South Korea’s semiconductor industry faces urgent carbon risks amid escalating global regulations

South Korea faces mounting challenges linked to supply chain carbon risks that could profoundly impact its economic viability and the competitiveness of its critical tech industries, notably the semiconductor sector. A recent Institute for Energy Economics and Financial Analysis (IEEFA) report has underscored that expanding global carbon regulations and stricter greenhouse gas (GHG) emissions reporting, particularly the inclusion of indirect emissions known as Scope 2 and Scope 3, might significantly heighten these risks, prompting considerable concern among industrial decarbonisation professionals.

Scope 1 emissions refer to direct emissions from production processes under a company’s control, while Scope 2 covers emissions from purchased energy, and Scope 3 encompasses the embedded carbon across entire supply chains required to manufacture finished goods. According to Michelle (Chaewon) Kim, IEEFA’s Energy Finance Specialist for South Korea and author of the report, the incorporation of indirect emissions could expose companies to intensified risks including investment aversion, elevated carbon cost liabilities, counterparty risks, and reputational damage.

IEEFA’s analysis highlights that Samsung Device Solutions (DS), South Korea’s leading chip manufacturer, reported cumulative Scope 1 to 3 emissions reaching approximately 41 million metric tonnes of CO2 equivalent in 2024, the highest among seven major global tech companies. This results in a carbon intensity of 539 metric tonnes of CO2 equivalent per million USD of revenue, starkly higher than global tech giants such as Apple (37 tCO2e/USD million), Google (67 tCO2e/USD million), and Amazon Web Services (107 tCO2e/USD million). Another South Korean chipmaker, SK Hynix, had a carbon intensity near 246 tCO2e/USD million. These figures indicate that South Korean firms lag behind in clean energy utilisation and supply chain decarbonisation strategies aggressively pursued by international counterparts.

South Korea’s economy is particularly vulnerable due to its heavy reliance on international trade, which constitutes around 70 percent of its GDP. Escalating supply chain carbon risks could undercut export competitiveness, particularly in view of burgeoning carbon regulations such as carbon taxes, emission trading systems (ETS), and the European Union’s Carbon Border Adjustment Mechanism (CBAM). Though currently semiconductors are exempt from the EU CBAM and indirect emissions are not included, their anticipated future inclusion could result in significant expense and competitive disadvantage for South Korean tech exporters. IEEFA estimates potential CBAM-related costs for South Korean chip exporters could reach some $588 million between 2026 and 2034, with annual costs hitting $162 million under a high ETS scenario by 2034, nearly 10 percent of chip exports to the EU.

This financial pressure may incentivise European importers to switch to lower-carbon suppliers, further threatening South Korean firms. Additionally, investors are increasingly excluding carbon-intensive companies from portfolios, which raises capital costs and reduces valuations for emitters with high GHG footprints.

The analysis also illustrates how domestic policies could intensify these risks. Under South Korea’s ETS, if Scope 2 and 3 emissions are eventually included, Samsung DS’s carbon costs could spike from $26 million to as much as $264 million should free allowances be phased out. Moreover, reliance on fossil fuels such as LNG in semiconductor clusters and AI data centres could augment carbon costs and counterparty risks if these sectors fall within future CBAM scopes.

In response, IEEFA highlights emerging industry trends globally, where leading tech companies like Apple and Taiwan Semiconductor Manufacturing Company are adopting low-carbon supply chain initiatives, including supplier clean energy programmes and collective renewable procurement, to curb indirect emissions.

For South Korea, the report outlines a comprehensive roadmap to mitigate these supply chain carbon risks and reinforce the competitiveness of its tech industry. Key recommendations include establishing a public-private carbon risk management framework, expanding renewable energy access, and streamlining Power Purchase Agreements alongside reforming the Renewable Portfolio Standard. The government should also bolster financial instruments, such as tax incentives, low-interest loans, and dedicated funds, to support decarbonisation efforts, develop a robust domestic ETS market, and intensify international cooperation on decarbonisation.

Complementary to these recommendations, South Korea has initiated steps to confront carbon border challenges. Reports indicate the government is setting up a dedicated body to navigate the EU’s CBAM and related international environmental policies, aimed at supporting domestic manufacturers in adapting to tightening global regulations. This proactive approach is mirrored in other industry sectors, such as steel, where compliance costs run into trillions of won, sparking calls for enhanced low-carbon process development and active government engagement in emission standardisation at the international level.

Additionally, accelerating renewable energy deployment emerges as a crucial priority not only for reducing direct and indirect emissions in semiconductors but also to sustain the expanding demands of AI and data infrastructure. South Korea’s current lag in renewable adoption is flagged as a critical exposure, risking trade and financial penalties as global decarbonisation imperatives intensify.

In sum, South Korea’s industrial sector, particularly its semiconductor companies, stands at a critical juncture. Without swift, coordinated action to reduce the carbon intensity embedded in supply chains and align with evolving international carbon standards, the nation risks losing its foothold in vital global markets. A strategic pivot towards renewable energy, robust carbon management systems, and financial backing for decarbonisation will be essential to safeguard economic resilience and future growth in an increasingly climate-conscious global economy.