Abstract
Korea, being one of the leading producers of automobiles, has been shifting its attention to eco-friendly new energy vehicles (NEVs) facing the threat of global warming. Since the 1990s, Korea has tried to promote the electric vehicles industry by providing various subsidies and infrastructure. The Korean government’s active NEV promotion policy has stimulated the expansion of production scale and commercialisation of NEVs. Korea’s domestic automobile producers could develop technologies needed in producing fuel cell electric vehicles (FCEVs) ahead of the other large producers of automobiles. The Korean government announced the roadmap to promote FCEVs facing the hydrogen economy. The policy measures implemented by the government may contribute to the Korean producers to be able to gain from the first-mover’s advantage. Korea’s active NEV promotion policy provides policy implications to the other countries in overcoming the global warming phenomenon.
Introduction
Reflecting overall growth of the world economy, demand for automobiles increased for the past decades. Production of automobiles increased from fifty-six million cars in 1998 to ninety-six million cars in 2018 (International Organisation of Motor Vehicle Manufacturers [OICA], 2018). Due to the nature of the technology-intensive industry generating a number of good job opportunities and contribution to gross domestic product (GDP), the automobile industry has attracted policymakers’ attention in many countries. The global automobile production had been dominated by several developed countries, while new entrants such as China and Korea became the large producers as well.
The economic growth of the world including the widespread use of automobiles has led to worsening of the global warming phenomenon. Various countries have tried to cope with global warming, which led to the multilateral environmental agreements aiming for a global reduction in carbon dioxide emission. In this context, the governments of the large producers of automobiles have emphasised the use of eco-friendly vehicles that emit less carbon dioxide (Korea Environment Corporation [KECO], 2019).
Due to such global efforts of producing eco-friendly vehicles, worldwide stock of electric vehicle (EV) and plug-in hybrid electric vehicle (PHEV) has grown significantly from 1,890 cars in 2005 to 182,820 cars in 2012 and then to 5.1 million cars in 2018 (International Energy Agency [IEA], 2019; OICA, 2018). Moreover, the market share of PHEV and EV in major countries increased rapidly for the past decade. For instance, that in China, France, the United States and Korea reached 4.5%, 4.7%, 2.5% and 2.2%, respectively, in 2018. This data indicates the increasing importance of new energy vehicle (NEV) industry throughout the world (IEA, 2019).
Along with the growing concern for global warming, Korea is suffering from a high level of greenhouse gas emission and fine particulate matter. To alleviate such environmental issues, Korea aims to reduce greenhouse gas emission (Hwang, 2015; Organisation of Economic Co-operation and Development (OECD), 2017, pp. 14–15). One of Korea’s green growth promotion measures is the development of eco-friendly vehicles, that is, NEVs (Ministry of Environment [MOE], 2014). The share of PHEV and EV in Korea’s automobile market rose rapidly from 0.1% in 2014 to 2.2% in 2018 (IEA, 2019). The current study aims to overview the development of Korea’s NEV industry, examines the government’s policies promoting the industry and draws implications from the case of Korea regarding the promotion of NEVs. The structure of this study is as follows: The second section overviews the development of Korea’s automobile industry. The third and fourth sections explain the Korean government’s policy to promote the NEV industry and the efforts of the automobile companies to develop NEVs. The fifth section derives policy implications from the experience of Korea’s promotion of NEV industry. Conclusions are provided in the sixth section.
Development of Korea’s Automobile Industry
For a country to develop its automobile industry, it needs to have an appropriate size of the domestic market that can create economies of scale, technology and infrastructure. In 1962, the Korean government initiated the First Five-Year Economic Development Plan, and under the plan, Automobile Industry Protection Law was enacted. The Law provided protection measures to the automobile industry, which comprised prohibition of import of cars, exemption of tax to the producers and abolition of import tariffs subjected to the auto parts (Green, 1992, pp. 413–414).
During the 1960s the automobile companies in Korea relied on the knock-down (KD) method to produce automobiles when assembling the automobile components. Tens of engineers were trained in a Japanese automobile company. The automobile companies produced automobiles in the late 1960s and 1970s by introducing foreign technologies or assembling components (Cho, 1997, pp. 18–24, 37). Thus, they imitated foreign technologies. The Korean government realised that there are limitations to the KD method of automobile production in the further development of Korea’s automobile industry (Ministry of Strategy and Finance [MOSF] & Korea Institute for Industrial Economics and Trade [KIET], 2014, p. 20). Targeting development of more value-added industries, the Korean government established and implemented the Heavy and Chemical Industries (HCI) Promotion Plan in 1973–1974 (Mah, 2007). As a part of the HCI Promotion Plan, it had established the Automobile Industry Long-term Promotion Plan in 1974 (Green, 1992, 414). The core goal of the plan was mass production of fully Korea-made vehicles and the government set the target of producing more than 50,000 cars each year (Cho, 1997, p. 43; Oh, 1996).
The Korean government increased the local content requirement from 20% in the mid-1960s to over 90% by the end of the 1970s and encouraged the development of automobile components industry and of Korea’s independent automobile production technology (Green, 1992: 414). Furthermore, it raised the import tariff rate from 150% to 250% in 1974. Such a reform encouraged the production of own brand automobile model (KAMA, 2005, pp. 202–203). In 1975, Hyundai motor company began to produce its own brand model Pony and succeeded in exporting this model to the global market (MOSF & KIET, 2014, pp. 31–32). In the early to mid-1970s Korea had neither technology nor matured market to produce its own brand automobile model. Moreover, many foreign automobile companies hesitated to work collaboratively with Korean automobile companies, since the foreigners evaluated domestic companies as not having the technology to produce Korea’s own brand models. As a result, Korea had no choice but to develop domestic car models by itself. Even in such an unfavourable situation, Korea managed to develop Pony (Cho, 1997, pp. 1–3, 46–50).
In the late 1980s and 1990s, the government focused on mass production and commercialisation of automobiles (MOSF & KIET, 2014, pp. 35–38). Import tariff rate of automobiles was reduced to 25% for passenger cars and trucks in the late 1980s. It fell further to 8% in 1998 (Lee & Mah, 2017, p. 235). In 1975, Korea merely produced 37,000 automobiles, but production increased to 378,000 cars in 1985 and then to over 2.5 million cars in 1995. Thus, Korea became the fifth largest automobile producer (Cho, 1997, p. 7).
Domestic production of automobiles peaked in 2011, producing 4.7 million cars. Since then, mainly due to the increase of production abroad, it decreased somewhat to four million cars in 2019. Table 1 shows the trend of production and exports of automobiles of Korea. Exports were recorded as 2.4 million cars in 2019, explaining 60% of domestic production. Export values amounted to US$43.1 billion in the same year. The Korean economy recorded huge amount of surpluses in automobiles trade. Automobile industry accounted for 12.0% of value added and 11.8% of employment in the manufacturing sector in 2018 (KAMA, 2019; Statistics Korea, 2020). Domestic production of Korea’s automobiles shared 4.2% of the world as a whole in 2018 (OICA, 2018; Statistics Korea, 2020).
Korea’s Production and Exports of Automobiles, 1997–2020
One of the most important phenomena occurring in the global automobile industry is the remarkable increase in production and use of eco-friendly NEVs, which include hybrid electric vehicle (HEV), PHEV, EV and fuel cell electric vehicle (FCEV) (KECO, 2019). The stock of NEVs measured by PHEVs and EVs in the world economy rose from 1,890 units in 2005 to 15,000 units in 2010 and to 5.1 million units in 2018 (IEA, 2019).
Table 2 shows the trend of NEVs stock of major countries. In 2013, the United States explained 40% of the stock of NEVs in the world economy. China’s share jumped since the mid-2010s to reach 45% of the stock in 2018, while the US’ share fell to 22% in 2018. Korea explained only 1.2% of the stock in 2018. Thus, Korea lags behind the major automobile producers by volume of NEVs. Meanwhile, the stock of NEVs, EVs and PHEVs in Korea increased from 6,000 units in 2015 to 59,600 units in 2018. The accumulated supply of four types of NEVs increased rapidly from 184,000 vehicles in 2015 to 475,000 vehicles in 2018 (MOE, 2019c, p. 39). So, for the period 2015–2018, Korea’s NEV industry appears to grow most rapidly among the major automobile producers.
NEV Stock of the World Economy and Major Countries, 2005–2019 (Unit: Thousand)
Despite Korea’s somewhat late development of the NEV industry compared with its main competitors, both the government and the private automobile producers of Korea were well aware of the importance of NEVs. Therefore, the government established the Natural Gas Bus Commercialisation Project in 2000. In addition, policy grounds for the supply of NEVs were arranged in 2004 with the Law on Environment Friendly Vehicle Development and Supply Promotion (KECO, 2019). Even before the initiation of such projects prepared by the government, the private sector responded to the automobile market rapidly. Kia developed the first noncommercially used EV Vesta in 1986 and Hyundai also developed EV Sonata in 1991 (Cyber Car Museum, 2019). Since 2004, Hyundai successfully developed hybrid vehicles. During the early 2000s, however, Korea lacked infrastructure and technology to produce core NEV parts such as motors and batteries, resulting in high dependence on foreign imports. In 2009, Hyundai and Kia could use domestically produced core parts in producing EVs (Kim, 2010, pp. 31–32).
Although the number of NEVs has been increasing, the supply of NEVs shared only 2.2% of the cumulative automobile supply of twenty-three million in 2018 (MOE, 2019c, p. 39). Therefore, the government announced a long-term goal of commercialisation of NEVs in 2017, aiming to distribute two million NEVs and 10,310 charging infrastructures by 2022, as Table 3 shows (Office for Government Policy and Coordination [OGPC] et al. 2017, p. 18). The number of EVs registered increased exponentially from 66 EVs in 2010 to 5,712 EVs in 2015 (Ministry of Land, Infrastructure and Transport [MOLIT], 2019). In 2017, the government set the goal to 350,000 EVs until 2022 (Korea Energy Economics Institute [KEEI], 2018, p. 2).
Policy Goals for Supply of NEVs Set by the Government in 2017 (Unit: Cumulated Number)
As Table 4 shows, despite the recent decrease in the overall automobile exports of Korea, exports of EVs have been increasing (KAMA, 2016). In 2017, Korea recorded trade surplus as much as US$26.2 million in EV trade (Ministry of Trade, Industry and Energy [MOTIE], 2017, p. 223). The share of EV export over automobile export increased significantly from less than 0.05% in 2002 to over 0.5% in 2017. Such a dramatic increase indicates the increasing importance of EV industry in Korea.
International Trade of EVs and Automobiles, 2000–2017
NEV Promotion Policy
To implement policy measures to promote the NEV industry, the Korean government defined specific roles of the responsible governmental bodies. The MOTIE is responsible for technological development of R&D and distribution of infrastructure. The MOE is in charge of commercialisation of EVs and infrastructure via subsidies. The MOLIT is concerned with defining NEVs safety standards. The OGPC is the control tower harmonising conflicts among different ministries (Hwang, 2015). This section mainly extends Lee and Mah (2020) to policy measures provided to NEVs as a whole.
R&D
The Korean government switched its focus of industrial policy from export promotion to development of technology-intensive industries by R&D promotion in the early 1980s (Mah, 2007). In the early 1990s, it initiated a large-scale technology development program, which aimed to propel Korea into one of the top seven countries in science and technology (Ahn & Mah, 2007; Amsden, 2000). One of the R&D projects in the programme was the technological development of the next generation vehicle. The ultimate goal was to develop core technologies for NEVs (Institute for Advanced Engineering [IAE], 2003, pp. 234–235, 424).
Korea’s EV industry and its technology level developed under the government’s active R&D promotion policy since 2004. In 2004, the Law for Eco-friendly Cars R&D was enacted for the development of NEV industry (Hwang, 2015). The Ministry of Knowledge Economics, the predecessor of the MOTIE, was responsible for R&D for EVs and established its R&D project in 2011. This project aimed at upgrading EV technology by arranging co-work between research institutes and private companies (Lee, 2012, pp. 7–13).
The MOE established the Center for Environmentally Friendly Vehicle (CEFV) in 2011 to support the technological development of EVs (MOE, 2015, p. 60). The R&D project undertaken by CEFV covers the period from 2011 to 2021 with the budget amounting to about US$9 million per year. For the Phase I covering 2011–2016, CEFV developed a technology of EV that reduces 5% of carbon dioxide emission. For the Phase II covering 2016–2021, it developed a technology reducing 20% of carbon dioxide emission. The development of such technology contributed to the Korean economy through export and domestic sales, recording earnings of about US$450 million during 2012–2015 (CEFV, 2016).
In 2019, the Korean government decided to provide EV-related R&D expenditure to regions experiencing crisis. It selected Chollanam Do province, which is relatively less developed in manufacturing, as the beneficiary of the project. This project subsidises the small- to medium-sized auto part enterprises in the region with about US$14 million for R&D of EV parts and systems for 33 months (MOTIE, 2019b, p. 1). Moreover, the government initiated an R&D project for the development of the open-source platform technology of micro EV, targeting small- and medium-sized enterprises (SMEs) in Korea. It allocated a maximum of about US$7 million for about 3 years (Korea Evaluation Institute of Industrial Technology [KEIT], 2019).
For R&D expenditure allocated to the energy-related industries including EVs over GDP, Korea recorded the highest level among the OECD members, recording 0.11% in 2014. R&D expenditure on EV amounted to US$45 million and US$54 million in 2017 and 2019, respectively (National Science & Technology Information Service [NTIS], 2019a). For FCEV, US$20 million and US$25 million were spent for R&D purposes in 2017 and 2019, respectively (NTIS, 2019b). OECD, however, stated that such a high R&D investment did not lead to satisfactory outcome and attributed the reason behind such an unsatisfactory outcome to Korea’s lowest industry–university links and lowest co-invention rate with foreign partners in environment-related technologies (OECD, 2017, p. 32).
Despite the R&D efforts, compared to the other leading countries in the EV industry such as the United States, Japan and a few Western European countries, as of 2016, for instance, Korea was regarded as having a relatively low level of EV technology. If the technology level of the leading countries was scored as 100, Korea’s technology level was estimated as 85 in 2016. In material/automobile part sector of EVs, Korea showed even weaker competitiveness with the score of 71. Such a low score in the component sector of EV shows that Korea depended highly on imports of batteries and motors (Korean Electronics Association [KEA], 2017, p. 176). More specifically, Korea is one of the three countries, including China and Japan, in leading EV battery technology; Korea had 30% global market share in 2014. However, Korea experienced significant decline of the share, having 11.6% global market share in 2018. Although Korean EVs utilise domestically made batteries, the limited size of domestic EV market and the decline of demand from China led to the downfall of Korea’s global EV battery market share (Korea Economic Research Institute [KERI], 2019, pp. 2–7, 16).
Meanwhile, according to the Roland Berger’s e-mobility index of 2018, Korea ranked the third in the overall EV technology following France and Germany, while surpassing Japan and the United States. In 2018, state R&D on EVs over GDP fell to 0.006% in Korea. It reveals the technological development accomplished by domestic firms, despite the fall in R&D supported by the government, among seven leading EV countries: France, Germany, Japan, the United States, China, Italy and Korea (Roland Berger, 2018, p. 5). So, the comparison of the results of KEA (2017) and Roland Berger (2018) suggests that Korea accomplished significant technological development during 2016–2018.
The number of patents can be regarded as an indicator of the performance of R&D activities. Korea ranked the fourth in the number of patents registered relating to EVs in 2017, which equalled 8,015, following China, the United States and Japan (MOTIE, 2017, p. 205). Table 5 focuses on EV technology and EV-charging technology’s patent applications of Korea (Korea Intellectual Property Office [KIPO], 2017, pp. 4–5). The number of patent applications relating to EV-producing and EV-charging technologies displays increasing trend, which suggests that Korea’s EV industry has experienced constant technological development. Yet, Korea does not have a significant share of the number of patent applications in any main areas of EV technology. China, Japan and the United States have most of the shares, whereas Korea has 1.4% of the share of the related patents (MOTIE, 2017, pp. 213–218).
EV and EV-Charging Technology-related Patent Application of Korea, 2007–2016 (Unit: Number)
There is a significant increase in the number of foreign EV-charging patent applications in Korea from 18.2% in 2014 to 40.4% in 2016 (KIPO, 2017, pp. 2–6). The level of Korean NEV technology as of the late 2010s is evaluated as being similar to that of the other developed NEV producing countries such as the United States, Japan, Germany and France in some areas. Although there is a certain gap in the engineering field, Korea has the top-notch technology in the production of secondary cell battery and a core autocomponent used in EVs, HEVs and PHEVs. Furthermore, Korea’s automobile company, Hyundai, was the first producer to successfully commercialise FCEVs (Cho et al., 2017, pp. 108–110).
Commercialisation of NEVs and Infrastructure
The main bottlenecks to commercialising NEVs are high purchase as well as maintenance cost, insufficient number of charging stations and difficulties of repair services (Kang & Jeon, 2016, pp. 17–18). There are significant differences between the price of NEVs and that of gasoline vehicles. For instance, in Korea the former more than doubled the latter in 2019 (Naver Automobile, 2019). These significant price differences show that NEVs do not have price competitiveness against gasoline or diesel cars. To alleviate as of now these weaknesses of NEVs, the Korean government has been implementing policy measures to promote the commercialisation of NEVs.
Subsidies and Tax Incentives
The government’s provision of subsidies and tax cut in the NEV industry enhances its price competitiveness, induces customers’ purchase of the vehicles and motivates mass production of those (Lee, 2016, p. 3). The government sets its goal to commercialise two million NEVs by 2022 through subsidies directed to the purchases of NEVs and construction of its infrastructure (MOE, 2019c). It supports the development and commercialisation of EV by subsidising private domestic enterprises. In 2010, the government set a goal to commercialise semi-medium-sized EVs by 2015, investing US$60 million. It set up the Ceremony of Electric Vehicle Commercialisation 2012 to commercialise 2,500 EVs by 2012, and under the programme it provided a subsidy of US$12 thousand for the purchase of an EV, a subsidy of US$73 thousand for charging infrastructure and a tax cut for costs such as consumption, acquisition and education (APEC, 2017, pp. 19–20).
Under its motivation to supply EVs and to provide higher satisfaction level of driving an EV compared to the driving experience of an internal combustion engine vehicle, the Korean government initiated policy measures focusing on two aspects. First, it gives significant amount of incentives for commercialisation of EVs. The policy measures include increase of purchase subsidy to US$12 thousand for each EV in 2016, exemption of toll fee, discount of parking fee at public parking lots and establishment of a new EV insurance decreasing the EV drivers’ burden. Second, it shows an effort to generate new channel of demand by increasing public institutions’ EV purchase requirement from 25% to 40%. This requirement is also applied to the FCEV (MOTIE, 2016).
For FCEV, the government focuses on reducing its price to induce consumers’ purchase and developing world class FCEV-related technologies (MOTIE, 2016). It provides subsidy for the purchase of FCEV with a maximum amount of about US$30 thousand (MOTIE, 2018, p. 3). It has also invested US$7.5 million for technological development of FCEV bus since 2016 (MOE, 2015). As a result, Hyundai motor company successfully developed FCEV bus and these buses have been going through test driving. The government set a goal to deploy 1,000 FCEV bus by 2022 (MOE, 2018a).
There was an increase in the amount of subsidy provided to both EV and FCEV in 2019. Subsidies were provided to 25,600 EVs and 630 FCEVs in 2018, whereas in 2019 they would be provided to 42,000 EVs and 4,000 FCEVs (MOTIE, 2019a, p. 3). In addition to subsidies, the government has also been providing various tax cuts not only for automobile tax, but also for individual consumption tax, and acquisition tax, with cumulative maximum of US$4.4 thousand for EV, US$5.5 thousand for FCEV, and US$2.3 thousand for HEV and PHEV as of 2019 (MOE, 2019c, p. 42).
Furthermore, the Korean government provides substantial amount of subsidies as well as tax cuts to newly purchased NEVs (MOE, 2019b, pp. 1–6). It also invests US$380 million under the project named 2019 supply of EV and construction of charging infrastructure. To encourage the supply of EVs, subsidies are provided to EV producers and sellers. Sellers’ discount EV price to the consumers and the discounted amount is subsidised by the government to those sellers. Korea automobile environmental association subsidises the suppliers of charging infrastructure (MOE, 2019a, pp. 1–5). For EVs, the government plans to maintain all these forms of subsidies until 2022. Purchased subsidies for FCEVs will remain until economies of scale are realised (MOTIE, 2018, p. 5).
The Korean government views one of the problems of commercialisation of NEVs as the insufficient number of their charging stations (MOTIE, 2016). Therefore, in 2010, Korea electric power company (KEPCO), a state-owned enterprise, implemented a generous EV-charging tariff system that serves as an incentive to both charging service providers and customers. The tariff allowed the charging service providers to pay only the prime cost of electricity, and such an incentive led the providers to charge customers with only initial charging infrastructure installation cost and its operation fee (APEC, 2017, p. 20). Thus, KEPCO reduced the financial burden for both suppliers and buyers.
Since 2011, the government has supplied EV charging infrastructure throughout apartments and areas with high accessibility such as supermarkets, parking lots and gas stations. It has also been providing subsidy since 2013 for construction of FCEV charging infrastructure by subsidising 50% of the total budget needed for the construction (MOTIE, 2018, pp. 2–3). Table 6 shows the changing number of EV and FCEV charging stations. That of EV increased from 29 facilities in 2011 to 2,896 in 2019. That of FCEV rose from one in 2015 to twenty-five in 2019. The government aims to provide 310 FCEV charging facilities by 2022 by collaborating with private entities and local governmental bodies. The government has decided to relax restrictions subjected to large corporations in receiving subsidies for installing FCEV charging stations (MOTIE, 2018, p. 15).
Construction of EV and FCEV Charging Facilities, 2011–2019 (Unit: Number)
Strengthening of Environmental Regulations
The Korean government has been strengthening environmental regulations to promote commercialisation of NEVs. Facing such regulations, domestic automobile companies are focusing on developing technologies to increase fuel efficiency and lessen carbon dioxide emission (Cho et al., 2017, pp. 116–117). Since 2005, the MOE maintained an administrative rule obliging certain cities with severe air pollution to purchase a specific proportion of low emission vehicles. The required purchase rate of such vehicles increased significantly from 1.3% in 2005 to 12.0% in 2019 (Metropolitan Air Quality Management Office [MAMO], 2019).
Table 7 shows that the number of NEVs registration has been increasing at an exponential rate. The number of registered EVs rose from 66 in 2010 to 2,775 in 2014 and then to 89,918 in 2019. That of HEVs (NEVs as a whole) increased from 19,167 (19,232) in 2010 to 506,047 (601,048) in 2019. That of FCEVs rose from 87 in 2016 to 5,083 in 2019. In addition, the government has its plan to implement the Low Carbon Vehicle Cooperation Charge System in 2020 which levies fine to the cars emitting high level of carbon dioxide and subsidises the cars emitting low level of that, shifting the consumer demand from non-NEVs to NEVs (Cho et al., 2017, p. 129).
NEVs Registration, 2010–2019 (Unit: Number)
Roadmap for the Hydrogen Economy
The Korean government announced the roadmap for the hydrogen economy in 2019 with its vision of promoting green growth via use of hydrogen as the main source of energy (MOTIE, 2019c, pp. 3–4). Many countries emphasise the importance of the hydrogen economy due to its abundance and carbon dioxide-free nature; however, there are technical difficulties and high costs involved in processing hydrogen to be used as the source of energy (Kim, 2018, pp. 1–2). The competition with respect to the hydrogen economy among the developed countries is intense, as it is vital for them to attain the first-mover’s advantage. Korea has attained its global competitiveness in FCEV. Korea developed its first FCEV in 2013. The Korean FCEV producers utilise 99% of the domestically produced components of FCEV and have accomplished the world’s longest FCEV mileage (MOTIE et al., 2019, pp. 8–13).
Since Korea has its comparative advantage in FCEVs and hydrogen fuel cell, the Korean government decided to keep these fields in the centre of the roadmap for the hydrogen economy. The industrial policy targeting FCEVs in the roadmap focuses on two areas: the increase of supply of FCEVs and development of hydrogen energy technologies. For the supply part, the government has adjusted its aim for the cumulative supply of FCEVs and the charging facilities (MOTIE et al., 2019, pp. 18–19). It set a goal to supply a cumulative amount of 81,000 FCEVs and 310 charging stations by 2022, and 6.2 million FCEVs and 1,200 charging stations by 2040 (MOTIE, 2019c: 11). Moreover, the government has drafted an R&D project with budget amounting to about US$250 million to fully localise core components of FCEVs by 2022.
Developing advanced technologies cannot be accomplished without appropriate human capital. The Korean government emphasises the role of human resources specialising in hydrogen energy. The human resources needed in the hydrogen economy are those covering safety management and R&D. For the former, the government prepares educational programmes and a new form of certification test that qualifies people in supervising hydrogen supply and its management. For the latter, it plans to make an active support for SMEs in employment of researchers in the related fields, and to cooperate with universities and specialised high schools in developing technologies (MOTIE et al., 2019, p. 52).
Besides the development of technologies and production, worldwide use of FCEVs is critical in the success of the Korean government’s promotion of the hydrogen economy. Therefore, in 2019, the Korean government set up the Roadmap for International Standardisation of the Hydrogen Economy which intends to establish the international standards based on hydrogen technology. The goal is to propose fifteen international standards until 2030. Since hydrogen industries are at their infancy, establishing the international standard based on domestic technology will ensure Korea’s global leadership in the field. Thus, the Roadmap for International Standardisation of the Hydrogen Economy stresses the importance of the specialists in the field of international standards and aims to expand up to 100 specialists until 2020 (MOTIE, 2019d, pp. 1–5). Korean Agency for Technology and Standards (KATS) emphasises the linkage between R&D projects and the standardisation. It states that the two assignments should be completed simultaneously. That is, at the time of an R&D promotion, the inventor should simultaneously take a process to register the result from the R&D project as the international standards (KATS, 2019, pp. 9–11).
Private Companies in the Development of NEVs
The government policy to promote the NEV industry has been accompanied by the efforts of the private automobile producers. The Korean automobile companies, such as Hyundai motor group (HMG), which comprises Hyundai motor company and Kia motors corporation, started to develop NEVs since the late 1980s. They have actively released new NEV models. The exponential increase in the number of NEVs would be partly attributed to the efforts of these companies (Cho et al., 2017, p. 107). In tandem with the government’s policy, HMG also announced the Roadmap FCEV Vision 2030 in December 2018, targeting to supply 500,000 units of FCEVs by 2030, investing US$6.3 billion for R&D and construction of the infrastructure (HMG PR Team, 2018).
HMG took its first step for the roadmap by establishing Hyundai Mobis Corporation, an affiliate of HMG producing automobile components, which built its second fuel cell system plant (HMG PR Team, 2018). Since 2013, Hyundai Mobis Corporation has been producing core components of NEVs. This factory of Hyundai Mobis is the only place in the world where production and assembly of NEVs’ batch manufacturing are possible, and such unique factor increases its chance of attaining the first-mover’s advantage (HMG Journal, 2017).
One of the disadvantages of FCEV is its high charging cost compared to that of EV, so HMG cooperated with Chungju city, a place where the fuel cell system plant is located, in a project that provides free hydrogen charging service for the FCEV drivers until the end of 2019. This shows HMG’s effort in encouraging the purchase of FCEV to the customers by decreasing the user’s financial burden from buying the vehicle (HMG Journal, 2019; KEEI, 2018, p. 2). HMG also established a specific body for fuel cell system under the Hyundai-Kia R&D headquarter (HMG Journal, 2018a). It also established about 100 service centres with its plan to extend the number up to 1,400 to provide better repair services and a life-long battery guarantee service for its NEV purchasers (MOTIE, 2018, p. 16).
HMG highlights the importance of cooperative development of NEV industry (HMG Journal, 2016). In 2018, it established the Hydrogen Energy Fund with China’s yield capital to subsidise US$95 million for Korean and Chinese start-up companies with competitiveness in hydrogen-related infrastructure construction and core technologies. With China’s large domestic demand and HMG’s top-notch FCEV technology, the hydrogen energy fund is expected to serve as an important foundation for opening up the hydrogen economy for both countries (HMG Journal, 2018c). In December 2018, HMG invested about US$1.5 billion to its automobile component partners facing difficulties. One of the projects under this investment is to guide the partners to gain competitiveness in NEVs and NEVs’ components by providing educational support, technical assistance and joint development (HMG Journal, 2018b).
Policy Implications
The Korean government has played an important role in the development of NEV industry. The government policy may propel the Korean NEV industry to become the global leader. Considering the differences between NEVs and gasoline/diesel cars, the Korean government has actively established policy measures to promote commercialisation of NEVs, which include the provision of subsidies, tax incentives and infrastructure. Due to such policy measures, the cost of purchasing and charging/fuel expenses for NEVs for 5 years is expected to be lower than that of internal combustion engine automobiles (MOE, 2017, p. 11). Such policy measures together with the strengthening of environmental regulations have contributed to rapid development of the NEV industry in Korea. Korea’s experience of promoting the NEV industry provides important policy implications.
Internal combustion engine cars market has been led by several countries in Europe, Japan and the United States. A few developing countries entered and currently share the global automobile market. Moreover, aside from these countries, other developing countries are also increasing their production capacities. Such changes in the trend show that the new entrants in the automobile market have been acquiring technologies needed in producing internal combustion engine cars. Moreover, with the threat of global warming, worldwide demand for NEVs has increased. The issue, however, is that the production of NEVs requires advanced technologies. So, the leading producers of automobiles are competing to take the lead in the global market earlier than the others. The Korean government along with some of the other leading producers also realised the importance of NEVs and has allocated substantial amount of resources to develop technologies and expand the production scale of private companies. The current leading producers of automobiles not paying serious attention to NEVs will lag behind in the global automobile market in the near future.
The NEVs market is expected to be shared by EVs and FCEVs (Lee & Mah, 2020, p. 77). Most countries have tried to develop technologies and expand production capacity related to the production of EVs. Realising the importance of the coming hydrogen economy, the Korean automobile companies tried to pre-empt the FCEVs market and gained the most advanced technologies. The Korean government decided to support those domestic producers by announcing the roadmap with an expectation to gain from the first-mover’s advantage. China, however, seems to be a step closer in leading the EV industry compared to Korea. Depending on the situation, these East Asian countries may lead the global automobile market in the coming decades.
R&D efforts lead to the development of advanced technologies in technology-intensive industries. The Korean economy could jump from an imitator to an innovator in many value-added, technology-intensive industries (Kim, 1997). Therefore, the Korean government and domestic automobile companies continued to raise R&D expenditure to develop NEVs. Despite the Korean government’s policy and the domestic automobile producers’ efforts regarding R&D, the level of technologies producing EVs is regarded as not top notched. In the initial phase of the development of the automobile industry in the 1960s and 1970s, the Korean government successfully arranged technology licensing from foreign automobile producers, which allowed domestic suppliers to learn from the advanced countries (Lee & Mah, 2017, p. 234). Thus, the Korean automobile industry could transform itself from an imitator to a leading innovator in the automobile market. Like Korea’s initial developmental phase, it would be effective for the domestic automobile producers to utilise technology licensing or other forms of cooperative projects with foreign producers, which have cutting-edge technologies in the EV industry, in the form of increasing the co-invention rate and the opportunities of learning.
The Korean government provides various kinds of tax incentives to consumers of NEVs. Such tax incentives may contribute to stimulating the NEVs industry by increasing the production scale, realising gains from economies of scale property in the production of NEVs. Meanwhile, tax incentives also imply tax revenue forgone. So, generous provision of tax incentives may be provided in countries like Korea which has shown a balanced fiscal budget in general. Countries experiencing a huge amount of fiscal deficits and debts may find it difficult to provide generous tax incentives to producers and consumers of NEVs, even if the government wishes to promote the NEV industry.
Although economies of scale characterise the production of automobiles in which large companies take the lead in it, automobile production still requires the use of thousands of automobile components. As a result, SMEs with advanced technologies have a significant role in the automobile production. Realising the importance of SMEs, the Korean government has tried to support R&D activities of SMEs (Kang & Mah, 2015). Nevertheless, the amount of R&D subsidies provided to the SMEs producing components of NEVs appears to be not substantial in light of the production scale of the automobile industry of Korea.
Hydrogen is expected to become the main source of energy in the future (Lee & Mah, 2020, p. 78). Therefore, the Korean government decided to support the domestic automobile companies which already developed advanced technologies in this field. The Korean government implements various policy measures to support commercialisation of FCEVs by increasing the number of charging facilities, strengthening human resources and promoting leadership in the registration at international standards. It is expected to yield positive results in the coming decades with the growing concern for global warming.
The role of the government is critical in successfully carrying out the industrial policy. In addition, different government ministries’ position should have a unique and distinctive role in implementing the policies effectively. Such an important characteristic does apply to environment-related issues. In case of Korea, although the government aimed to clearly assign the specific role of the governmental bodies in charge of the NEV industry, it seems that their functions are still redundant, possibly causing inefficiency. The conflict between a Ministry in charge of environmental protection and the other Ministry promoting industrial development may delay the implementation of the policies. One of the reasons why such conflicts between governmental bodies happen may be attributed to unclearly defined and redundant responsibilities (Ham & Choi, 2019). So, to avoid confusion that decreases efficiency, the government wishing to promote the NEV industry should define the responsibilities precisely and establish more effective way of conflict resolution system among the governmental bodies concerned (Lee & Mah, 2020, p. 78).
Conclusion
Korea, being one of the most competitive countries in the automobile industry, shifted its attention to eco-friendly NEVs along with the global trend of increasing awareness of environmental issues. Since the 1990s, Korea has shown constant effort to promote the NEV industry by providing various tax incentives, subsidies and charging facilities. Thanks to such policies, the NEV industry grew very rapidly in the level of production technology, commercialisation and charging infrastructure of NEVs. The share of NEVs in the automobile market of Korea continued to rise rapidly during the 2010s.
Korea’s NEV industry has been struggling to compete with the other leading producers of automobiles. The Korean government’s active policy measures have stimulated the expansion of production scale and commercialisation of NEVs. Korea’s domestic automobile producers could develop production technologies needed in producing FCEVs ahead of the other competitors. Recognising the importance of hydrogen as the main source of energy, the Korean government announced the roadmap to promote FCEVs facing the hydrogen economy. The policy measures implemented by the Korean government may contribute to the Korean producers’ acquisition of the first-mover’s advantage. It would be worthwhile for the government to balance its focus on EVs and FCEVs from the viewpoint of risk aversion. Korea’s experience of the NEV promotion policy provides important policy implications to the other countries that wish to develop NEVs facing global warming.
Footnotes
Declaration of conflicting interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.