Korea starts trading of carbon emission rights

Korea Exchange officials monitor carbon emission rights trading at the state-run bourse’s Busan office Monday. / Yonhap

By Park Si-soo

The trading of carbon emission rights started Monday at the Korea Exchange.

Companies whose annual emission volume exceeds a quota set by the government will have to purchase extra emission rights from other companies.

The total sum of their emission quotas amounts to 1.59 billion tons this year, about 21 percent less than the 2.021 billion tons suggested by the companies.

A total of 502 companies, including Samsung Electronics, Hyundai Motor, POSCO, Hyundai Heavy Industries and Lotte Department Store are trading the rights at the exchange based in Busan.

Analysts said the trading volume will be minimal for a while, given the shortage of sellers on the market.

The carbon trading system is aimed at curbing greenhouse gas emissions to 30 percent below business-as-usual (BAU) levels over the next five years.

Each company has received a quota of 15.98 billion Korean Allowance Unit (KAU) from the government, with one KAU equivalent to a ton of carbon dioxide gas.

On the first trade, the KAU started trading at 7,860 won before closing at 8,640 won. The trading volume reached 1,190 tons, with trading value reaching 9.74 million won. The market runs for two hours from 10 a.m.

Analysts estimated that the affected companies will have to spend nearly 12.7 trillion won ($11.71 billion) over the next three years to buy extra emission rights or to install carbon emission-reducing facilities.

The supply-demand discrepancy has already set off conflicts.

Nearly 240 affected companies, including LG Chem, Lotte Chemical and Korean Air, have filed a collective petition with the ministry, arguing that their quotas are too low to accept.

Seventeen companies, including Korea Zinc, Lotte Aluminium, LS-Nikko Copper and Poongsang Corporation, have filed a collective lawsuit against the ministry for the same reason.

“We feel really burdened,” said an official at a manufacturing firm subject to the trading system. “This will make major companies reluctant to make a large-scale investment on their home soil.”

Another official claimed the emission quota will end up compromising the government’s desperate efforts to boost the country’s sagging economy.

“The government is encouraging big companies to make investment because it is one of the most time-efficient ways to revitalize the economy,” he said. “But, putting a cap on carbon emission at this stage is like pouring cold water on a small candlelight that is poised to become bigger and brighter.”

He went on, “The government pledged to generate 19 trillion won-worth economic effect over the next three years by easing regulations deemed unnecessary. Even if the government reaches the goal, much of the effect would be compromised by this.”

The environment ministry seems unlikely to sympathize with companies’ outcry.

“The emission trading system was successfully introduced in many countries and is operating without any trouble,” said an environment ministry officer familiar with the case. “Companies seem to be overly anxious about this. I believe things will proceed smoothly. And to do so, the government will be flexibly responding to voices from affected companies.”

During the initial stage from 2015 to 2017, companies under the emission target will receive carbon allowances for free.

The market-based environment policy is currently being executed in 34 countries, including members of the European Union, New Zealand and Switzerland, according to the ministry.