IEEFA: South Korea Faces Mounting Supply Chain Carbon Risks

In a recent study by the Institute for Energy Economics and Financial Analysis (IEEFA), experts found that supply chain carbon risks for South Korean companies could significantly increase. 

As global carbon regulations grow and the risk of Carbon Border Adjustment Mechanism (CBAM) exposure rises, semiconductor and AI sectors could be vulnerable to cost increases.

The IEEFA explores how South Korea could be priced out of global supply chains unless it makes changes to its sustainability measures.

Supply chain risks

As sustainability practices become a larger focus for businesses and governments around the world, global carbon regulations are strengthening constantly. Markets are increasing their requirements of company disclosures, focusing on Scope 1 and 2 greenhouse gas (GHG) emissions, with a plan to add Scope 3 reporting. 

The IEEFA has conducted a recent report, Navigating supply chain carbon risks in South Korea, which examines how these growing regulations could impact the semiconductor and AI industries, particularly in South Korea. As markets crackdown more on Scope 2 and 3 reporting, this could introduce businesses to supply chain carbon risks.

As more regulations get implemented, such as carbon taxes, emissions trading systems (ETS) compliance and Carbon Border Adjustment Mechanism (CBAM) directives, carbon costs for companies could increase.

“The inclusion of indirect GHG emissions, such as Scope 2 and 3, could substantially increase supply chain carbon risks, including investment aversion, higher carbon cost exposure, and counterparty and reputational risks,” says report author Michelle (Chaewon) Kim, IEEFA’s Energy Finance Specialist, South Korea.

Increasing costs for South Korea

South Korea, in particular, is at risk, according to the study by IEEFA. 

In its analysis, the IEEFA found that Samsung Device Solutions, South Korea's leading chip maker, recorded Scope 1–3 emissions of approximately 41 million tonnes of carbon dioxide equivalent (tCO2e) in 2024. This creates a carbon intensity of approximately 539 tCO2e per USD million of revenue. Another South Korean chip manufacturer, SK Hynix, had a carbon intensity of 246 tCO2e/USD million. 

This is significantly higher than the global companies purchasing the chips, such as Apple with a carbon intensity of 37 tCO2e/USD million of revenue and Amazon Web Services (AWS) with 107 tCO2e/USD million. According to IEEFA, this is because companies such as Apple and AWS have global strategies to minimise GHG intensity across supply chains and have implemented clean energy use throughout their operations.

International trade is a key contributor to South Korea's economy, accounting for approximately 70% of its Gross Domestic Product (GDP). South Korea is very competitive in industrial sectors, such as semiconductor clusters and Artificial Intelligence (AI) data centres, which means that increasing supply chain carbon risks in these industries could be a major disruptor to South Korea's economy. 

South Korea has a significant lack of domestic renewable energy supplies, meaning that any global tech companies looking to reduce their Scope 2 and 3 emissions could turn away from South Korean companies, according to IEEFA. If South Korean companies cannot switch to renewable energy usage, they will be unable to reduce their emissions, making them a more risky partner to invest in.

Semiconductors are currently not included in the EU CBAM, with omissions of Scope 2 and 3, IEEFA warns that their inclusion in the future could cause expenses for South Korea. The current IEEFA estimate points to an approximate CBAM certificate expenses of US$588m for South Korean chip importers between 2026 and 2034.

“The sharp increase in CBAM costs may prompt European importers to switch their chip suppliers from high-emission South Korean producers to low-carbon suppliers,” adds Michelle.

Recommended transformations

Companies which produce high emissions levels may be phased out of global supply chains, putting South Korea at risk. IEEFA points to several measures that South Korea should address in order to reduce its emissions and ensure its tech industry remains integrated within global supply chains.

• Establish a public-private supply chain risk management system which can integrate with national-level trade and company-level financial strategies
• Enhance renewable energy access by accelerating modernisation and grid expansion
• Remove bottlenecks in Power Purchase Agreements (PPAs) and the Renewable Portfolio Standard (RPS) as a means to promote renewable energy procurement
• Address supply chain carbon risks through government-backed funds, tax rebates and low-interest loans
• Buffer carbon pricing impacts by developing domestic ETS markets
• Strengthen international supply chain decarbonisation initiatives in order to meet present regulations

IEEFA suggests these changes need to be implemented in order to keep South Korea in global supply chains and prevent the country and its businesses from being hit by high carbon pricing.