Posted : 2014-06-04 17:37
Updated : 2014-06-09 17:39

Businesses object to carbon trading introduction

By Yoon Ja-young

Companies are strongly protesting the government's plan to introduce a greenhouse gas emissions trading system.

Analysts say the government should take into account diverse factors instead of just pushing the plan forward.

The Ministry of Environment announced Wednesday that the country will start the emissions rights trading on the Korea Exchange from next year.

The ministry will set quotas for energy-intensive businesses, and those successfully cutting emissions can sell the remaining rights to those failing to meet their obligations.

Gas emissions trading dates back to the Kyoto Protocol, which set the obligation for developed countries to cut them.

However, the Kyoto Protocol was essentially cancelled in 2011 after major gas emitters abandoned it. Instead, the issue was discussed under a new climate change regime, which included developing countries as well as developed countries.

As a result, only 38 countries, including the 28 EU countries, New Zealand, Switzerland and Kazakhstan are implementing the greenhouse gas cut obligations.

Germany is the only country with a huge manufacturing industry that is adhering to the old scheme.

Korea was given developing country status in the Kyoto Protocol, but it has been pushing for cuts especially after the inauguration of former President Lee Myung-bak who pushed "green growth" as the country's vision.

The ministry recently announced a plan to cap total gas emissions by large businesses at 1.64 billion tons by 2017.

It aims at cutting emissions by 30 percent by 2020 compared with the BAU (business as usual), or the amount estimated without additional efforts to cut emissions.

Business groups represented by the Federation of Korean Industries (FKI), however, announced in a joint statement that the government plan will eat into their corporate competitiveness, placing excessive burdens on them.

They said that it will cost them 28.5 trillion won over the next three years to meet conditions under the plan; and nearly 6 trillion won to buy emissions rights.

If firms fail to cut emissions and there are too few rights trading in the market, they will have to pay fines. Then, the cost could snowball to nearly 30 trillion won.

The FKI said this would lead to companies relocating factories overseas, raise electricity prices due to the costs to power companies, and layoffs.

"Countries that emit most of the gas, like China, the United States, and Japan, aren't implementing the scheme … Korea, which is responsible for only 1.8 percent of the gas emissions, has no reason to lead in emissions trading," the FKI said. China emits 28.6 percent of the world's greenhouse gases, the United States 15.1 percent and Japan 3.8 percent.

"The trading system will be effective in greenhouse gas cuts only when it is implemented with major gas emitting countries like China and the United States," it added, demanding the government review its plan.

The ministry, however, said the FKI was overestimating the costs. It added that emissions rights transactions have been implemented in some provinces of China and the United States. "China plans to adopt it nationwide from 2016," said Park Ryun-min, a ministry official.

He explained that compared with other plans for gas cuts such as a carbon tax, rights transaction lessens the burden on businesses. "It will work as an incentive for them to develop new technologies, transforming the industrial structure to low-carbon. It will create jobs and contribute to economic growth."

He said that the EU succeeded in cutting more gas than their target thanks to the transaction scheme. "It is the best scheme based on the market … Some adopted carbon tax, but the problem here is that it places a burden on the public."

Do Eun-jin, a researcher at the LG Economic Research Institute, said the government should understand why businesses are unhappy with the plan. "The industries that emit gas most are steel, petrochemicals and cement, and most of the companies have to compete globally. They fear that costs will rise," he said. Too strict regulation may tempt them to relocate their production facilities overseas.

He pointed out that while the transactions scheme is based on market mechanisms, it may fail sometimes. If the economy turns sluggish, for instance, companies that failed in management and thus slashed production can get a windfall profit by selling emissions rights.

"The government plans to set a quota (for each company) this year, but it is yet to be seen whether it will be done rationally. Setting the quota is most crucial," he said.

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