Bloomberg News

Korea’s Carbon-Trading Systems Set for Testing Next Year

November 14, 2012

South Korea, the fastest-growing greenhouse-gas emitter among richer nations, plans to begin trials next year of its cap-and-trade system and will select an exchange in the first half, a top climate official said.

The country, which announced regulatory procedures this week for trading to start in 2015, is following the European Union’s model for emissions trading, Nam Kwang Hee, director general of the Presidential Committee on Green Growth, said in a phone interview. Still, South Korea will concentrate on domestic trading in the first phase and wait until 2018 before considering links with Europe and other countries, he said.

“We will focus on settling the new system at home in the initial phase of operations,” Nam said. “It would be after the initial stage of operations that we would begin discussions over a linkage to other country trading systems.”

South Korea, which pledged to reduce greenhouse-gas emissions by 30 percent from forecast levels in 2020, is starting with fewer global carbon connections than peers such as Australia. It won’t allow so-called offsets, awarded for spending on climate projects overseas, until after 2020.

“South Korea is keeping the door open to linking to other trading programs around the world,” said Milo Sjardin, the Singapore-based head of Asia-Pacific analysis at Bloomberg New Energy Finance. “This can include the EU, Australia, California or others. We can envisage a situation in which the EU, Australia and Korea are linked in one trading program.”

Australia said it will allow its emitters from the onset of cap and trade system in 2015 to import a mix of UN offsets and EU allowances for as much as 50 percent of their compliance.

Carbon Exchanges

The government is considering the Korea Exchange or the Korea Power Exchange as emission-trading platforms, Nam said. The selection will be made in the first half of 2013 unless the government creates a new exchange for carbon, he said.

Korea is trying to encourage its power makers and industrial companies to switch to lower-carbon technologies and get consumers to use less electricity, he said.

The government will give emitters all their allowances for free from 2015 until 2017, rejecting requests for giveaways through 2020. The nation announced guidelines on Nov. 13 for awarding as much as 97 percent of firms’ emission allowances for free between 2018 and 2020.

Steelmakers, cement makers and other emitters accounting for 70 percent of South Korea’s total greenhouse gas emissions would get 97 percent of their emission allowances free, according to Nam’s preliminary estimates.

‘Changed Reality’

The carbon caps set for 2020 may need to be adjusted because economic growth is slower and demand for power is higher than projected in 2007, Nam said. “There’s a risk of allocating overestimated allowances, as economic situations changed a lot,” Nam said. “Around 2014, we may need to review reduction targets comprehensively to reflect changed reality.”

South Korea’s economy expanded 1.6 percent from a year earlier in the third quarter, the slowest pace since 2009. The Bank of Korea projected a 3.2 percent growth for next year in its latest forecast on Oct. 11, lowering it from 3.8 percent projected in July and 4.2 percent in April.

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

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net


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