South Korea’s Green Road to Export Growth

South Korea has built global leadership in industry sectors through hard-headed, long-term, strategic alliances between government and the country’s largest conglomerates. It has identified its next long-term export opportunity – Green Growth.

“The Green Growth policy is reshaping the industrial structure in Korea,” says Jungmin Yu, chief researcher at the Energy and Climate Policy Institute in Korea. The South Korean government announced plans in late 2011 to invest 35.5 trillion Won (US$ 30.7 billion) in new and renewable energy projects and emission reduction projects by 2020.

“Green growth is intended to be a new engine for growth of the Korean economy.” The first stage of Korean development was the manufacture of low value goods such as pencils and shoes. Then they moved into the steel industries from ship-building to cars. More recently they added semiconductors and telecommunications equipment. “Now the government sees green technologies as the next global market for ‘Made in Korea’,” adds Professor Yu.

The Green Growth policy was announced in 2008 by President Lee Myung-bak as a new national development paradigm. The policy was first put into action during the financial crisis in 2009, the South Korean government invested around US$ 850 million in what it called a “New Green Deal”. The policy has been made law in the Green Growth Act, an overarching piece of legislation that coordinates a series of electricity supply, energy efficiency, environmental protection and research and development plans.

The government’s Green Growth approach places more emphasis on growth than green, according to Jungmin Yu. Most of the New Green Deal stimulus funding was spent on large infrastructure projects including railroad improvements, river dredging and flood defence construction. The recently announced expenditures are intended to open new export markets to South Korean industry. The government predicts its investments will increase exports by 202 trillion Won (US$ 174.8 billion), while boosting domestic demand by 59 trillion Won (US$ 59 billion).

Renewable big, nuclear bigger

Renewable energy sources provide just 2% of South Korea’s electricity generation at the moment. The plan is to increase that to 11% by 2030. Korea is a peninsula. The South Korean government has set a target of 25 GW of offshore windfarms to be built before 2020. South Korea has around 200 MW of onshore wind and no offshore wind farms at the moment. The government has established a Renewable Portfolio Standard that requires big power providers to source a percentage of their power from renewable energy. They can earn double the Renewable Energy Certificates per MW/h from offshore renewable energy compared to renewable energy generated onshore.

But the big push under the Green Growth policy will be in nuclear power. Perhaps this is the area where the Korean concept of ‘Green Growth’ departs from concepts of ‘Sustainable growth’. Sustainable fuels do not come from finite sources. The South Korean government tends to group all low- or no-emission energy technologies as “new and renewable energy” in its statistics. Korean‘new’ energy sources include technologies such as the gasification of coal or heavy oils for consumption in combined cycle systems (IGCC). Nuclear is not counted in "new and renewable" sources in legal terms, although it is regarded as clean energy eligible for strategic R&D fund by the government.

Around 30% of the Green Growth R&D funds will be channelled into nuclear. South Korea already operates 21 nuclear reactors, accounting for just under 30% of the country’s electricity generation. The government plans to build a further 13 reactors by 2024. A new reactor was completed last year. Nuclear is to provide 59% of the country’s generation by 2030.

The investment in nuclear is also taken with an eye on exports, according to Jungmin Yu. The government sees the export of domestically developed market-leading nuclear technologies as potentially lucrative. South Korean companies recently sold four nuclear reactors to the United Arab Emirates and they have identified further opportunities abroad. The disaster at Fukushima has not dampened the South Korean government’s enthusiasm for a centralized electricity system heavily dependent on nuclear. There are other concerns besides accidents. The on-site repositories for high-level nuclear waste at existing nuclear power stations are filling up. No new location for high-level waste has yet been publicly identified, according to Jungmin Yu.

Shape-up without shake-up

Cooperation between the state and major Korean companies is very close. President Lee Myung-bak is a former CEO of Hyundai Engineering and Construction. The leading companies will have been closely involved with government in the planning and timing of the Green Growth policy.

The South Korean government is firmly committed to market mechanisms (rather than a tax on carbon emissions) as the best way to increase the proportion of renewables in the country’s energy mix. However, increasing competition in energy generation is not the priority. The government recently established Renewable Portfolio Standards requiring power-generating subsidiaries of KEPCO (the former state-owned, vertically-integrated monopoly), plus the five large private power generators, to include a percentage of power from renewable energy sources in their output. But at the same time the government abolished a Feed-in tariff that had been in place since 2005. Feed-in tariffs can provide a route to market and a guaranteed price for small renewable energy generators. Jungmin Yu believes that KEPCO and the other big companies in power generation are more likely to seek to minimise their costs through largescale solutions to their renewable portfolio standard requirements.

The government has also been very careful to minimise the impact on large companies of its efforts to cap emissions. Compared to EU greenhouse gas emission reduction targets for 2030, the South Korean government’s targets are not aggressive. They propose a decrease of 4% in emissions compared to 2005 levels by 2030, and a 30% reduction compared to the ‘business as usual’ level predicted for 2030. The South Korean government has tended to focus on the ‘business as usual’ target, according to Jungmin Yu. The ‘business as usual’ test, he says, is less objective than the comparison to 2005 emissions, because it could be calculated in a number of ways.

Carbon markets, to reward firms that reduce their emissions in line with the Green Growth policy aims, were originally planned for 2012. But industry opposition led to a deferment of the carbon market start date to 2015. It will be a very gradual build up. More than 90% of the initial emission certificates will be allocated for free. Jungmin Yu considers the penalties for non-compliance with emission caps to be mild.

Ambitious international goals

The goal of the Green Growth policy is for South Korea to capture 10% of the market for new and renewable energy technologies by 2020. They have also sponsored a Global Green Growth Institute to advance the paradigm internationally and to build relationships with other leaders in green energy technologies, such as Germany and Denmark. They expect the initiatives to create over 900,000 jobs for Koreans by 2020.

There would have been ways to spend this funding that would have lowered South Korea’s emissions faster and created more jobs, says Jungmin Yu, such as investment in improving the energy efficiency of the country’s buildings and greater commitment to domestic renewable energy installation. Many of the projects the government calls ‘green’, such as the construction of flood defences, pay little attention to environmental issues such as biodiversity.

But Yu acknowledges that the government is pursuing its definition of Green Growth with admirable commitment: “According to this plan, the government is going to invest huge money in R&D for new technologies for export.”