Emissions trading in Korea has been a long discussed agenda and now it is almost at the final stage of policy preparation. According to Bloomberg New Energy Finance report, Korea is the fastest emission growing nation among OECD member states and it is now the seventh-largest greenhouse gas emitter. With a target of reducing emissions from business-as-usual scenarios by 2020, the government is implementing various measures, including a domestic emissions trading system from Jan. 1, 2015.

In 2010, the government passed the Enforcement Decree of the Framework Act on Low Carbon. South Korean modality of low-carbon green growth is currently a reference model for many developing nations to achieve their sustainable-development goals. The same Framework Act provided a foundation for the domestic emissions trading system.

Similar to the EU ETS in some aspects, the Korean ETS will have a three-phase program; Phase I (2015-2017), Phase II (2018-2020), and Phase III (2021-2026). About 480 emitters that cover roughly 60 percent of the nation’s GHG emissions will be covered by the Korean ETS. Companies that emit more than 125,000 tCO2e annually and single installations that emit over 25,000 tCO2e annually will come under the scope of the Korean ETS. Unlike the EU ETS, there will be restrictions on using offsets from international sources in the first two phases.

Price volatility, as experienced in the EU ETS, will be one of the important aspects of the Korean ETS and the government may take required actions such as reserving up to 25 percent of permits and setting price ceilings and floors to stabilize the market. The non-compliance penalty could be up to 100,000 won per ton.

Industries on one hand are lobbying with the government on various aspects of the Korean ETS, and on the other hand they have to be prepared to implement it without any significant negative impact on their economic benefits. Various capacity-building programs are being organized and most of them are focused on the history and experience learned from the EU ETS and other existing carbon markets. The Korean ETS case could be different than other systems. Many industries will require internal decision-making tools through which they can decide which options (whether buy or make) will be to their economic benefit. Various aspects such as policy, technology, price structure may alter the decision so the businesses will be required to understand those aspects and design their carbon asset management plan in advance.

For some installations, buying emission credits for a year could be beneficial and implementing emission reduction measures itself will be beneficial for another year. The number of installations that a company owns, scale of the facilities, company’s equity, revenue generated historically and expected revenue, fuel price, carbon price etc. can also have impact on the decision making. Companies need to have a better understanding on all related matters and prepare themselves to reduce their cost of carbon management. This is why priority should be given to organize a specific training program and development of an appropriate tool through which facilities can manage their carbon assets more sustainably.

By Dharma K.C

Dharma K.C is a senior consultant of Ecoeye, a climate change consulting company in Korea. He can be reached at kcdharma@ecoeye.com. ― Ed.