Carbon Border Adjustment Mechanism of the EU and the US: the Impact on South Korea

Abstract

This study is to measure the impact of the Carbon Border Adjustment Mechanism by the European Union and the United States on South Korea. Five products of the EU CBAM are selected for this analysis: iron and steel, organic chemicals, plastic, aluminum, and cement. To evaluate the impact, this paper used carbon intensity, export value, and carbon emission price data. The additional burden on the products is expected to cost 531 billion KRW by the EU CBAM implementation. In the case of the US implementation, the additional burden is expected to reach 214 billion KRW when the social cost of carbon(SCC) is used for the carbon price. These estimates are different from the results of previous studies, as the calculation in this study is based on HS codes. In fact, the estimates are larger than previous results, since the gap between carbon prices has grown in recent months. Among products, iron and steel products bear the largest proportion of the burden. However, the influence of the CBAM may become more extensive with an extended range of products and an increased price of carbon emissions. In order to respond to the CBAM effectively, it is necessary for the government to stimulate the de-carbonization of industry and incentivize investment in renewable energy. Corporations are also required to actively invest in low-carbon technologies and improve the capacity for climate change adaptation.