South Korea Urged to Accelerate Renewables to Mitigate Rising Supply Chain Carbon Risks, IEEFA Warns

South Korea must rapidly increase renewable energy deployment and strengthen its carbon management strategies to safeguard its export-driven economy from escalating global carbon regulations, according to a new report released by the Institute for Energy Economics and Financial Analysis (IEEFA).

The study highlights that expanding global carbon rules—including the EU’s Carbon Border Adjustment Mechanism (CBAM)—along with stricter disclosure requirements for indirect emissions (Scope 2 and 3), could significantly heighten supply chain carbon risks for major South Korean industries, particularly semiconductors and Artificial Intelligence (AI) technologies.

Indirect Emissions Pose Growing Threat

IEEFA Energy Finance Specialist for South Korea, Michelle (Chaewon) Kim, notes that the inclusion of Scope 2 and 3 emissions in global reporting frameworks could expose South Korean firms to higher carbon costs, investment aversion, counterparty risks, and reputational vulnerabilities.

Scope 1 refers to direct emissions from a company’s operations. Scope 2 covers emissions from purchased energy, while Scope 3 includes the embedded carbon generated across the entire supply chain.

South Korean Chipmakers Lag Behind Global Peers in Carbon Intensity

According to the report, Samsung Device Solutions (DS) registered about 41 million tonnes of CO₂ equivalent (MtCO₂e) in Scope 1–3 emissions in 2024, the highest among seven major global technology companies. Its carbon intensity stands at 539 tCO₂e per USD million in revenue, significantly higher than international tech leaders such as Apple (37 tCO₂e/USD million), Google (67), and Amazon Web Services (107).

Another domestic manufacturer, SK Hynix, recorded a carbon intensity of 246 tCO₂e/USD million, also above global competitors that are increasingly shifting toward clean energy procurement to reduce supply chain emissions.

CBAM Could Impact Semiconductor Exports

With international trade accounting for roughly 70% of South Korea’s GDP, rising supply chain carbon risks could erode export competitiveness.

Although semiconductors are currently excluded from the EU’s CBAM, IEEFA warns that future inclusion—especially of Scope 2 and 3 emissions—could impose substantial costs. The report estimates that South Korean chip exporters may face USD 588 million (KRW 847 billion) in CBAM certificate expenses between 2026 and 2034 if regulations expand.

Under a high EU ETS price scenario, IEEFA projects that CBAM compliance could cost USD 162 million (KRW 233 billion) in 2034 alone, representing nearly 10% of South Korea’s chip exports to the EU.

Kim cautions that such cost increases could prompt European buyers to shift to lower-carbon semiconductor suppliers.

Financing and Counterparty Risks Rise for High-Carbon Firms

The report underscores that global investors are increasingly avoiding carbon-intensive companies, potentially raising financing costs for South Korean manufacturers.

IEEFA estimates that if Scope 2 and 3 emissions are added to South Korea’s Emissions Trading Scheme (ETS), Samsung DS could incur USD 26 million in carbon costs under the current 10% paid allocation. That figure could rise tenfold to USD 264 million if free allowances are eliminated.

LNG-powered semiconductor clusters and fossil-fuel-dependent AI data centers may face even higher cost burdens if LNG emissions are later brought under CBAM.

“Downstream customers and upstream suppliers may hesitate to work with high-carbon companies as it would impact their supply chain carbon accounting,” Kim notes.

Risk of Supply Chain Exclusion and Corporate Relocation

IEEFA warns that high-emission companies could be cut out of global value chains as major tech buyers tighten their Scope 3 reduction goals.

Multinationals such as Apple and Taiwan Semiconductor Manufacturing Company (TSMC) have launched supplier clean energy programs that prioritize low-carbon producers. Nations slow to expand clean energy access could also face “exodus risk,” with energy-intensive industries relocating to countries offering greener power.

Recommendations for Strengthening South Korea’s Competitiveness

The report calls for a series of urgent reforms to reduce carbon risk exposure and maintain South Korea’s competitiveness:

• Establish a public–private supply chain carbon risk management system
• Expand access to renewable energy and remove regulatory barriers in PPAs and the Renewable Portfolio Standard (RPS)
• Provide government-backed financial incentives, including tax rebates and low-interest loans
• Strengthen the domestic ETS market
• Enhance participation in international decarbonization initiatives

IEEFA concludes that accelerating renewable energy deployment and improving carbon transparency are essential for South Korea to remain competitive in a global economy increasingly shaped by carbon accountability.