Govt. focusing on boosting carbon trading

By Yoon Ja-young

The government is seeking ways to boost carbon emissions rights trading, which is failing to take root in the country.

The Ministry of Strategy and Finance established the Climate Economy Division within the Future and Social Policy Bureau last week, which will be supporting the government’s climate change schemes.

Its major task is to increase carbon trading, setting up and coordinating plans on emissions quotas, as well as controlling the emissions rights market. It will have government officials from the finance ministry and the environment ministry.

“The reorganization is expected to invigorate the emissions rights trading market as well as help with the strategic distribution of resources in the mid-to-long term perspective,” a spokesperson for the finance ministry said.

The move also reflects a paradigm shift, in which carbon trading is seen by the government as an incentive, not a regulation on businesses that only aims at environmental protection.

Korea adopted carbon trading in January last year, as part of its plan to reduce greenhouse gas emissions by 37 percent by 2030 from business-as-usual levels. For this, the environment ministry notified 525 businesses of their quotas for the three years between 2015 and 2017. If they use their quotas in that period, they should purchase emissions rights on the carbon trading market. If they fail to purchase the rights, they will be penalized as much as three times the market price. Businesses that succeed in curbing their carbon dioxide emissions can sell their surplus quotas on the market.

But the new scheme has had a bumpy start. Businesses complained about the quotas from the beginning and dozens of them, including Hyundai Steel, have issued lawsuits. Even businesses that emit less than their quota are reluctant to sell leftover emissions rights, saying they are preparing for a future shortage.

This contrasts with what the European Union went through. According to the Hyundai Research Institute, the EU saw the price of emissions rights plunge in the beginning because it allocated excessive quotas. “The carbon emissions trading market also contracted rapidly due to the global financial crisis,” said Lee Hae-jeong, a senior researcher at the institute.

Because there is far more demand than supply in the Korean market, there have not been many transactions. According to the Korea Exchange, the country’s bourse operator that is in charge of the emissions rights market, trading has totaled only 3.4 million tons, which is less than 1 percent of the 543.2 million tons allocated by the government.

Some experts say the government should ban businesses from rolling over their leftover quotas to the next year to force a sale now.

The Hyundai Research Institute said the EU had successfully decoupled economic growth and gas emissions. While gross domestic product increased 45 percent between 1990 and 2012, gas emissions were slashed by 19 percent.

But Lee also said the risks of carbon leakage linger. “It means individual businesses can move their production facilities overseas upon rising production costs following strengthened regulations on greenhouse gases,” she said. “There should be measures to prevent carbon-intensive manufacturers, such as petrochemical and steels, from moving abroad.”