South Korea must urgently restructure its oil-heavy industrial base to end the recurring energy supply disruptions that flare up with every global geopolitical shock, a business lobby group said Thursday.
The proposed remedy: subsidize corporate transitions to low-carbon equipment — as other countries already do — and expand support for purchases of energy-efficient appliances to curb oil demand.
The Federation of Korean Industries released a report Thursday titled "Overseas Energy Crisis Response Policies and Their Implications," commissioned from Kim Jin-su, a professor in the Department of Resources and Environmental Engineering at Hanyang University.
In the report, Kim outlined three priority tasks: strengthening tax support for transitions to low-carbon equipment, expanding subsidies for energy-efficient product purchases, and bolstering the competitiveness of energy-intensive industries.
The report notes that the EU covers 45 to 100 percent of conversion costs when companies switch to facilities that produce low-carbon fuels such as green hydrogen and synthetic fuels — a strategy aimed at reducing national dependence on oil.
Kim said South Korea should apply tax credits at the level currently reserved for new-growth and source technologies when companies invest in production facilities for "E-naphtha" — synthetically produced through electrochemical catalytic processes — or "Bio-naphtha," an eco-friendly naphtha alternative.
European countries grant tax credits to petrochemical facilities that meet conversion support requirements, but South Korea limits such benefits to specific equipment listed under the Restriction of Special Taxation Act. Facilities for converting petrochemical feedstocks are not included.
Kim also said the government should provide subsidies for energy-efficient home appliances and support the electrification of public transit and commercial vehicles to reduce oil dependence over the long term, minimizing the economic shock when oil prices rise.
Taiwan has state-owned CPC Corporation absorb 60 to 75 percent of international oil price increases to stabilize domestic fuel costs. The government also offers a subsidy of 3,000 New Taiwan dollars ($92) per unit for energy-efficient appliances and is converting city buses to electric vehicles to reduce private-sector oil consumption.
South Korea has a similar "top-efficiency appliance rebate" program, but critics note it ends early once the budget runs out, making it only a temporary measure — unlike Taiwan's program, which is set to run through 2029.
The report also called for policies to strengthen the competitiveness of energy-intensive industries such as petrochemicals and steel.
When energy prices surged following the Russia-Ukraine war, the United Kingdom introduced support measures for energy-intensive sectors including petrochemicals, steel and cement — covering grid usage fee rebates and exemptions from renewable energy surcharges.
South Korea does offer support to heavy energy consumers, but companies must improve energy efficiency by at least 1 percent annually from 2023 to 2027 to qualify, and the available support is largely limited to long-term, low-interest loans.
Kim said South Korea should benchmark the UK's standing support policies to build an industrial structure resilient enough to weather future energy crises.
"Energy supply crises have shown a recurring pattern, and similar shocks will continue to have a significant impact on the domestic economy," said Kwon Hyeok-min, head of the federation's growth strategy division. "We need to prepare for a gradual restructuring of our oil-dependent industrial base through medium- and long-term responses such as support for equipment conversion."
joze@heraldcorp.com
