Carbon emissions in South Korea are decreasing, but the analysis from the Bank of Korea indicates that the pace is slower compared to that of developed countries. This is due to the lack of transition to low-carbon manufacturing and service industries with low emissions intensity. The Bank of Korea advised that green and transition finance should be activated and the adoption of eco-friendly technology should be promoted.
On the 19th, the Bank of Korea stated in its BOK Issue Note, "Analysis of economic growth and carbon emissions disconnection through country-specific panel data and implications," that this is the case. The report was led by Director Yeon Jeong-in from the Climate Risk Analysis Team within the Bank of Korea's Sustainable Growth Office.
According to a panel analysis conducted by the research team on 59 countries, high-income nations, including the Group of Seven (G7), appear to have entered a stage of "decoupling" where they continue to experience economic growth while reducing carbon emissions. The high-income nations include the United States, the United Kingdom, Japan, and 33 other countries with high per capita income levels.
South Korea is included in the high-income countries along with the G7, but it has not shown signs of entering the decoupling stage. Although per capita carbon emissions have decreased since the spread of COVID-19 in 2019, the research team noted that the pace of reduction has been slow, preventing the country from achieving decoupling.
The delay in South Korea's decoupling is attributed to the high proportion of labor-intensive, low-value-added service industries (such as retail and restaurant industries) and manufacturing within the overall economy, along with a high dependency on fossil fuels, which hampers the advancement of eco-friendly technologies.
According to the research team, South Korea's per capita carbon emissions in the service sector increased from 1.47 tons (t) in 2020 to 1.87 t in 2021, while the carbon emissions of G7 nations decreased from 1.65 t to 1.14 t during the same period. In manufacturing, South Korea's per capita carbon emissions also rose from 3.87 t to 4.38 t, whereas G7 countries reduced their emissions from 2.98 t to 1.71 t.
The research team asserted that the government should strengthen support to reduce the share of labor-intensive services and increase low-carbon, high-value-added services such as digital services and eco-friendly transportation services. To this end, they proposed enhancing domestic efforts to activate green finance and considering the introduction of a Korean version of transition finance to complement green finance.
Transition finance refers to financial products that support transitional activities that do not meet the stringent activity and recognition criteria under the existing green classification system but can contribute to the overall national reduction of emissions. It is primarily utilized to fund low-carbon transition activities in high-carbon, hard-to-abate industries.
Furthermore, they argued that incentives for the diffusion of eco-friendly and low-carbon technologies should be expanded beyond the existing technological innovation and economic growth pathways, and regulatory and institutional barriers should be removed. They suggested reforms on energy taxes and subsidies for managing fossil fuel demand and easing regulations on renewable energy facilities as potential measures.