Korea's climate policy at crossroads

 Korea's climate policy at crossroads

I recently visited the National Assembly to attend a panel discussion on offshore wind power and saw the climate clock installed in front of the parliamentary building. The clock warned that if humanity continues to emit greenhouse gases at the current rate, we will exceed the critical threshold for irreversible global boiling in just four years and four months.

On March 13, the Assembly reestablished the Special Committee on Climate Crisis (Climate Special Committee). This committee will monitor the government's greenhouse gas reduction and carbon neutrality policies and propose institutional improvements. Comprising 20 members, the committee will function until May next year.

In fact, following last year’s April general election, 10 newly elected legislators from various parties held a press conference urging the Climate Special Committee’s permanent establishment. These legislators called for granting the committee substantial legislative and budgetary authority to prevent it from becoming another symbolic entity like its predecessor in the 21st National Assembly.

While the reestablished Climate Special Committee now has the authority to deliberate on key legislation, such as the Carbon Neutrality and Green Growth Act and the Emissions Trading Act, its one-year operational period falls short of expectations. Initially, there was a push to transfer budgetary oversight from the Strategy and Finance Committee to the Climate Special Committee, but resistance led to a compromise: the committee can suggest modifications but cannot directly alter funding allocations.

Moving forward, the committee must deliver substantive outcomes to justify its continuation as a permanent body. Its role in shaping climate legislation, monitoring implementation and ensuring robust oversight will be critical.

Meanwhile, on March 19, the Bank of Korea made a significant announcement. In collaboration with the Financial Supervisory Service, the Korea Meteorological Administration and major financial institutions, it developed climate risk scenarios to assess the impact of climate change on the real economy and financial stability.

The study, involving 14 domestic financial institutions, evaluated four scenarios: a 1.5 degrees Celsius aligned path, a 2 degrees path, a delayed action path and an inaction path.

The findings revealed that GDP losses are minimized in the 1.5-degree scenario, while financial risks are highest in the inaction scenario. If climate policies are delayed, financial sector losses could reach 40 trillion won ($27.3 billion), compared to 27 trillion won in proactive policy scenarios. Without action, losses could skyrocket to 45.7 trillion won due to escalating physical risks such as extreme temperatures and increased precipitation damage.

To mitigate these risks, financial institutions must enhance climate risk management, prepare for unexpected losses and increase investment in green projects. Encouraging banks and insurers to finance low-carbon transitions in the energy and manufacturing sectors can help reduce financial instability.

The recently established Korea’s 11th Basic Plan for Electricity Supply and Demand aims to expand renewable power capacity. In the case of offshore wind power capacity, it is planned to be increased from 225 megawatts to 14.3 gigawatts by 2030. However, the total capacity of offshore wind projects selected through the government’s tender over the past three years amounts to only 3.4 gigawatts. Among these projects, the Ulsan Firefly Floating Offshore Wind Project, scheduled for completion in December 2030, faces uncertainties as Korea's first floating wind initiative. Moreover, many fixed-bottom wind projects are also experiencing delays, making the 2030 target increasingly challenging.

Although Korea recently passed a Special Offshore Wind Act, which may help achieve ambitious targets beyond 2035, it is unlikely to have a substantial impact on the 2030 goal. To compensate for an estimated 10GW shortfall, onshore wind and solar PV power must play a greater role. As the Bank of Korea’s analysis indicates, investing in renewable energy now is an economically sound choice that will reduce long-term financial risks.

Expanding offshore wind capacity to 14.3 gigawatts will require approximately 100 trillion won in investment, primarily from private and foreign investors. Korean financial institutions, including public funds, should actively support renewable energy projects. Climate response funds, the Power Industry Infrastructure Fund and the National Pension Fund must channel more capital into energy transition initiatives. Doing so is not only essential for minimizing future climate-related damages but also crucial for maintaining Korea’s industrial competitiveness.

Korea’s climate policies are at a crossroads. While steps are being taken to strengthen climate governance, accelerate renewable energy deployment and integrate climate risks into financial decision-making, significant challenges remain. The actions taken today will determine the nation’s resilience against climate change and its economic trajectory in the years to come.