Recently, President Lee Jae-myung declared a commitment to actively respond to the climate crisis, yet there are criticisms that domestic funding for climate response is woefully insufficient. This is because the price of carbon emissions trading rights, a key source of income, is falling, and the revenue from the transportation energy environment tax is also decreasing, making it increasingly difficult to secure the necessary budget. Experts propose issuing green bonds as an alternative. The government is also working to build infrastructure and improve systems for this purpose.

◇ Accurate assessment of climate budget not done... securing budget is not easy

According to a comprehensive report from domestic researchers on the 23rd, the budget necessary to achieve the government's '2050 carbon neutrality' target, declared in 2023, exceeds 2000 trillion won. The Capital Market Institute estimates that 2097 trillion won will be needed, while the Korea Financial Research Institute estimates it at 2620 trillion won. Considering that the United Nations Framework Convention on Climate Change (UNFCCC) deems it preferable to secure over 70% of total investments through private financing, the government must shoulder more than 600 trillion won.

However, there is no clear system distinguishing climate budgets in Korea, making it difficult to ascertain the scale of the budget. Climate-related projects are scattered across different departments, making it challenging to gauge actual execution scales or achievements.

According to the Carbon Neutral Green Growth Committee, the government has proposed a plan to invest 89.9 trillion won in climate change mitigation, adaptation, transition, and workforce training from 2023 to 2027. However, over 20% of the budget has been cut under the Yoon Suk-yeol administration. The scope of projects, as well as the results of budget allocation and execution, have not been disclosed. This makes it difficult to properly assess and analyze the climate budget.

Materials that can indirectly help grasp the scale of the climate budget include the 'greenhouse gas reduction budget.' This budget only includes projects that directly or indirectly impact greenhouse gas reduction, unlike the plans from the Greenhouse Gas Reduction Committee.

The scale of the reduction budget and fund is similar, with 11.9 trillion won for 2023, 10.9 trillion won for 2024, and 12.1 trillion won for 2025. The proportion of the total budget has decreased from 1.86% in 2023 to 1.78% in 2025.

The government reports that it is becoming difficult even to maintain the greenhouse gas reduction budget under the current structure. The largest source of funding within the total greenhouse gas reduction budget, the 'special accounts for energy and resource projects (31.8%),' has turned into a deficit since 2022. Revenue has decreased due to reduced import costs of liquefied natural gas (LNG), while expenditures have increased due to support for eco-friendly vehicles.

Graphic=Jeong Seo-hee

The second-largest source of funding, the climate response fund (18.9%), is also in a poor situation. The price of emissions trading rights exceeded 30,000 won at its introduction but has now fallen to around 8,000 won, reducing revenue from emissions trading rights sales. Another source of revenue, the transportation energy environment tax, is also declining due to reduced fuel taxes and increased distribution of electric vehicles. The government has decided to extend the fuel tax reduction measures until the end of August, citing concerns over instability in the Middle East and price inflation. If conflicts between Iran and the U.S. persist, it may be challenging to suspend the fuel tax reduction measures afterward.

◇ Rising alternative of ‘green government bonds’... government likely to push for legal amendments in the second half

Amid this decline in climate budgets, experts suggest that green government bonds, issued by the central government, are a viable alternative. Green bonds are bonds that limit the use of raised funds to support projects in green industries such as renewable energy and eco-friendly vehicles. They must meet criteria not only for funding usage but also for project evaluation and selection processes, fund management, and post-reporting.

Cumulative issuance of green bonds and green government bonds by country /Courtesy of International Capital Market Association·Tax and Fiscal Research Institute

According to the International Capital Market Association (ICMA), as of May 2025, 38 countries are securing funding for carbon neutrality policies through green government bonds. Japan and China have also recently joined the ranks of issuing countries. However, the Korean government has yet to issue green government bonds, having only issued foreign exchange stabilization bonds in green bond form in 2019 and 2021. Currently, the majority of green bonds issued domestically are led by the private sector, with government issuance accounting for only 1%.

Heo Gyeong-seon, a senior researcher at the Korea Institute of Public Finance, noted, "As carbon neutrality policies are implemented, tax revenue from fossil fuel will inevitably decline," adding that "Korea should consider green government bonds as a genuine funding method." He also stated, "The high demand for green bonds enables them to be raised at lower interest rates than ordinary bonds, which is also an advantage."

The government also recognizes the need to introduce green government bonds and is reviewing ways to promote them. Choi Sang-mok, the former Deputy Prime Minister and Minister of the Ministry of Economy and Finance, stated in October of last year that "we are considering issuing green government bonds." Currently, research is being conducted. Once the research is completed next month, the government plans to finalize the issuance of green government bonds based on the results. If a decision is made to issue them, improvements in infrastructure, such as amendments to related laws including the Carbon Neutrality Basic Act and the National Financial Information System, must also be pursued.

The government believes that if it successfully issues green government bonds, there is a possibility of further synergy with incorporation into the World Government Bond Index (WGBI). This is because it could respond to additional demand for national bonds and secure funding for green transition investment expenses.

However, there are concerns that green government bonds may devolve into 'greenwashing,' highlighting the need for thorough verification of usage, performance management, and repayment planning. This is because there is a possibility that funds may be directed to areas unrelated to environmental policies or detrimental to the environment. The government is also reviewing ways to avoid greenwashing.

Heo Gyeong-seon stated, "Systematic management of the usage, execution, and performance of funds raised through green government bonds is necessary," adding that "since green government bonds are an immediate funding instrument, plans for repayment must be prepared in advance."