South Korea's Net Zero Transition Could Leave 2050 GDP Up to 10.2% Below Baseline, BOK Finds

A smaller early burden could bring a larger shock in 2050

South Korea would need roughly 840 trillion won in energy supply investment through 2050 to achieve carbon neutrality, according to a Bank of Korea study that puts the timing of spending and technology deployment at the center of the economic challenge. Its projections show GDP in 2050 falling 10.2% below a baseline growth path if emissions cuts proceed gradually, compared with 8.2% below baseline if reductions accelerate earlier.

The central bank's BOK Issue Note on the economic effects of carbon neutrality transition paths, released on October 28, 2026, examines two routes toward the same destination: net zero emissions in 2050. Kim Jae-yoon and Yeon Jeong-in, managers in the bank's Sustainable Growth Office, prepared the analysis.

Both routes carry substantial costs for steelmaking, cement production, chemicals and power generation. Earlier action brings more pressure during the middle of the transition, while gradual reductions leave a sharper economic adjustment near 2050. A five-year delay in industrial technology development would increase the projected GDP shortfall under the gradual route to 17.3%.

The baseline assumes average annual economic growth of 1% between 2025 and 2050. The projected shortfalls measure how much smaller the economy would be than under that reference path. The study estimates the costs of changing energy systems and industrial production; benefits from reducing climate damage sit outside those calculations.

Two routes, with the same final destination

South Korea's 2035 Nationally Determined Contribution, or NDC, provides the two endpoints used in the comparison: emissions reductions of 53% to 61% from 2018 levels. An NDC is a country's stated contribution to the international effort to limit climate change.

The bank's linear reduction route reaches the lower end of that range, 53%, through gradual cuts. Its early reduction route accelerates cuts from 2030 to reach 61% in 2035. Both reach a 40% reduction in 2030 and net zero in 2050. Net zero means balancing remaining emissions with removals.

The main milestones are:

• 2030: Both routes reduce emissions by 40% from 2018 levels.
• 2035: The linear route reaches a 53% reduction, while early action reaches 61%.
• 2045 to 2050: The linear route experiences its sharpest increase in economic pressure.
• 2050: Both routes achieve net zero, with different GDP and price effects.
• 2060: GDP shortfalls narrow as technologies that produce fewer emissions become more widely used.

The comparison therefore turns on when factories replace equipment, when cleaner power becomes available and how quickly businesses can adapt. Reaching the same emissions target can produce different economic results when those changes happen at different speeds.

How the growth effects change over time

GDP is projected to be 1.7% below baseline in 2030 under either route. After that, earlier emissions cuts create a larger initial burden: the shortfall reaches 2.5% in 2035 and 3.5% in 2040 under early action, compared with 2.1% and 2.7% under the linear route.

By 2045, the early route leaves GDP 6.1% below baseline, against 4.7% under gradual reductions. The positions reverse sharply over the following five years. In 2050, the linear route's shortfall reaches 10.2%, while the early route's reaches 8.2%, a difference of 2 percentage points.

Both gaps then narrow. By 2060, GDP is projected to be 2.2% below baseline under early action and 2.5% below baseline under the linear route. Wider deployment of technology that cuts emissions helps ease the pressure after 2050.

Across 2025 to 2060, the estimated average annual growth reduction is 0.06 percentage points under early action and 0.07 under gradual reductions. A percentage point measures the difference between two rates: reducing growth of 1% by 0.07 percentage points would leave growth of 0.93%.

The Bank of Korea says these averages do not apply a discount rate, which adjusts the weight of costs occurring at different times. Earlier action requires more spending sooner, so comparing total economic costs also requires attention to when money must be committed.

Carbon prices explain much of the pressure

Carbon prices are a central driver of the results. They attach a cost to releasing greenhouse gases, making production that uses fossil fuels more expensive and giving companies a financial reason to adopt cleaner processes.

The model puts carbon prices at about $7 per ton in 2025 and $169 in 2030 under both routes. All the carbon price figures are expressed in 2010 dollars, keeping their purchasing power on a common basis.

By 2040, the price reaches $543 per ton under early reductions, compared with $444 under the linear route. Earlier action therefore asks businesses to absorb higher emissions costs sooner. That pressure also encourages earlier investment in equipment and processes that release less carbon.

By 2050, the ordering changes. The linear route requires a carbon price of $1,488 per ton, above the early route's $1,352. Gradual action leaves more adjustment for the final years, when tighter emissions limits meet slower technology deployment.

Producer prices follow a similar pattern. The Producer Price Index, which tracks prices received by producers rather than prices paid directly by households, rises 1.3% above baseline in 2030 under both routes. By 2050, the increase reaches 6.5% under linear reductions and 5.1% under early reductions. Average annual producer price inflation rises by an estimated 0.04 percentage points through 2060.

Steel and cement face the heaviest industrial shocks

Manufacturing carries a much larger burden than the economy as a whole. Around 2050, manufacturing value added could be 26% to 32% below baseline, while producer prices in the sector could be 13.4% to 16.8% higher. Value added is the contribution an industry makes after subtracting the goods and services it buys from other businesses.

Steel has the most extreme modeled result. Its value added shock reaches 151.1% below baseline under linear reductions and 124.5% under early reductions. These are estimates from an input-output model, which traces costs and purchases between industries. The percentages describe that model's calculated value added shock, a different measure from tons of steel produced or company profits.

Steel producer prices rise 90.7% under the linear route and 72.5% under early action. Those increases make the cost of a basic industrial material a major channel through which the transition reaches other businesses.

Cement value added falls 71.0% below baseline under linear reductions and 58.9% under early reductions, while cement producer prices rise 60.1% and 48.7%, respectively. Chemical manufacturing faces a value added reduction of up to 42.2% and a producer price increase of up to 24.2%.

Automakers and construction companies then face more expensive steel, cement and other inputs. Their value added could fall by up to 39.4% and 25.0%, respectively. Oil refining and power generation also face direct pressure as emissions costs increase.

About 840 trillion won, with different spending schedules

Energy supply investment totals 839.4 trillion won between 2026 and 2050 under early reductions, compared with 843.3 trillion won under the linear route. The difference is 3.9 trillion won, less than 0.5% of either total. The more consequential difference is when that investment must happen.

Average annual energy supply investment rises to about 26 trillion won around 2030, more than twice the current level cited in the study. Under early action, annual investment peaks at an estimated 45.7 trillion won during 2031 to 2035. Under linear reductions, the peak comes during 2046 to 2050, at 43.4 trillion won.

Those sums cover energy supply alone. Replacing industrial equipment and changing transport would require further investment across the economy. The energy transition includes renewable power and technologies such as carbon capture and storage, which collects carbon dioxide and stores it to keep it out of the atmosphere.

Kim Jae-yoon, a manager on the bank's climate risk analysis team, said earlier reductions could produce smaller economic fluctuations, while stressing the demanding investment assumptions behind that result. The projected smoother adjustment depends on financing, construction and technology deployment arriving when needed.

The bank therefore declined to rank either route as superior. Earlier spending can reduce the shock near 2050, but it places a greater immediate demand on investment capacity.

A five-year technology delay makes the costs much larger

The study assumes that technologies needed to cut emissions are developed and deployed on schedule. That assumption is especially important for steel, petrochemicals and cement, where many core technologies remain under development.

Under the linear route, delaying industrial technology development by five years raises the projected 2050 GDP shortfall from 10.2% to 17.3%. The additional loss is 7.1 percentage points, illustrating how strongly the economic outcome depends on having workable alternatives available as emissions limits tighten.

A factory facing higher carbon costs needs a practical way to change how it produces goods. When suitable equipment or processes arrive late, businesses must carry the higher costs for longer while still meeting tighter rules.

The researchers recommended directing fiscal support, including resources from the Climate Response Fund, toward sectors where cutting emissions is particularly difficult. Their findings put the development and deployment of industrial technology alongside carbon pricing as a central part of the transition.

New AI and semiconductor projects add another demand

The model excludes additional electricity demand expected from three government mega-projects involving semiconductors, physical artificial intelligence and AI data centers. Those projects could increase electricity demand in 2040 by 253.4 terawatt-hours above an existing forecast of 654.4 terawatt-hours.

That would bring demand to 907.8 terawatt-hours, an increase of 38.7%. A terawatt-hour is a unit used to measure large amounts of electricity. For the transition, the practical issue is supplying that extra power while continuing to reduce emissions.

More demand would require additional generation that produces no carbon emissions and related infrastructure. Kim said energy and power transition costs could rise during 2030 to 2035 as a result.

AI could also improve productivity and energy efficiency over the longer term, potentially reducing transition costs. The study leaves those added electricity needs and possible efficiency gains outside its central estimates, making them a substantial planning uncertainty.

Climate damage and financial risks complete the picture

The Bank of Korea's November 2024 climate risk research examined another part of the economic calculation: damage from climate change. It estimated that taking no action would reduce average annual growth by 0.30 percentage points between 2024 and 2100, compared with 0.14 percentage points under an active response limiting the global temperature rise to 1.5 degrees.

In that earlier exercise, GDP in 2100 was projected to be 21.0% below baseline without action and 10.2% below baseline under an active response. The 10.2% figure in that study concerns a different year and scenario from the latest study's 2050 transition estimate.

The latest research also cites earlier estimates putting the growth benefit of reducing climate damage at around 0.3 percentage points annually. Those estimates use different assumptions and time periods, so a combined calculation would require aligning the models and their coverage.

For policymakers, the immediate challenge is managing weaker economic activity alongside rising production costs. The bank called for monitoring the tension between price stability and economic stability and strengthening financial sector risk management. Businesses facing expensive equipment replacement and tighter margins can also create greater risks for their lenders.

South Korea's choice therefore involves more than setting an emissions deadline. The timing of industrial investment, the readiness of new technologies and the supply of cleaner electricity will shape how the costs reach factories, construction firms and the wider economy.

Key Points

• GDP in 2050 is projected to be 10.2% below baseline under gradual emissions cuts and 8.2% below baseline under earlier cuts.
• Both routes achieve a 40% emissions reduction by 2030 and net zero by 2050.
• Energy supply investment through 2050 totals about 840 trillion won, with spending concentrated earlier under faster reductions.
• Steel, cement, chemicals and power generation face strong direct pressure, with costs spreading to automobiles and construction.
• A five-year delay in industrial technology development raises the linear route's projected 2050 GDP shortfall to 17.3%.
• Additional electricity demand from major semiconductor and AI projects is excluded from the central estimates.
• The study estimates transition costs, while reduced climate damage is examined in other research.