jong announced South Korea’s ambition to become Asia’s trading hub for carbon emission-reduction credits, including UN Clean Development Mechanism (“CDM”) certified emission reductions (“CERs”) and related instruments; details of the proposed trading scheme are being debated in the context of the proposed “Green Growth Bill” before the National Assembly.8
On the eve of the December 2009 15th Conference of the Parties (“COP-15”) to the United Nations Framework Convention on Climate Change (“FCCC”) in Copenhagen, the Green Growth Bill had not yet been enacted by the full National Assembly but had passed that body’s Special Committee on Climate Change with minor amendments, including specification that a cap-and-trade or any other type of emissions trading system shall be implemented, providing it can be recognized by an international community. Also shortly before COP-15, ROK’s Ministry of Environment (“MOE”) announced its intent to establish a voluntary cap-and-trade program applicable to CO2, CH4 and N2O, targeting reductions of 1 percent per year relative to a baseline of 2005–2007 average emissions.9 And, at a presidential cabinet meeting held on November 17, 2009, the most aggressive of the 2020 GHG emissions-reductions caps recommended by the PCGG was adopted: 4 percent reduction below 2005 emissions levels.10
Thus, over a period of approximately 18 months, much progress has been made in laying a foundation for domestic GHG mitigation in the ROK. Given the lingering effects of the global economic downturn, however, and the ensuing failure of COP-15 to resolve ongoing uncertainty regarding the future of the Kyoto Protocol — which currently expires in 2012 — it remains to be seen whether South Korea can maintain this momentum.
Enhanced Renewable Energy and Green-Tech Deployment
Shortly after President Lee’s “Low Carbon, Green Growth” policy announcement, in December 2008 South Korea established its Third National Basic Plan for New and Renewable Energy (NRE) R&D and Deployment (“Third Basic Plan”), identifying NRE development and deployment targets. According to the Third Basic Plan, under a businessas- usual (“BAU”) scenario, NRE’s share of primary energy supply in the ROK was projected to account for 3.6 percent by 2015, 4.2 percent by 2020 and 5.7 percent by 2030. Under the Third Basic Plan’s targets, however, the ROK seeks to increase NRE’s overall share to 4.3 percent by 2015, 6.1 percent by 2020 and 11 percent by 2030. Baseline and targeted NRE deployment for various new/renewable resources are illustrated in the table on page 7.11
Click here to view table.
The PCGG’s Five Year Plan identified a variety of activities to achieve the Third Basic Plan’s objectives. Under the second Green Growth policy category, for example, the Five Year Plan echoes the Third Basic Plan’s targets for NRE deployment, to be implemented by industrializing NRE production and by applying renewable portfolio standards (“RPS”) obligating utilities to meet increased renewable resource utilization levels. The Five Year Plan also calls for increasing the level of nuclear energy generation from 26 percent in 2009 to 27 percent in 2013 and 32 percent of domestic electric supply in 2020.12 As of October 2009, MKE reportedly had commenced the process of developing an RPS program to be implemented by 2012, concurrent with its plans to phase out the current feed-in-tariff policy.13
The Five Year Plan does not focus exclusively on domestic measures, however. Rather, South Korea’s “Low Carbon, Green Growth” strategy is expressly intended to position the nation as a global green-energy/green-tech leader. For example, even under the Five Year Plan’s second policy category (reducing fossil fuel use and enhancing energy independence), the PCGG calls for governmental measures designed to encourage business enterprises specializing in overseas resources development to explore cooperative green-growth endeavors abroad. Other policies outlined in the Five Year Plan call for more specific action on this front, including plans to launch “intensive efforts” to develop key green technologies such as solar cells, high-energy fuel cells, integrated coal gasification combined cycle (“IGCC”) and smart grid technologies, with the objective of raising the ROK’s global market share in these “green” sectors to 8 percent within five years. Similarly, the Five Year Plan notes that South Korea’s major strategic industries such as automotive, chemicals, semiconductors and steel, will be encouraged to increase green-tech R&D and capital investment with the objective of raising green goods export by such industries from 10 percent in 2009 to 15 percent by 2013 and 22 percent in 2020.14
Industry Response and Path Forward
Although many of these policies are still in the works, South Korean ministries and industry have been quick to respond. In July 2009, for example, state-run Korea Development Bank (“KDB”), which already had revealed aspirations to become Asia’s leading investor in GHG emissions-reduction projects, announced plans to provide approximately $50 million in financing for a Malaysian palm oil plantation biomass renewable energy project expected to yield 300,000 CERs.15 And as recently as September 2009, the Korea Trade Center (KOTRA) and nine ROK companies, including Hanwha Corp. and KEPCO subsidiary Korea Midland Power Co., organized a conference in the Philippines and met with local government and developers to identify renewable energy-focused CDM project development and investment opportunities, including biomass/biogas, wind, hydropower and energy efficiency projects.16 Similarly, the nation’s leading industrial conglomerates also have taken up the challenge, with many already pursuing plans to aggressively expand their R&D, manufacturing and export programs in the areas of wind, solar, electric/hybrid vehicles, smart grid and related green technology.17
As previously noted, in light of the disappointing outcome of COP-15 in Copenhagen, the resulting heightened level of uncertainty regarding the Kyoto Protocol’s future, and the lingering impacts of the global economic downturn, some may question whether South Korea can maintain the momentum created by the aggressive policy initiatives the country has adopted since President Lee Myung-bak’s August 2008 “Low Carbon, Green Growth” policy announcement. During COP- 15, however, the ROK’s climate-change ambassador, Rae Kwon Chung, was quoted by international media outlets as stating that South Korea views GHG emissions mitigation not as a burden but as a business model, and as urging world leaders to re-think fundamental economic structures such as taxation, transportation and energy infrastructure in order to capture the economic growth opportunity presented by renewable energy technology development. And even in the wake of COP-15, South Korea appears intent on pursuing its stated ambition of serving as a model to the global community, announcing that it plans by the end of January 2010 to officially register its goal of reducing GHG emissions by 20 percent from projected 2020 levels and, on December 28, 2009, by confirming its plans to launch a voluntary carbon emissions trading scheme targeting reduction of ROK’s emissions by 1 to 2 percent of 2005–2007 average baseline emissions levels.18
To those interested in assessing the strength of South Korea’s post-Copenhagen resolve, it also may be instructive to reiterate that, while climate change mitigation certainly was touted as an important goal of the Low Carbon, Green Growth policy initiative, promotion of “eco-friendly new growth engines” for the national economy topped the list of policy objectives articulated by President Lee Myung-bak. Indeed, given the highly publicized green-energy/green-tech ambitions of other Asia-Pacific nations with which ROK industry competes regionally and globally — including the People’s Republic of China and Japan — it also seems unlikely that the ROK will retreat any time soon from this primary objective, of re-casting its domestic energy infrastructure and its export-driven industrial base, to vie for an advantageous pole position in the new race for global greenenergy and green-tech supremacy.
Postscript — Shortly after this article was written, on December 30, 2009, South Korea’s National Assembly adopted the Basic Law on Low Carbon and Green Growth, which President Lee Myung-Bak signed into law on January 13, 2010, as this edition of the Renewable Energy Quarterly was going to print. As anticipated, the legislation targets spending two percent of the ROK’s GDP annually to stimulate green businesses and projects, encourages programs to mitigate GHG emissions, and delegates its implementation to several key governmental ministries.