By Kim Rahn
Korean companies will begin trading their carbon-emission rights here on Jan. 1 of next year, bourse operator, the Korea Exchange (KRX), said Wednesday.
The KRX has been selected as the sole operator of the emission-trading system.
Some 500 companies will be able to sell or buy emission allowances through a market system, similar to the stock market.
The selection of the KRX follows the National Assembly's 2012 approval of a related bill to introduce the greenhouse gas emission-trading system, designed to reduce carbon dioxide (CO2) emissions and tackle climate change.
Under the system, the government will set the amount of CO2 emissions allowed for each company. One that emits less than the cap will be able to sell the remaining amount to the market, while another firm that emits more than its cap will be able to buy the rights to do so through the market.
"The market will help the country and companies achieve their goals to reduce greenhouse gases," Lee Ho-chul, president and COO of the KRX, said at a media briefing in Seoul.
He said the Korean market can be connected to Chinese or European markets. "We can develop various energy-related derivatives. The system will also help the financial industry create new value through related products and services, including brokerage or consulting agencies on emissions."
Companies that release more than 125,000 tons of greenhouse gases per year will be subject to the trading, and the Ministry of Environment expects the number to be around 500 as of 2014. Those companies will become members of the emission trading market.
The ministry will set each company's cap by August. Korea announced in 2009 that it will reduce its greenhouse gas emission levels by 30 percent by 2020.
The firms will be able to trade the emission rights in one-ton units. The market will be operated for two hours from 10 a.m. to noon.
"We decided to have such a short time considering that the number of participants is limited and most of them have no experience in such trades. Operation hours will be extended gradually," Lee said.
The KRX will collect expert and public opinion on the system through March. After setting up related IT systems, it will have a mock operation in October, so participating companies can practice the trading.
The KRX will not collect trading fees until any bugs are worked out of the system.
It will adopt other measures, such as a circuit breaker, to prevent rapid changes of prices that can take place when a small number of companies with huge emission rights do not meet matching buyers or sellers.
"The emissions trading system is significant in terms of the fact that a social problem such as pollution can be solved by the market," Lee said.