Insights

Looking at the Amendment to the Framework Act on Carbon Neutrality and Green Growth

ㅣ Karl Yang, Founder & Executive Director of KoSIF ㅣ

The National Assembly recently passed an amendment to the ‘Framework Act on Carbon Neutrality and Green Growth’ through a bipartisan agreement. First of all, enshrining the National Greenhouse Gas Reduction Targets (NDCs) for 2035 (53–61%), 2040 (69–80%), and 2045 (84–90%) into law and establishing support measures for industry reduction implementation represent meaningful progress. It is also an important first step by the legislature to fill the legislative void following last year's Constitutional Court ruling, which declared an unconstitutional lack of reduction pathways after 2031.

 

The Ultimate Challenge of Carbon Neutrality Is Transition Planning, Not Setting Reduction Targets

However, it remains doubtful whether codifying reduction targets into law alone can achieve actual carbon neutrality. Carbon neutrality is not a matter of declaring a target, but an execution issue of transition. In particular, the political compromise of presenting national reduction targets as a ‘range’ rather than a single figure and aligning regulatory standards with the lower bound paradoxically demonstrates that we have yet to establish concrete implementation standards for how to reduce emissions. Without concrete implementation standards, transition simply cannot occur.

 

Until now, Korea's climate policy has focused excessively on the numerical target of how much to reduce. However, the real success of policy hinges on how to reduce. The success of carbon neutrality is determined by when and with what financial resources the steel industry will commit capital investments to commercialize hydrogen-based steelmaking; in what sequence the power generation industry will phase out coal-fired power plants; at what pace financial institutions will reallocate exposure to high-carbon industries; and how the automotive industry will restructure internal combustion engine supply chains into low-carbon systems. The sum of all these strategies and capital executions is precisely the ‘Transition Plan.’

 

The international community has already shifted its focus from reduction targets to transition plans across policy and market domains. The International Sustainability Standards Board (ISSB) requires companies to disclose everything from the climate scenarios used and their overall strategies to the specific capital expenditure (CapEx) plans backing them. The European Union’s Corporate Sustainability Reporting Directive (CSRD) and the UK’s Transition Plan Taskforce (TPT) guidelines have likewise institutionalized requirements for companies and financial institutions to present actionable transition plans. Global supply chains and overseas pension funds are categorizing companies without credible transition plans as risky assets, raising their cost of capital.

 

In contrast, Korea’s policies and markets remain trapped in a target-setting mindset. While this amendment succeeded in listing target numbers, it failed to provide clear criteria for what constitutes a credible transition plan. Corporations have a rough idea of how much they must reduce, but do not know what investment risks to take to achieve that transition. Financial institutions face major confusion as well, lacking clear criteria for executing transition finance.

 

The Success of ‘Transition Finance’ Hinges on Credible National Guidelines

Transition finance is not merely about lending money to companies that are already green. Its core purpose is to supply substantial capital to high-carbon companies that currently have high emissions but possess credible plans to transform into low-carbon economies.

 

The problem is that the Korean market lacks a national standard for determining what constitutes a ‘credible transition plan.’ In the absence of standards, financial institutions and rating agencies apply different criteria, increasing market confusion and greenwashing risks while severely diminishing the efficiency of capital allocation.

Korea's climate policy must now immediately move toward ‘Carbon Neutrality Act 2.0’—the codification of transition plans.

 

1. First, Mandatory Disclosure of Corporate Transition Plans and Strengthening Board Responsibility: Establish a framework where companies and financial institutions above a certain size must adopt board-approved transition plans, disclose them, align them with CapEx plans, and undergo periodic performance verifications.
2. Second, Provision of Industry-Specific Carbon Budgets and Transition Pathways: The government must provide carbon budgets and concrete technology roadmaps for major high-emitting sectors, including steel, petrochemicals, cement, power generation, semiconductors, and shipping. Only with clear national transition pathways can companies commit to long-term investments and financial institutions set capital allocation standards.
3. Third, Policy Inclusion of 'Just Transition': A social safety net that mitigates the impact of restructuring on internal combustion engine suppliers and coal power communities while supporting worker reskilling must be included as a core element of the national transition plan.

 

Carbon neutrality is not achieved by grand declarations alone. Bold investments must be executed, and investments require credible plans. Moving beyond the era of targets into the ‘era of credible transition plans is the most realistic and powerful way to protect the international competitiveness of Korean industries while achieving carbon neutrality. The government and the National Assembly must present supplementary measures as soon as possible.