In the previous article, we highlighted that while Korea's climate technology innovation performance ranks among the global top tier, it is concentrated in few companies and technologies, with significant qualitative limitations in innovation outcomes.
This is attributed to: ① prioritization of short-term results over long-term necessities, ② lack of institutional incentives to promote long-term innovation, and ③ insufficient financing for innovation
[Cause 1] Short-Term Results Prioritized Over Long-Term Necessities
Korea's climate tech innovations are primarily concentrated in areas expected to yield short-term results—secondary batteries, electric vehicles, and renewable energy—which have already entered commercialization stages and show steady market growth, enabling quick investment returns. These technology areas accounted for 65% of corporate climate tech R&D expenditures in 2022, while CCUS, a core promising technology, represented only 1%. Additionally, insufficient long-term investment in basic research—the foundation for new technology development—has resulted in lower qualitative performance, with fewer patent citations compared to the top 10 leading countries.
[Cause 2] Institutional Incentives Insufficient for Long-Term Climate Tech Innovation
Government R&D subsidies and carbon pricing policies have not been sufficiently incentivizing long-term, high-impact climate technology innovation. The share of low-carbon energy technology in government R&D investment decreased from 3.8% in 2011 to 2.9% in 2021, ranking lowest among the top 10 leading countries excluding China. Moreover, in 2023, the effective marginal carbon price (carbon taxes, carbon permit prices, and energy consumption taxes such as fuel taxes) was €26.0/tCO2, only 40% of the top 10 leading countries' average (€64.7/tCO2). While Korea implemented an emissions trading scheme in 2015 without introducing a carbon tax, carbon permit prices accounted for only 24.9% of the effective carbon price as of 2023. Furthermore, most carbon permits are allocated free of charge, meaning companies bear minimal actual costs for carbon emissions.
[Cause 3] Financing Inadequate for Startup and SME Climate Tech Innovation
Korea's green bond issuance began growing in earnest only after 2021 and at just 0.30% of GDP during 2016-23—significantly lower than the top 10 leading countries' average (0.57%). Additionally, venture capital investment in climate tech represented 0.003% of GDP during the same period, the second-lowest level among the top 10 leading countries after Japan (average 0.019%).
Innovation Policy Directions: Advancing as a First Mover in Climate Technology
➊ Strengthening Government R&D Support: Promote induced innovation to shift R&D toward climate technology by ensuring companies receive sufficient compensation for their technology development achievements. Support should be expanded particularly for areas with high development needs, such as carbon reduction technologies for carbon-intensive industries and Carbon Capture, Utilization, and Storage (CCUS).
➋ Enhancing Carbon Pricing Effectiveness: Redirect distorted innovation from carbon-emitting technologies to carbon-reducing technologies by making polluting companies bear the costs of climate damage. The tax revenue secured through carbon pricing systems should be designed to be recycled as R&D funding for low-carbon technology innovation. Enhancing carbon pricing system effectiveness will help mitigate potential tax revenue outflows due to foreign trade regulations such as the EU's Carbon Border Adjustment Mechanism (CBAM).
➌ Strengthen the Innovation Funding Ecosystem: Develop a more robust innovation funding ecosystem to help companies effectively cross the valley of death, where they cannot generate profits before technology commercialization. To achieve this, measures to activate venture capital investment should be actively pursued, including expanding secondary markets (M&A, IPO, etc.), strengthening the role of government venture capital, and providing public patient capital that avoids short-term return pressures.
These policy measures are complementary and work effectively when implemented together. For example, revenues from carbon pricing systems can help fund government R&D support, while R&D programs can reduce corporate resistance to carbon pricing, creating a mutually reinforcing cycle.
Korea's Potential: Leaping Forward as a First Mover
Analysis of OECD members shows that Korea could become a "first mover" in climate technology by effectively implementing these three policies: strengthening government R&D support, enhancing carbon pricing effectiveness, and activating venture capital investment. Citation-weighted patent counts in climate tech, which reflect both quantity and quality of innovation, show Korea ranking 7th globally with a significant gap compared to top-performing countries like the United States and Switzerland. However, Korea has considerable room for improvement. A 10% increase in the share of government R&D expenditure on low-carbon energy technologies, effective carbon prices, or climate tech venture capital investment would result in an 8%, 14%, and 11% increase in citation-weighted patents, respectively. Based on these results, if all three policies were expanded by 40%, Korea's climate technology innovation performance could reach the levels of top performers such as the United States or Switzerland.