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Challenges ahead for carbon trade scheme

A plan to introduce a greenhouse gas emissions trading program didn’t generate as much debate in Korea as in the U.S. and some other countries before it passed the parliament earlier this month.

But bipartisan support for the plan doesn’t guarantee a smooth glide toward its implementation, experts warned.

Instead, a bitter debate may be just starting as the government moves to design its fine details, which may decide the country’s future efforts toward emissions reductions, they said.

“The passed bill lacks details,” said Ahn Byung-ok, head of research at the Institute for Climate Change Action. “It leaves core elements of the plan to be determined at the ordinance level,” he pointed out.

On May 2, the National Assembly passed the legislation on the so-called cap-and-trade system with near unanimity. Of the 151 lawmakers who participated in the ballot, 148 voted for the bill.

It was a stark contrast with the U.S. and many other countries, where such a plan to put a price on carbon had faced strong resistance from industries and thus had been deeply divisive.

The proposal envisions a national carbon exchange to launch in January 2015, where companies will buy or sell rights to emit carbon dioxide.

It is projected to cover around 60 percent of the country’s carbon pollution by imposing limits on facilities that produce more than 25,000 tons of CO2 a year. About 450 facilities are likely to become subject to it. Penalties on non-compliers are set at three times the prevailing market price of carbon or a maximum of 100,000 won ($87) per ton.

Ninety-five percent of the permits will be given away for free in the first few years, with some export-oriented industries receiving a full 100 percent. Each permit represents a ton of carbon emissions.

“Korea has rolled out many projects on green growth so far, but the carbon emissions trading scheme is the most important of all and the one that will propel the ongoing efforts to a new level,” said Yang Soo-gil, chairman of the Presidential Committee on Green Growth.

His committee will solicit opinions from the general public, experts and industries to prepare a draft for an enforcement ordinance for the scheme, he said.

Kim Sang-goo, an analyst at Kiwoom Securities Co., said the endorsement of the cap-and-trade scheme is a key milestone in the country’s push to turn Asia’s fourth-largest economy greener. Korea aims to reduce carbon emissions by 30 percent from projected levels by 2020.

“We anticipate a major shift in the country’s overall energy policies to follow in a near future to steer the domestic economy toward a low-carbon green economy,” he said.

Yet, the path for the shift as well as the cap-and-trade plan’s implementation could be more controversial, as interested industries are likely to increase efforts to minimize the expected burden.

Korea is the world’s eighth-largest emitter of carbon pollution 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.

The local business community had opposed the plan from its inception, saying that it would put Korean firms at a disadvantage in the global market because their competitors in bigger economies and bigger polluters ― namely the U.S., Japan and China ― are not subject to such a cap.

Their resistance, however, failed to resonate with politicians looking to capitalize on the anti-business in a year of two crucial elections.

“Note that the passed law stipulates that 95 percent or more of the permits may be given for free. I bet industries would now fight to get that ratio higher,” Ahn said.

And exactly for that reason, many observers are closely watching a tussle between two governmental ministries as to who will oversee the implementation of the plan.

The Ministry of Knowledge Economy, formerly the commerce ministry and thus considered more favorable to industries, is at odds with the Environmental Ministry, claiming that it should be in charge of the envisioned program.

“The greenhouse gas reduction plans are part of the Knowledge Ministry’s main areas of concern because they deal mainly with the industrial sectors,” a ministry official insisted.

The ministry plans to run a pilot carbon trading program in June, despite strong opposition from the Environmental Ministry, which has been running a similar program since 2010.

The European Union is operating the world’s biggest emissions market since 2005, while New Zealand started emissions trading in 2009. Australia is to introduce the scheme in 2015.

By Lee Sun-young (