South Korea’s Glide to a Green Economy

The rickety, ramshackle ways of the high-carbon economy are about to be replaced by the green economy, and South Korea, among other Asian nations, will be treading in success.

Call it the green gold rush. Even among business leaders who are skeptical about climate change, there’s a realization that there will be government action to push economies toward lower carbon intensity. At the regional forefront is South Korea, which has managed to dart past political lethargy and move forward with government policies that could serve as inspiration for others.

U.S. Commerce Secretary Gary Locke’s visit to China highlights one of the most important business themes of the next decade or more – the green economy. Locke, of course, is looking for ways that U.S. companies can tap the China market. But the issue goes much deeper. At stake is who will profit from clean tech, one of the key drivers of global growth in the years ahead.

In China, the government has set a 20 percent target reduction on energy intensity in the current five-year plan. By 2020, China hopes to derive 15 percent of its power from renewable energy sources such as wind, solar, hydropower and nuclear.

Worldwide, developed countries will likely need to cut their greenhouse gas emissions by 80 percent by the year 2050. Of course, this is so far away that today’s politicians won’t be around, so the exact number could be quite different. Whatever the cuts, the target hints at a staggering scale of change.

The high-carbon coal-and-oil-fuelled model that has powered the world’s industrialization for the past 200 years will give way to something else.

For a glimpse into what this world might look like for Asia, take a look at South Korea. Other places – notably Japan, Singapore and Taiwan – have also been moving towards green policies, but none with the speed of Korea. There may be lessons for China in the Korean experience, especially the way in which the government can nudge large business groups to invest in cutting-edge R&D.

In August 2008, South Korean President Lee Myung-bak proclaimed his vision of a green new deal. That was followed by a Presidential Commission on Green Growth, set up in 2009, which sketched a five-year plan for green growth.

In December 2009, the National Assembly passed the Low Carbon and Green Growth Act. This outlined a framework for green growth. Part of this was good politics – during the depths of the recent recession, Korea put a greater percentage of its stimulus money into green projects than any other country.

In November 2009, South Korea promised a 30 percent cut from business-as-usual levels of greenhouse gas emissions by 2020, the toughest of the scenarios that planners were considering. That translates into a cut of 4 percent from actual 2005 levels. For a manufacturing-oriented country like Korea, with significant petrochemical, steel and auto-making industry, this is a serious commitment.

South Korea wasn’t required to do this under the terms of the Kyoto Protocol on climate emissions. The government acted unilaterally because it sees the move toward a low-carbon economy as being in its national interest – and in the interests of economic growth.

South Korea’s chaebol, the big business groups that power the economy, are investing hundreds of millions of dollars in new technologies. Cutting-edge research is underway on solar power, smart power grids, lithium batteries, low-carbon plastics and other areas.

I recently had the chance to visit the SK Energy Research lab in Daejeon, 170 kilometers south of Seoul, but just 51 minutes by bullet train from the capital. Daejeon was, like Shanghai today, the host to the World Expo in 1993. The Expo was part of a push to move many of the country’s high-tech research activities to the city.

What brought me to Daejeon was to see some of the work being done on green technology at the SK Energy Institute of Technology. The institute, which was set up in 1995, is set in a beautiful campus that is more reminiscent of a lush university campus in California than an old-fashioned R&D institute. Despite the relaxed green setting, there is very serious work being funded with US$ 250 million in annual spending and overseen by Dr. Dong S. Kim, a 20-year veteran of Shell before returning to Korea recently to run the lab.

What especially interested me was a collection of shiny metal-clad pipes in one of the many low buildings that look like sheds located a few hundred meters away from the main research facility. This tiny room-sized facility looked like a cross between a university chemistry lab and a miniature petrochemical refinery. In reality, the new US$ 6 million pilot project is home to an experiment that sounds crazy – to use carbon dioxide emissions to make plastic.

The experiment is working. I held the soft, small amber bead-like pieces of plastic in my hand. About 43 percent of the feedstock that was used to produce the pieces came from carbon dioxide.

There are a lot of obstacles between this experimental facility and full commercial production. But this is like turning lead into gold. If it could be done on a large commercial scale, it would keep massive amounts of carbon dioxide from escaping into the atmosphere while avoiding the need for expensive and technically challenging solutions like carbon capture and sequestration (CCS). It also, according to SK, has a potential annual market of US$ 25 billion.

It’s too early to say if this will be the sort of business that SK hopes. But this is just one of many ambitious experiments that SK and its competitors are running.

The move to a low-carbon economy is going to catapult a new set of winners into economic frontrunners. China, Korea and Japan are among those countries best-poised to capitalize on this revolution. They have the manufacturing, engineering and research base to take advantage of the new green economy. All have supportive government policies. All have ample public and private money. All of them are sizable economies which give manufacturers a good base of potential consumers.

None of these countries have the free-wheeling entrepreneurial environment of Silicon Valley, which allocates cash quickly and generously to start-ups. But we are entering a new world. It will be a world of new technologies and newly-dominant companies. This is a world in which Korea, Japan and China are particularly well-positioned to prosper.

Originally published in Caixin. Can be accessed at english.caixin.com/2010-05-21/100145942.html