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Introduction

Both Germany and Korea have ambitious plans for a transition to sustainability and see themselves as role models for a green transformation. Yet their paths towards sustainability are remarkably different. Germany has ambitious plans for an Energiewende (energy transition) to replace both nuclear and coal with renewable energies. Internalizing environmental costs into market prices that nudge consumers to invest in energy saving and environmentally friendly products are at the centre of this market-oriented strategy. Korea, on the other hand, remains strongly tied to fossil and nuclear industries but prides itself on its ambitious green industrial policies that would transform the country into a global supplier of green technologies from batteries to electric vehicles (EVs). Market prices and incentives for environmentally friendly behaviour are not at the centre of this strategy, but the mission to establish the country and its companies as global leaders in green technology. Both strategies and the driving forces behind them are remarkably different and can be explained by the strong path dependency of their political economies. The transitions are therefore highly contextual and for that reason do not serve as easy role models. While this makes simple emulation of the policies difficult, an analysis of the different sustainability transitions provides important lessons that both of the countries concerned can learn from each other, as can other countries in the Global North and those in the Global South.

The Status of Sustainability Transition in Germany and Korea

Table 3.1 offers a brief sketch of the state of German and Korean sustainability transitions, with a focus on two of its most important elements: energy and mobility. Without any claim to be offering the entire picture, it illustrates the strengths and weaknesses of both distinct paths. While Germany has reduced its CO2 emissions since the year 1990, Korea has increased them substantially. This can partly be explained by the fact that Korea has been in a process of economic catch-up, but the Korean economy also remains very energy intensive. Korea needs 0.129 kg of oil equivalent to produce one dollar of its GDP, while Germany needs just about half of that (Table 3.1). The Korean Nationally Determined Contributions (NDCs) emission goals under the 2015 Paris Agreement are also far less ambitious than those of Germany. Korea is also a laggard when it comes to renewable energy, as its installed wind power capacity and the market share of EVs remain small. The latter is particularly surprising because Hyundai-Kia is one of the global leaders in EV production and technology. In fact, Roland Berger and Forschungsgesellschaft Kraftfahrwesen Aachen (fka) (2021) ranks Korea number one in EV technology, with Germany coming in third place after Korea and China.

Table 3.1 Status of sustainability transition in Germany and Korea
Full size table

Hyundai is also by far the world’s largest producer of fuel cell vehicles based on hydrogen. Even more importantly, Korea is a leader in EV battery technology, the most important component of all EVs. Three Korean companies, LG, SK and Samsung, are among the top seven of global lithium-ion battery makers and command 26% of the world market (Statista, 2023b, p. 33). More strikingly, the Korean government and companies are planning to invest KRW 50 trillion (EUR 35 billion) in battery research and production until 2030 (Korea JoongAng Daily, 2022, November 1). Compared to these massive investments, the German government’s plan to invest EUR 1.5 billion in batteries is negligible, even when the German share of the EUR 3.2 billion of EU investments in this field are included.

Strong investments in Korea are not limited to research and development of green products but also extend to green infrastructure. Despite a low share of EVs on the street, Korea has almost three times as many public chargers as Germany (although only a minority are “fast chargers”). While Germany needs vast resources just to maintain its ageing public transport infrastructure, Korea is investing KRW 115 trillion (EUR 81 billion) in the expansion of rail infrastructure until 2030, prioritizing on connecting the densely populated Metropolitan Area around Seoul with the city (Yonhap, 2021, April 22). In addition to many subway line extensions, three completely new GTX high-speed commuter lines are under construction or planned, with the first line to be opened in 2024. This Korean version of the French express commuter trains (RER) will have top speeds of 180 km/h and run in tunnels 50 metres below ground. These investments meet a strong demand for public transport. Before the Corona pandemic Korean train passengers travelled 100 billion km a year. German rail passengers travelled just 2% more, despite a population that is 60% larger and a territory that is 260% bigger than South Korea’s. The populations of both countries remain devoted to their cars, and in Korea it seems that cars have now become even more important as a status symbol than in Germany. At the same time, Germans travel almost 1 trillion km on the road, while Koreans drive only about 390 billion km a year (all transport data from OECD, 2023c).

The fact that Germany is such a laggard compared to Korea when it comes to investment in green industries and infrastructure, is surprising given that environmental topics play a much central role in German society and politics than in Korea. The 2021 parliamentary elections in Germany were even dubbed the “climate elections”, with the Green Party winning 14.8% of the votes compared to just 2.15% for the Korean Green Party / Justice Party alliance in the 2024 parliamentary election. While in Germany strong environmental consciousness and demand for green consumption is hampered by lack of investment, in Korea investment in infrastructure leads to environmentally friendly behaviour, despite environmental topics not playing an important role in societal and political discourses.

Patterns of Environmental Transition and Green Technological Leadership

Examining these scattered facts, a pattern emerges. Germany is leading Korea when it comes to renewable energy, reduction of CO2 emissions and energy saving. In Germany, consumers increasingly make choices that take sustainability into account and demand ambitious sustainability goals from their government. Unfortunately, green investments lag behind societal discourses. While many Germans would like to take public transport, they struggle amid a failing infrastructure. At the same time, German governments are more generous when it comes to subsidizing environmentally friendly behaviour. Consumers were eager to buy (often foreign-made) EVs with government subsidies even before German car makers belatedly decided to pivot away from combustion engines and invest in EVs. In Germany, carbon prices were introduced to nudge industries to invest in more energy efficient production, and a new “heating law” (GEG) was passed in 2023 with the goal to mobilize investments from real-estate owners into energy-efficient heating. Germany also first introduced the EUR 9 (and now the EUR 49) nationwide monthly rail ticket (“Deutschlandticket”), the huge success of which led to a rethinking of the decade-long prioritization of cars and a shift towards investment in rail modernization.

In Korea, things generally work the other way around as environmental consciousness, behaviour and consumption follow investment and government initiatives. Environmentally friendly choices evolve when supply by companies and leadership by the government is provided. Koreans take public transport not primarily out of environmental consciousness but because investment in infrastructure has made it convenient to do so. Now the city of Seoul—after investment in the rail infrastructure—is planning a version of the “Deutschlandticket” that will provide unlimited rides for KRW 65,000 (about EUR 45) a month. It is initially limited to Seoul, but the ambition is for a country-wide expansion (Hankyoreh, 2023, September 12).

Also only recently, Koreans have started buying EVs as Korean companies have developed them with support from the government. Interestingly, Korea is one of the few countries where Tesla does not lead sales in EVs. Tesla’s best-selling Model 3 comes in only in eighth place, with eight of the top ten EVs made by Hyundai-Kia (Statista, 2023a). In fact, EV-only companies like Tesla were excluded from some of the government support, giving an advantage to local producers (Korea Times, 2021, January 7). It is likely that EV sales will catch up with the EV market share in Germany as more and more Hyundai–Kia models become available. At the same time, both companies and governments are heavily investing in technologies necessary for the green transition, such as batteries, semiconductors and hydrogen. The goal is first and foremost to make Korean companies green technology leaders in these fields, with the environmental transition as a secondary goal.

On the other hand, Germany follows a different strategy. Its focus is not the technological leadership of German companies but reducing prices for products needed for the sustainability transition and improving the attractiveness of the “Standort Deutschland” for private investors. The primary justification for this competition for investment are general goals such as economic growth and the creation of jobs, but not development of specific industries. In fact, industrial policies that support a specific company are seen as incompatible with the German version of neoliberalism, the “ordo-liberal” conviction that direct state interventions are bad, because they distort the market. More recently industrial policies are discussed in Germany, but not in the context of supporting the growth of certain industries and firms but to increase market competition and reduce dependence on certain trading partners, in particular Russia and China. This strategy is often referred to as “de-risking” and diversifying supply. The most prominent case recently discussed was the Intel semiconductor factory in Magdeburg, which will receive EUR 10 billion in subsidies (Der Spiegel, 2023, June 19). At the centre of this plan is not the development of a German chip industry that could emerge as a new competitor to global oligopolists such as Intel, TSMC and Samsung, but securing market supply of chips and creating high tech-jobs.

Bottom-Up Dynamics and the Environmental Movement in Germany

After this brief and admittedly incomplete comparison between the status of German and Korean sustainability transition, let us now look at some of the reasons behind the differences. A central element of the explanation is the distinctly different political economies of the transition process or, in other words, by the different political and economic driving forces behind the transition. The German transition was very much initiated from the bottom up by an environmental movement against the resistance of business and conservative political forces. This is exemplified by the rise of the German Green Party from the left-wing fringe in the early 1980s to a governing party, winning 14.8% of the vote in the 2021 parliamentary election. Slowly and gradually the green movement managed to mainstream sustainability. Today, even within conservative political parties such as the FDP and the CDU, as well as conservative newspapers such as the Frankfurter Allgemeine Zeitung and Welt, there is a certain agreement on the goal of sustainability—as long as it is done in a “market-friendly” way, i.e. as long as the state plays a facilitating and not a leading role.

The result of this mainstream consensus was the extension of the German “social market economy” by an ecological dimension. In such a social-ecological market economy the government abstains from direct interventions. It is instead characterized by a focus on market mechanisms supplemented by redistribution. In an ecological market economy, energy prices are increased through carbon trading markets or taxes. These increasing prices are then mitigated through direct subsidies to companies (such as exemption from energy taxes) and welfare spending to households, for example covering heating costs in addition to the Bürgergeld (basic welfare). Through the combination of mild market nudging with redistribution, resistance against the necessity of a green transition has been marginalized to political fringes, and citizens even accept one of the highest electricity prices in the world. The success of this strategy largely depends on the strong redistributive ability of the state that helps mitigate the costs of the transition. In fact, government spending as a share of GDP in Germany was 51% of GDP in 2021, much higher than the 38% redistributed in Korea (OECD, 2023a).

In Korea the redistributive capacity of the state remains limited, and the environmental movement has failed to establish an ideological hegemony. Consequently, the government finds it difficult to implement even the most modest increases in energy prices. On the contrary, the government massively subsidizes energy consumption by financing huge deficits in the state-owned energy provider KEPCO, which ran a deficit of KRW 33 trillion (EUR 23 billion) in 2022 alone (Yonhap, 2023). Due to low energy prices, and the small role that environmental topics play in public discourses, environmental consciousness and willingness to save energy remain weak.

While the environmental movement in Korea is generally well organized, it lacks agenda-setting power. Environmental NGOs focus on domestic environmental protection and not global issues such as climate change. They are quite able to prevent local projects that are environmentally problematic, and even achieved a (short-lived) moratorium on nuclear power plant constructions, but they lack the ability to set the agenda and play little role in the overall political debate. The societal discourses remain dominated by a “development narrative” in which Korea is still seen as an underdeveloped country struggling to succeed and in need of a strong government leading the way. In fact, despite the overall (average) wealth that Korea has achieved, there are—unlike in Germany—still huge parts of the society with a household income below the poverty line, particularly among the elderly. In Korea, about 40% of those aged 66 and older have an income below the poverty line (Germany 11%), i.e. less than half of the median income (OECD, 2023d). This has to do with the fact that many of the older generation have not paid into the public pension system that has only been expanded since the 1990s.

Korea also lacks a comprehensive social security system that could cushion higher energy prices for the socially weak. There is not even a social consensus that the state should support the poor at all, and welfare policies tend to be much more targeted towards certain goals, such as increasing the birth rate or supporting house ownership. The lack of a comprehensive welfare state limits the ability to compensate consumers for increasing energy prices. More generally, Koreans tend to underestimate the importance of Korea for global environmental efforts, despite its role as the seventh largest emitter of CO2—just one place behind Germany. Air pollution is another example where public discourses underestimate Korea’s role, while stressing the contribution of fine dust coming from China (Korea Herald, 2017), although most of the fine dust is actually originating in Korea (Yonhap, 2019, November 20).

The price for the environmental mainstreaming in Germany was that the mission to create a sustainable Germany was co-opted by the social-ecological market economy in which the state sees itself only as a facilitator of private initiatives. This business-friendly logic led to the German transition focusing too much on prices, regulations and incentives, while neglecting direct interventions and public investments. Industries with strong lobbying power were often able to negotiate exemptions, while households with low income and limited savings often felt overwhelmed. For them, despite the more or less generous subsidies, the increase in energy costs, the transition to EVs and the investments (or rent hikes) needed to instal energy efficient heating are a major financial burden. Ultimately, the middle class pays for the brunt of the sustainability transition, while many businesses and high-income households receive subsidies although they would have been able to instal a new heating system or purchase a new EV without them. The downside of this market-oriented strategy is that it neglects necessary public investments, and undermines the ability of the state to implement the more radical changes needed to achieve the obligations of international treaties such as the Paris Agreement. The strong public backlash against the heating law that was stirred by the conservative opposition and newspapers in 2023, often with exaggerated or false reports based on a leaked internal draft of the law, is an example that support for sustainability remains precarious even in Germany (see “Die Zeit”, 2023, September 8).

The Korean Neo-Developmental State and Green Industrial Policies

The green transition in Korea evolves in a completely different way, as the government takes the lead in green industrial policies. Most German policymakers (and in particularly their economic advisors) still need to be persuaded of the positive roles of an interventionist state, while Korean governments, regardless of political leaning, have made it their mission to establish Korea as an industrial and export leader in green technology. Industrial policies here refer to government initiatives that directly support a specific domestic industry. In this sense it is different from market regulatory, macroeconomic and infrastructure policies that apply to all industries alike, as well as measures stimulating consumption of green products. A subsidy for the purchase of an EV as such is thus not an industrial policy, as it benefits not just domestic industries. In Korea, not nudging market actors towards sustainability but direct partnership with domestic businesses in developing green export industries is the goal.

The “K-battery strategy” can serve as an illustration of Korea’s industrial policies. Referring to the global success of K-Pop for branding, this strategy brings together the government, research institutes and battery makers to be “the number one EV battery manufacturing country in the world by 2030” (IEA [International Energy Agency], 2022). The goal is to form an “industrial network” and a “grand alliance” that creates synergy and reduces unnecessary competition. Three of the seven largest battery producers (SK, LG and Samsung) already come from Korea, and until 2030, with government support, they will invest KRW 50 trillion (EUR 35 billion) into research and new facilities. While this government support is focused on tax incentives and support for research and development (R&D) it tends to be much more focused on developing marketable projects than on research as such. More importantly, Korea invests much more in R&D generally, spending 4.9% of its GDP, the second highest share in the OECD after Israel, with Germany trailing at just 3.1%. Of 1,000 employees in Korea 17.3 work in research, the highest in the OECD, compared to just 10.3 in Germany (OECD, 2023b).

This close cooperation between the state and a few large business groups organized by the government has often been referred to as the Korean version of a developmental state; it is credited with Korea’s successful economic development from the 1960s until at least the 1990s (for an overview of the literature see Woo-Cumings, 1999). In fact, while this developmental state has been modified through various reforms, there is a strong path dependency. For example, since the 1990s Korea has refrained from outright protectionism and has preferred more subtle means to protect domestic companies from foreign competitors, while at the same time using market opening to prevent rent-seeking and force domestic companies to invest in competitiveness. The government has lost the ability to order private businesses to invest by controlling their access to capital, research and international markets. Today, the large Korean business conglomerates (chaebol) are multinational companies that generally do not depend on the government for mobilizing funding and research. Consequently, over time, the relationship between state and business has changed from a partnership in which the government leads into a corporatist alliance in which the state has become the junior partner of big business. This is what I have called the Korean “neo-developmental state” (for a more detailed explanation see Kalinowski, 2021). In fact, in many ways coordination between state and big business is now easier than during the times of the classic developmental state, because economic concentration has further intensified. In fact, the key players in EV manufacturing, Hyundai-Kia, and the three battery makers, LG, SK and Samsung, represent four of the five largest chaebol, which together control 50% of assets and 57% of the income of the 76 largest business groups in Korea (KFTC [Korea Fair Trade Commission], 2022, p. 9).

Chaebols are not just companies but conglomerates that consist of multiple companies in diverse business fields. SK, for example, has 165 affiliate companies ranging from oil and petrochemicals to semiconductors and telecommunication. Hyundai has 56 affiliates and Samsung 59. The advantage of this business structure is that a conglomerate can mobilize large sums for new investments within a short period of time. Despite their size and being listed on the stock market, the five largest conglomerates are controlled by their founding families through relatively small shareholdings. This central control ensures that investment priorities within the group are supported by all affiliates. In addition, non-affiliated suppliers are part of the centralized chaebol ecosystem, further adding to the centralized economic structure. This centralized business structure also allows a close cooperation with the government. In fact, when President Moon announced that “Our goal is obvious: to become the undisputed No.1 country for batteries by 2030” (Moon, 2021) the CEOs of all three battery makers were present. The ability to coordinate a whole industry with all relevant people present in a small conference room is the strength of the Korean neo-developmental state. The downsides are equally obvious: a large concentration of economic power in a few hands facilitates corruption, stifles SMEs and undermines markets and competition. In fact, the neo-developmental state is distinctively anti-market by “getting prices wrong” and limiting “wasteful competition” (Amsden, 1989), which is beneficial for companies and rapid economic growth but bad for consumers.

On the other hand, Germany finds it difficult to implement industrial policies due to institutional constraints and an ideological focus on neoliberal (or in German “ordo-liberal”) market regulation. The German political economy is almost the counter-concept of the Korean. State and economy are decentralized, with economic policies split over 16 German states and an economic policy targeted at the strong economic role of SMEs (“Mittelstand”). This Mittelstand is highly specialized, competitive and innovative but lacks the ability to mobilize large amounts of capital for investment. The large number of SMEs are also difficult to coordinate, and any support for one or a few companies will necessarily have ramifications for others, particularly in times of scarce skilled labour. Politically, the situation is complicated further by the EU, which on the one hand extended the market for German products and investments but on the other hand makes industrial policies difficult. In the EU, competition and creating a level playing field, not industrial development, are seen as the guiding principles of the economy. In this context, industrial policies are suspicious as the whole purpose is that governments support domestic industrial development to gain a competitive edge over others. This does not mean that there are no industrial policies in Germany, but they are not geared towards national industrial leadership but primarily towards job creation.

Lessons for Development in a World in Transition

This chapter has looked at two very distinct paths to sustainability that both have their strengths and weaknesses. At this time, it is not possible to judge which of the two paths will be more successful as this will only become clear empirically over the years. The described distinct developments are shaped by the path dependency of distinct political economies, which makes it difficult to simply transfer policies from Germany to Korea or the other way round. Korea can adopt German policies concerning energy, or copy carbon pricing, but that does not mean that the effects or the societal acceptance for them will be the same. Similarly, Germany can copy elements of Korean industrial policy, but that would neither create the same kind of centralized coordination, alter EU scrutiny of subsidies nor overcome resistance from the ordo-liberal establishment. Of course, that does not mean that learning from each other is impossible or futile, but rather the opposite. Knowledge about alternative strategies is essential to avoid hubris as well as the naivety of attempting simple policy transplants. The art of any successful policy learning does not primarily depend on the merit of the adopted policy as such, but on how measures are adapted to the local circumstances.

Finally, when it comes to lessons for countries in the Global South, the comparison also revealed some important insights. Countries with a strong environmental movement and a capable redistributive state can consider lessons from the German path. In particular, some South American countries with strong civil societies might find such a route based on grassroots support feasible, although this would in most cases require modernization of the welfare state from a patronage system to an effective redistribution mechanism. Most countries in the Global South, however, might find the Korean path to be more accessible. Building a developmental state based on state leadership and the nurturing of a domestic capitalist class is not easy, but it arguably easier to adapt to local conditions than building strong market institutions and a strong civil society. Ultimately, the important take-home message is the there are multiple paths to sustainability, and every society must learn how to shape its own path, based on specific strengths and lessons from other countries. The path towards sustainability is not set. It is thus not important to follow a specific path but to arrive at the destination.