Carbon Risks in South Korea Threaten Key AI and Chip Supply

A study by the Institute for Energy Economics and Financial Analysis (IEEFA) indicates that carbon-related risks for companies in South Korea could be set to rise.

As international carbon regulations become more stringent and the potential for Carbon Border Adjustment Mechanism (CBAM) exposure grows, the AI and semiconductor sectors may face increased cost pressures.

The IEEFA report explores how South Korea could be priced out of essential global supply chains if it does not adapt its energy and sustainability policies.

Global sustainability practices are an increasing area of focus for businesses and governments, leading to the strengthening of carbon regulations.

Markets are moving towards more comprehensive corporate disclosures, initially centred on Scope 1 and 2 greenhouse gas (GHG) emissions, with intentions to incorporate Scope 3 reporting.

The IEEFA report, Navigating supply chain carbon risks in South Korea, examines how these evolving regulations could affect the semiconductor and AI industries.

This focus on Scope 2 and 3 emissions could introduce new supply chain carbon risks for businesses reliant on South Korean partners.

The implementation of carbon taxes, emissions trading systems (ETS) and CBAM directives could lead to higher carbon costs for companies.

“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,” explains report author Michelle (Chaewon) Kim, IEEFA’s Energy Finance Specialist for South Korea.

Analysing carbon intensity in the tech sector

According to the IEEFA analysis, South Korea is particularly exposed to these risks.

The report found that Samsung Device Solutions, a leading chip maker in the country, recorded Scope 1–3 emissions of around 41 million tonnes of carbon dioxide equivalent (tCO2e) in 2024.

This results in a carbon intensity of approximately 539 tCO2e per US$1m of revenue.

For SK Hynix, another South Korean chip manufacturer, the carbon intensity was 246 tCO2e/US$1m.

These figures are higher than those of major global purchasers of their products.

Apple reports a carbon intensity of 37 tCO2e/US$1m of revenue, while Amazon Web Services (AWS) has a figure of 107 tCO2e/US$1m.

According to IEEFA, this disparity is partly because companies like Apple and AWS have strategies to minimise GHG intensity across their supply chains, including the implementation of clean energy use.

International trade accounts for about 70% of South Korea's Gross Domestic Product (GDP). The country is highly competitive in industrial areas like semiconductor clusters and AI data centres.

Therefore, rising supply chain carbon risks in these sectors could become a disruptor to the national economy.

A domestic shortage of renewable energy supplies could mean that global technology firms seeking to lower their Scope 2 and 3 emissions may look for alternatives to South Korean suppliers.

Future regulatory costs and decarbonisation

Although semiconductors are not currently part of the EU CBAM, and Scope 2 and 3 emissions are omitted, IEEFA warns that their future inclusion could create significant expenses for South Korea.

Current IEEFA estimates point to potential 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,” Michelle adds.

To mitigate these risks and maintain the tech industry's integration within global supply chains, IEEFA suggests several measures for South Korea to address. These include:

• Establishing a public-private supply chain risk management system
• Enhancing renewable energy access by accelerating grid modernisation and expansion
• Removing bottlenecks in Power Purchase Agreements (PPAs) and the Renewable Portfolio Standard (RPS) to promote renewable energy procurement
• Addressing supply chain carbon risks through government-backed funds, tax rebates and low-interest loans
• Buffering carbon pricing impacts by developing domestic ETS markets
• Strengthening international supply chain decarbonisation initiatives to meet current regulations

The IEEFA suggests these changes are necessary to secure South Korea's position in global supply chains and prevent its businesses from being impacted by high carbon pricing.