POSCO's Pohang steel mill / Courtesy of POSCO Group

By Kim Hyun-bin

Korean steelmakers and other companies exporting goods to Europe are expected to pay a new carbon border tax in the second half of 2023 as the European Union plans to make it more expensive to export steel, cement, fertilizers, aluminum, electricity and hydrogen to the continent, according to industry officials Thursday.

Companies importing those goods into the EU will also be required to buy certificates to cover their CO2 emissions.

Mohammed Chahim, European Parliament's lead negotiator on the law, said the border tariff will be crucial to EU efforts to fight climate change.

"It is one of the only mechanisms we have to incentivize our trading partners to decarbonize their manufacturing industry," Chahim said.

The move aims to prevent Europe's industries from being undercut by cheaper goods made in countries with weaker environmental regulations.

Korean steel companies, which make one of the main export items to the EU, will inevitably be impacted directly.

The EU is expected to finalize the specific implementation date through additional discussions on the reform of the EU Emissions Trading System (ETS), which will become the standard for imposing a carbon tax following the introduction of a carbon border adjustment mechanism (CBAM).

CBAM is a measure that estimates carbon emissions of a product and is charged by the EU ETS.

Although CBAM was promoted with the intention of achieving the EU's carbon neutrality goal, concerns are raised that it could become a trade barrier as exporting countries will see CBAM as an additional tariff.

In the case of Korea, steel companies, which inevitably emit carbon due to the nature of the production process, are expected to be directly affected by CBAM.

It will only be necessary to report from October next year, but there are concerns that if CBAM is implemented, production costs and incidental administrative costs may soar.

"CBAM may violate WTO rules and we have submitted a position against the introduction of CBAM," the Korea Iron & Steel Association said.

According to the Ministry of Trade, Industry, and Energy, Korea's exports to the EU as of last year amounted to $4.3 billion of steel, which outnumbered aluminum at $500 million, cement at $1.4 million and fertilizers at $4.8 million.

"Korea is one of the few countries that is now successfully operating the carbon credits market. It seems necessary for the Korean government to take measures to inform that our country is already making enough efforts to reduce carbon on its own so that our companies are additionally burdened by the CBAM," said Shin Kyu-sub, a researcher at the Korea International Trade Association (KITA).