South Korea plans tax cuts to boost LNG use for power generation

Monday, 03 September 2018
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The Government of South Korea is planning to cut natural gas taxes by 74% and raise taxes on the use of thermal coal for power generation by 27% next year. The move is aimed at reducing the country's heavy reliance on coal for power generation and shift towards cleaner-burning gas, government officials.

Officials in the finance ministry just announced plans to lower taxes on LNG, including consumption and import tax, to Won23 ($0.02)/kg from Won91.4/kg currently. In contrast, taxes on thermal coal will increase again to Won46/kg from currently Won36/kg. The coal tax was raised from Won30/kg to Won36/kg in April this year.

If the new tax code gets approval from the National Assembly, it will go into effect from 1st April, 2019.

"The tax revisions on LNG and thermal coal are designed to reflect the environmental costs of using the fossil fuel for power production as part of efforts to reduce air pollution," an official from the finance ministry said, adding that the new tax rates would boost LNG's price competitiveness against coal in power production.

Coal-fired power plants account for 40% of the country's electricity supply, while LNG accounts for less than 20%. Nuclear reactors provide about 30%, with oil and renewable sources, such as hydropower, solar, wind and fuel cell, accounting for the remaining 10%.

The revised tax code is in line with President Moon Jae-In's push for energy transition from nuclear and coal to renewables and LNG. Under the long-term Basic Blueprint for Power Supply released in December last year, the use of coal in the country's power production will fall to 36.1% in 2030, from 45.3% in 2017; LNG would rise to 18.8% in 2030 from 16.9% in 2017; nuclear would decline to 23.9% from 30.3% in 2017; and the share of renewables will account for 20%, compared with 6.7% in 2017. 

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