Maximising the Korea-Australia low emissions partnership

By Lara Coleman, Research Intern

Low emissions technologies have been at the forefront of global climate mitigation agendas, as countries attempt to reduce emissions while promoting economic growth. This is particularly true for Korea, which has emerged as a leader in low emissions technology manufacturing. Australia has strengths that could enhance Korea’s mission. The two countries could continue to work together to establish strong positions in global supply chains. Their combined efforts must largely focus on leveraging and enhancing cooperation among their respective business interests.

The impetus for Australia-Korea cooperation on low emissions technology has never been stronger.

The Covid-19 pandemic exacerbated the need for diversification, presenting a unique opportunity for industries to seek out new partners and invest in different phases of the supply chain.

Australia is well endowed in critical minerals essential in the production of low emissions technology such as electric vehicle (EV) batteries, an industry that Korea has a strong position in. Obstacles to growth in Australia’s critical material industry include material and infrastructural shortages, a lack of investment and under-utilised manufacturing capabilities. The next step in the value chain Australia needs to unlock, as outlined in the Western Australian Future Battery Industries Strategy, is pre-cursor cathode active materials manufacturing. China specialises in this stage of low emissions technology supply chains, making it a strong rival for Korean investment.

Korea is historically dependent on China for critical mineral supplies. China holds a near monopoly on active material production of critical materials in battery supply chains and could be willing to use this monopoly as a tool for political gain. China even went as far as blocking critical mineral exports to Japan during a diplomatic standoff in 2010. For Korea to pursue green-focused economic recovery from Covid-19, diversification of its supply chains will be necessary.

Australia faces a similar challenge with China as its number one trading partner, particularly in the midstream and downstream critical minerals industry. Australia is aware of the geoeconomic risk associated with overdependence on China. It has fallen victim to numerous coercive trade practices in recent years. Diversification efforts for secure supply chains are at the top of the agenda for many countries and groupings, including the Quad of Japan, India, Australia, and the United States.

Australia and Korea’s mutual technology-driven climate agendas and bilateral free trade agreement laid a strong foundation for the Low and Zero Emissions Technology Partnership signed in November 2021. With a $100 million funding commitment, this partnership seeks to realise the full potential for bilateral cooperation on clean hydrogen, ammonia, and steel. This partnership goes hand-in-hand with the Australia-Korea Memorandum of Understanding on Cooperation in Critical Mineral Supply Chains signed during President Moon Jae-in’s visit to Australia in December 2021.

According to Bloomberg’s Innovation Index, Korea has the highest level of national innovation globally, followed by Singapore and Switzerland. Korea is investing more in research and development (R&D) as a share of GDP than any other developed economy, which is reflected in its burgeoning battery manufacturing industry. Policy incentives such as tax cuts and importing foreign technology have seen private spending account for 80 per cent of Korea’s R&D spending.

Korean policies have promoted private sector innovation in low emissions technology industries. Key conglomerates LG, Samsung, SK Innovation, and POSCO are leading the charge in global supply chains, aided by their innovation practices. This is very attractive for Australia’s critical minerals industry, which requires high levels of international investment. 

A green approach to economic growth and recovery has been popular in Korea since the global financial crisis. It was re-established under President Moon Jae-in’s post-Covid-19 economic recovery plan. The 2021 K Battery Strategy saw batteries, semiconductors and vaccines classified as national strategic technologies, with 50 percent tax deductions for R&D investments and planned government investment of US$35 billion by 2030. The Green New Deal announced at the same time involved a US$61.9 billion investment and focused on subsidies for consumers driving and buying electric vehicles and the creation of public-private joint funds to grow green businesses.

Korea is implementing policies that utilise the private sector and battery industry for green economic recovery, allowing Korean corporations to establish supply chains with international suppliers of critical minerals. Korean ‘chaebols’ – large family-owned conglomerates – have led the charge in establishing essential relationships with Australian mining corporations.

Chaebols dominate the Korean economy, having contributed to the nation’s economic transition from manufacturing textiles to electronics, technology, and automotive industries. Government-chaebol cooperation has been essential to Korea’s economic development and will be indispensable to its green transition. In the EV battery market, LG Energy Solutions, Samsung, and SK innovation together account for a 31 percent market share, and are perfect manufacturing partners for Australia’s critical minerals.

Korea-Australia tech partnership needs to continue to integrate the private industry in decision making and enhance business-to-business cooperation. The West Australian government newly released battery and critical minerals prospectus is a good example of the type of commitment needed. It focuses on promoting the state as an ideal investment destination to international investors. The prospectus was created with industry leaders and directly facilitates business development. Korea still ranks 17th in foreign investment in Australia, and official bilateral  agreements have the capacity to enhance this.

The Korean private sector is leading the charge in establishing relationships with international corporations. LG and Hyundai have invested $1.1 billion in building a battery cell plant in Indonesia. LG has also inked deals with Australian Vulcan Energy Resources Limited to supply lithium and Australian Mines Limited to purchase nickel and cobalt. These materials were traditionally sourced from China and are fundamental to Korean economic growth. SK Innovation has established deals with AML to supply critical minerals cobalt and nickel. S&P Market Intelligence estimates South Korean corporations have invested over AUD $500M in Australian mining projects in the last two years alone. Korean technology corporations have pioneered strategic relationships with Australian mining corporations, diversifying green technology supply chains and accelerating both nations’ energy transitions.

Australia’s abundant stores of critical minerals are a key aspect in low emissions technology production and will be core in global supply chain diversification. However, this industry remains underdeveloped. Increased Korean investment could help accelerate activity. Efforts associated with the bilateral Low Emissions Technology Partnerships and MOU on critical minerals should continue to engage private sector leaders to enhance the transition to low emissions technologies.

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