Is the world poised to learn from the missed chance of 2008 and take the opportunity of rebuilding after a huge economic shock to make a rapid, low carbon transition? If it does, and makes technology choices that better spread economic benefits to reverse inequality, it could be the cusp of a global transformation. All countries face the challenges and potential of the current moment but one, South Korea is venturing further forward than most. How it manages could point the way forward for many others.
The economic policy choices being made today by countries across the world in response to the devastating effects of the Covid-19 pandemic present a once-in-a-lifetime opportunity to invest in a greener future. The sums involved are huge: as of December 2020, a total of $13 trillion has been pumped into rebuilding economies decimated by the continuing effect of Covid-19. Longer-term adjustment to relying less on conventional expansion seems unavoidable with global economic growth forecasts already revised down from 2.9% in 2020 to a shrinkage of -4.5%. This hits like a perfect storm for politicians across the industrialised economies already struggling to find ways to reach ‘net-zero’ carbon emissions by the middle of the century and fulfil their Paris Agreement obligations. The hiatus in industrial activity caused by the pandemic ironically resulted in emissions slackening off in the first half of 2020, but the continuing belt-tightening could cause economies to swing either way: back to what they know – oil and gas, while they can – or forward into a combination of a big switch to renewables and managing down demand. Many countries have responded by investing more of their enormous stimulus packages into low-carbon options. But it is a big opportunity not yet fully exploited, with few countries currently living-up to the promise of a “green recovery” and a just transition.
South Korea, the seventh largest carbon emitter in the world, entered a recession in August 2020 – the country’s first for 17 years – but remains committed to one of the most broad-reaching Green New Deals. The government has earmarked $61.9 billion (15% of its total stimulus package) to create nearly 2 million green jobs by 2025. Its focus is threefold: green transition of infrastructures, low-carbon and decentralised energy supply, and innovation in green industry. Specific targets include 1.33 million electric vehicles and 200,000 hydrogen fuel cell vehicles by 2025 , supported by 15,000 rapid and 30,000 standard charging stations; and increased investment in renewables to take production up from 29.9 GW of solar and wind to 42.7 GW (from 6.5% of the grid in 2019 to 21% by 2030). It will also invest in micro grid communities to build generation and storage capacity (because South Korea has archipelagos of 3,358 islands), and create low-carbon industrial complexes to reduce reliance on fossil fuels. The plan also includes installing solar panels on 225,000 public buildings and “smart metres” in five million apartments; creating urban forests; improving recycling; and establishing a Regional Energy Transition Centre to support workers as they switch to more sustainable sectors.
South Korea’s green recovery programme is interesting not only in the breadth of sectors it is targeting (energy, transport and housing), but also in how investment is being galvanised from a range of sources: national government ($96.3 billion), local government ($21.2 billion) and private industry ($17.3 billion). This mix is designed to help create the stability and market signals needed to attract additional investment in green technologies, which will be essential to scale-up their production and speed up their adoption. Using the public portfolio of buildings to install solar panels and pioneer smart metres is also an innovative way to boost confidence in the transition. It is notable that President Moon Jai-in is personally overseeing the implementation and progress by chairing regular meetings with key ministers and ministries to keep the momentum behind this agenda going beyond the pandemic. South Korea’s spending plans hint at the scale and scope required to deliver the deep mitigation and adaptation required in the face of the climate crisis. They are ambitious in comparison to other developed nations: for example, Seoul’s plans outstrip those published by the UK, which has allocated just $4bn of its new Covid-response stimulus towards green outcomes – despite having the 17th biggest carbon footprint in the world.
The country’s focus on prioritising domestic manufacturing and innovation capability is in some senses a return to the pattern of industrialization seen in South Korea’s post-war development – and particularly from 1961-1990s when it was known for its ‘developmental state’ model. This was characterized by close cooperation between the – initially military led – state and large family-owned conglomerates known as “chaebols”. Together, they focused on centralised, long-term planning and the acquisition of technological skills by its newly educated workforce. Sensing the opportunity that transition might bring, can South Korea use this as an opportunity to diversify their economy away from reliance on fossil fuels and bolster their own industrial and technological proficiency? If they can achieve a second economic transformation, the result could be an accelerated transition to a low carbon economy and more resilient, responsive domestic industries. Current plans include few details about how people will be transitioned to new technologies, although there is more focus on welfare and social support than previous green legislation, given South Korea’s high standard of living and the different expectations of its 21st Century workforce.
To achieve this, the government is partnering the Green New Deal with its Digital New Deal. The idea is for smart technology to spread across fields from heavy industry to healthcare, education, and into domestic homes, bringing with it revolutionary efficiencies in the way the energy grid is used and reducing carbon emissions. For example, the plan includes building 1000 smart factories equipped with 5G and Artificial Intelligence (AI), and to set up smart factory clusters for data sharing. Carbon capture and storage facilities for heavy industry will still be needed to make up the difference, as South Korea is heavily reliant on coal and, in the words of President Moon Jae-in, “embarrassingly behind” other nations in terms of renewable energy. Despite the ambitions of the Green New Deal, there is concern that the government might lean on liquified natural gas (LNG) as a “bridging fuel” to a low-carbon future. While LNG is cleaner than coal and will deliver substantial decarbonisation of the energy grid – as seen in the UK – it is still a polluting fossil fuel and investment in LNG infrastructure could lock-in carbon emissions for generations to come. Also an independent analysis in 2020 suggested that to be compatible with an equitable, global effort to meet the Paris 1.5℃ climate target its contribution within that framework would need to rise to 70-94% below 2017 emission levels by 2030, as opposed to the current 24.4% below 2017 levels.
The emergence and impact of Covid-19 has created a unique opportunity to align responses to the climate crisis with efforts to stimulate the economy. Due to the economic fallout, and record-low interest rates, governments the world over are able to borrow to build significant stimulus packages to promote economic activity and employment in their respective countries. Alongside economic factors, is growing concern about potentially irreversible climatic upheaval. As a result, there is a combined ambition to deliver economic prosperity through scaling up low carbon economies and phasing out fossil fuel use. The pandemic has shown just how interconnected the global economy is, and how vulnerable it is to shocks. Building resilience into economies is therefore taking precedence, and green investment is poised to deliver that as well as the deep mitigation required to meet the 1.5℃ target. This move from South Korea comes amid a raft of green recovery packages and net zero targets from the EU, the UK, China and many others.
In May 2020 the ruling centrist Democratic Party of Korea (DPK) won a landslide victory on the back of its promised Green New Deal, and in July, building on the Green New Deals being proposed in the US and the EU, the government launched an investment programme totalling some $135 billion. Some observers see this as a continuation and expansion of the “Low Carbon and Green Growth” programme implemented by ex-president Lee Myung-Bak after the 2008 financial crash. Others see it as an opportunity to make deeper changes at a systemic level. South Korea has a history of fast, centralised industrialisation, a highly-specialised and highly skillful workforce, and a wide range of successful high-tech industries. As a result, its economy is well placed to shift towards low carbon technologies and become a key exporter of these technologies to other countries that are transitioning. According to research from the Carbon Disclosure Project, the potential value of new low carbon business opportunities in Europe alone is €1.22 trillion – over six times the €192 billion cost it would take to realize. Shifting industries and markets to capture this growth is a huge incentive for transition and innovation.
There are several enabling factors that put South Korea in a strong position to develop and propose a Green New Deal of this scale and depth. The economic fall-out of Covid-19 means that governments the world over are preparing substantial fiscal and monetary stimulus packages to get their economies moving. The global pandemic arose at a time when world leaders were struggling to find actions that would help them to achieve the targets set out in the Paris Agreement. This combination of factors makes it easier for governments to combine the need for economic stimulus with the need to transition to a low carbon future. In purely policy terms, this situation is a win-win for governments, enabling them to create jobs and investment opportunities, and bolster domestic business, all the while cutting carbon in line with international targets.
Current South Korean Central Bank base rates (0.5%) and South Korea’s ‘AAA’ credit rating mean it is in a great position to borrow significant funds cheaply to stimulate its economy, and this is regardless of the programmes of public money creation commonly referred to as ‘quantitative easing’ or ‘QE’. While many other governments find themselves in favourable borrowing positions, the case of South Korea is particularly strong as there is already a significant industrial base with the manufacturing and technological capabilities to deliver much of the green technology needed to meet its emissions targets by 2050. South Korea’s command-control economy means that its population and industrial base is accustomed to centralised power and economic planning, with long-term industrial strategies. Seoul launched its carbon trading scheme – the Korea Emissions Trading Scheme (KETS) – as early as 2015, and, allowing for questions over the effectiveness of such schemes, this is now the world’s third largest. When, in the mid-to-long term, the plan calls for the introduction of a carbon tax to finance the Green New Deal, South Korea’s business leaders will be prepared for it.
New elements within South Korea’s political environment have also helped to pave the way for this transition, including its growing climate movement and the lowering of the voting age from 19 to 18 years old. In March 2020, a group of South Korean teens sued the government to demand deeper emissions cuts, greater investment in transitioning the economy away from fossil fuels and the ability for South Korean citizens to use their constitutional rights to sue the government if the impacts of climate change infringe on those rights. Greenpeace Seoul deserves additional credit both for getting the incumbent Liberal Party to make its pledge to be climate neutral by 2050, and for the Green New Deal segment of the Covid recovery package, as they helped crystallize the growing climate concern amongst the wider public. A survey from the Pew Research Centre found that in 2019, 86% of respondents agreed that climate breakdown was “a major threat to our country”, higher than cyberattacks, the influence of global superpowers and even North Korea’s nuclear programme. Other polling reflected this growing concern, finding that 77% of voters favoured political parties that promised to respond to the threat posed by climate change. Greenpeace Seoul also played an important role in pushing for more concrete and legally binding targets, while ensuring the deal stays on track. The only emission reduction target specified in the plan is 16.2 million tons, which is less than the target in the existing “2030 National Greenhouse Gas Reduction Implementation Plan.” By contrast, the EU’s green recovery plans have legally binding targets in the near-term and long-term. Greenpeace Seoul highlighted the fact that government investment has already been used to bail out a coal power plant manufacturer and a nuclear reactor, and highlighted what is missing from the deal – such as plans to decarbonise food and agriculture.
This case study was originally published on the Nesta website here.