With the government setting an aggressive 2035 nationally determined contribution (NDC), the battery industry is expected to benefit as demand for electric-vehicle batteries and energy storage systems (ESS) rises in the process of achieving it.
On the 18th (local time), the government officially released the "2035 NDC" at the 30th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP30) in Belém, Brazil, outlining a 53%–61% reduction in greenhouse gas emissions by 2035 compared with 2018. It plans to submit the 2035 NDC to the United Nations (UN) within the year.
To achieve the greenhouse gas reduction target, the government set a policy to supply zero-emission vehicles (electric and hydrogen) to account for 40% of new cars by 2030 and 70% by 2035. The target reduction for the transportation institutional sector was set at 60.2%–62.8%.
As of last year, more than 722,000 zero-emission vehicles were registered in Korea. The Korea Automobile and Mobility Industry Association (KAIA) calculated that, assuming 28 million registered vehicles in 2035 under the government plan, 34% (9.52 million)–39.3% (11 million) would need to be zero-emission vehicles.
Automakers, who would have to sell more than 800,000 zero-emission vehicles annually, are pushing back, calling it effectively a phaseout of internal combustion engine cars. The mood is more upbeat in the battery industry, however. To meet the government's conversion target for zero-emission vehicles, demand for secondary batteries, the core component of EVs, will inevitably surge.
Due to an EV chasm (a temporary slowdown in demand), battery makers' utilization rates have fallen since last year. According to data disclosed by each company in the third quarter, SK On's average utilization rate was 52.3%, and LG Energy Solution's was 50.7%. Compared with their 2023 averages of 87.7% and 69.3%, respectively, they are down 35.4 percentage points (P) and 18.6 P.
The environment is also favorable for growth in the ESS market. The goal is to cut greenhouse gas emissions in the power institutional sector by at least 68.8% and up to 75.3% by 2035 compared with 2018, which will require reducing coal power and increasing renewable generation.
To accommodate intermittent renewables such as solar and wind on a large scale while maintaining grid stability, ESS must be used together. ESS stores electricity generated from renewable energy and supplies it when needed, helping stabilize the grid.
Government-led support to achieve the 2035 NDC is also expected to continue. The focus includes securing fundamental technologies for next-generation batteries and research and development (R&D) and financial support to foster materials, parts, and equipment companies.
According to the 2023 Climate Tech R&D investment status released by the Korea Industrial Technology Association, electric vehicles (64.9%) and secondary batteries (24.2%) took most of the total R&D spending (13.4402 trillion won).
However, some analysts say the impact on the domestic economy will be limited because a small share of batteries are produced in Korea. The share of batteries produced at domestic plants by LG Energy Solution and SK On is less than 5% of their total output. While annual production capacity (Capa) fluctuates, most production is in North America.
A source in the battery industry said, "Battery corporations have grown with policy support such as the U.S. Inflation Reduction Act (IRA) and Europe's Net-Zero Industry Act (NZIA)," noting, "That's because many tax credits apply when building production facilities locally." The person added, "In Korea, up to a 40% tax credit is applied to research and development (R&D) investment, but it is refunded years later. Additional institutional support is needed to increase domestic production."