SEOUL, 31 OCTOBER 2026 — South Korea’s steel industry is calling for further government assistance to offset the electricity costs associated with the transition to lower-emission production. Lawmakers from both major political parties are considering legislative measures aimed at maintaining the competitiveness of domestic manufacturers as investment in cleaner steelmaking technologies increases.
The proposals under discussion in the National Assembly include financial support, investment incentives and potential exemptions from electricity-related surcharges for steel producers in designated industrial areas.
The debate follows the entry into force of South Korea’s main steel competitiveness legislation in June 2026. Industry representatives argue that the existing framework does not sufficiently address power costs, which are expected to become increasingly significant as producers consider electric arc furnaces and hydrogen-based steelmaking.
Reporting published on 31 October highlights the growing tension between industrial decarbonisation targets and the cost of the electricity needed to achieve them.
Steel decarbonisation could substantially increase electricity demand
Conventional integrated steel production depends heavily on coal-based blast furnaces. Alternative technologies offer opportunities to reduce emissions but require different energy inputs and infrastructure.
Electric arc furnaces consume substantial quantities of electricity. Hydrogen-based direct reduction, meanwhile, depends on access to competitively priced low-emission hydrogen and the infrastructure required to produce or deliver it.
A Bank of Korea regional analysis, based on assumptions from the country’s long-term power-supply planning framework, estimates that additional electricity demand associated with industrial electrification could rise from 1.2 TWh in 2025 to 63.0 TWh by 2038.
The figures cover electrifying industries more broadly and do not represent a forecast of steel-sector consumption alone. They nevertheless indicate the potential scale of additional power requirements as industrial production changes.
For steel manufacturers, the cost and availability of electricity could increasingly influence whether investments in lower-emission technologies are financially viable.
Cross-party proposals target industrial electricity costs
Kim Jeong-jae of the People Power Party has proposed additional support measures for steel producers, including dedicated industry support accounts and a legal framework for investment-related tax assistance. His proposals also include streamlining certain project approval and investment procedures.
The Democratic Party’s Eo Gi-gu has put forward a separate package of steel-industry legislation. It includes potential relief from the Electric Power Industry Infrastructure Fund surcharge for qualifying industrial areas.
The surcharge accounts for approximately 2.7% of industrial electricity bills under the arrangements addressed by the proposals.
Other lawmakers have also introduced measures concerning steel-sector competitiveness and the transition to lower-emission production technologies.
None of these proposals has yet changed the applicable electricity tariffs. Their eventual impact will depend on which companies qualify, whether the measures receive government approval, how they are implemented and what public financial resources are made available.
Government questions broad electricity subsidies
The South Korean government has expressed reservations about providing widespread support for industrial electricity bills. Officials have pointed to concerns about equal treatment across industrial sectors and possible conflicts with international trade rules.
Direct financial assistance that reduces energy costs for export-oriented manufacturers may attract scrutiny if trading partners consider it to create an unfair competitive advantage.
This leaves policymakers balancing two objectives: encouraging investment in cleaner steelmaking while ensuring that electricity costs do not undermine the commercial case for new production facilities.
Government support could help accelerate investment, but the design of any assistance scheme may also create trade-policy exposure if it is viewed as an export-related advantage.
Steelmakers face pressure from imports and weaker construction demand
The debate over electricity costs is taking place against a difficult domestic market environment. South Korean steel producers are facing competition from lower-priced imports alongside subdued demand from the construction sector.
The reported value of primary metals production in the Pohang Steel Industrial Complex fell by approximately 4.0% in 2023, 7.4% in 2024 and 9.0% in 2025.
These figures reflect the deterioration in the regional industrial environment before the latest proposals for electricity-cost assistance.
The economics of major new steelmaking investments are also becoming more uncertain. Electric arc furnace projects require dependable electricity supplies, sufficient scrap or suitable iron inputs, and customers willing to purchase the resulting products at sustainable prices.
Hydrogen-based production faces additional cost and infrastructure challenges, particularly in securing affordable hydrogen supplies.
EU CBAM adds an emissions-related factor to export decisions
South Korean producers exporting covered steel products to the European Union must also account for the requirements of the EU’s Carbon Border Adjustment Mechanism (CBAM).
Producing steel with lower embedded emissions could improve a manufacturer’s competitive position against more carbon-intensive suppliers, provided that the emissions performance is documented in accordance with the applicable requirements.
A lower emissions profile does not, however, guarantee increased sales in the European market. Customs duties, import quotas, freight costs, exchange rates and customer demand remain relevant to the commercial conditions facing exporters.
The investment case for electric arc furnaces and hydrogen-based production must therefore take account of both electricity expenditure and the future conditions governing access to export markets.
Recent European steel forecasts indicate that low-emission steel imports could become more significant through 2035. However, restrictive tariff-rate quotas may constrain the volumes that foreign suppliers can place on the European market.
Relevance for Southeast European steel investment
South Korea’s experience provides a comparison for Serbia and other Southeast European markets, where steel producers face similar questions concerning industrial electricity prices and the financing of lower-emission technologies.
The transition to cleaner steelmaking cannot be assessed through carbon prices alone. Electricity procurement, grid access, capital expenditure, operating costs and the availability of suitable raw materials are also important elements of project economics.
For banks financing industrial investments, exposure to electricity-price changes may become a decisive factor in assessing project viability.
Long-term power purchase agreements (PPAs) could provide greater predictability in electricity procurement. Their effectiveness, however, depends on contractual structure, production requirements and the creditworthiness of the parties involved.
Electricity pricing becomes a strategic issue for steel policy
The South Korean proposals illustrate the difficulty of maintaining domestic manufacturing competitiveness while reducing industrial emissions. Carbon-border measures may increase the commercial importance of lower-emission steel, but the cost of producing it remains central to investment decisions.
Countries able to provide favourable electricity prices and reliable supplies may become more attractive destinations for new low-emission steelmaking capacity. Conversely, expensive electricity could weaken the economics of projects even where carbon-border policies create incentives for lower-emission products.
The National Assembly’s consideration of the proposed legislative changes is therefore relevant to steel producers, electricity suppliers and industrial investors assessing South Korea’s future manufacturing conditions.
The central policy question is how to support the substantial electricity requirements of cleaner steel production without creating subsidy arrangements that generate additional trade risks or transfer excessive costs to other parts of the economy.
