Bloomberg News

South Korea Delays Bill Challenging Top-Emitter Ranking: Energy

February 27, 2012

South Korea delayed approving a cap- and-trade system to cut carbon emissions, setting back efforts to regulate factories and power plants in the fastest-growing producer of greenhouse gases among industrial democracies.

The National Assembly’s Legislative and Judiciary Committee put off the vote for at least a month, chairman Woo Yoon Keun told lawmakers today. The bill to establish the third cap-and- trade system in Asia by 2015 will probably be taken up again in April when the assembly reconvenes, he said.

The surprise postponement was made even after Asia’s fourth-largest economy offered concessions earlier this month, agreeing to push back the program’s start by two years to 2015 as the largest companies said it will hurt competitiveness. That’s the same year chosen as a deadline for signing a global agreement on emissions by the nearly 200 nations holding climate talks in December. The accord would take effect as late as 2020.

“There’s a long way to go until the emission trading system will be settled in the country,” Chung Suh Yong, a professor at Korea University in Seoul, said before the delay.

The plan, which got stuck in a logjam of bills today, has been backed by ruling and opposition parties in a committee vote on Feb. 8. The ruling Saenuri Party has a majority of 174 seats in parliament, indicating the legislation will pass its final hurdle even without opposition support.

Too Many Details

Lawmakers were concerned the carbon bill left too many details to be resolved after its passage, Shin Jiho, a member of ruling party, said at today’s hearing.

“While a bill should provide clear guidelines, the emissions bill is leaving a considerably large portion of those guidelines” to be determined by government enforcement, he said. Legislators’ questions prompted Woo to suggest delaying the vote.

South Korea is the world’s eighth-largest carbon emitter based on 2009 figures from the International Energy Agency. The country’s greenhouse-gas emissions jumped to about 640 million metric tons in 2011 from 350 million metric tons in 1990, making it the fastest-growing emissions source among 34 nations in the Organization for Economic Cooperation and Development, Bloomberg New Energy Finance said in Feb. 9 report.

Australia voted last year to start a cap-and-trade system in 2015. New Zealand already started emissions trading in 2009, and the European Union has operated the world’s biggest emissions market since 2005.

Voluntary Target

South Korea set a target in November 2009 to cut emissions by 30 percent from forecast levels by the end of the decade. The country announced this voluntary target at the United Nations climate summit in Copenhagen in December 2009.

South Korea imposed reduction goals in October 2011 on 458 polluters starting this year. They range from factories, buildings and livestock farms that produce at least 25,000 tons of carbon dioxide a year.

The Federation of Korean Industries and the Korea Chamber of Commerce & Industry, the nation’s top two business lobbies, asked the government to delay introducing the plan, saying it will increase costs and make industry less competitive against countries that don’t impose charges on emissions.

Kim Tae Yoon, head of the Strategic Industries Team of the Federation of Korean Industries, which has 500 members, said companies will assess whether to invest in reducing carbons or buy permits on the market.

Slowing the Pace

“The government doesn’t want to shock industries with the scheme,” Moon Young Seok, vice president of state-run Korea Energy Economics Institute, said in an interview before today’s delay was announced. “It is taking a step forward as planned, but abating the pace.”

The government is already providing tax and financial incentives to encourage companies to cut their discharges, including a supplementary payment, or feed-in tariff, for renewable energy generated from 2002 until 2011.

These tariffs were replaced with a 2 percent renewable portfolio standard, starting this year. The country’s 14 power generators and other energy producers are required to derive a fixed quota of their energy output from renewable sources, including solar and wind. The mandatory cap will be raised to 10 percent by 2022.

The Korean government may give companies more than 95 percent of their permits for free for three to six years, according to the bill. The government has yet to announce any rules governing compliance, such as how many so called international offsets would be allowed in the program.

Business as Usual

South Korea would emit 742 million tons in 2020 assuming it has no program to cut emissions, Andrea Du Rietz, a London-based analyst at New Energy Finance, said in the note on Feb. 9.

The country would need to cut its 2020 emissions to 520 million tons to meet a 30 percent reduction target, generating demand for abatement of 775 million metric tons over six years, Reitz said. Those reductions could come from lower emissions inside South Korea or spending on offsets, whereby richer nations wins credits for funding pollution abatement in poorer countries, Rietz said.

Certified Emission Reductions for December delivery in the UN’s Clean Development Mechanism rose 0.8 percent to 5.08 euros ($6.81) today on the ICE Futures Europe exchange in London. The credits are down 56 percent from a year ago on concern that the market is oversupplied.

To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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