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Korea passes ETS but details are hazy

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May 3, 2012

Korea passes ETS but details are hazy

A steel plant in South Korea Image source: Wikimedia Commons

Legislation for a mandatory greenhouse gas emissions trading scheme (ETS) has passed South Korea's unicameral National Assembly with bipartisan support. However, many important details have still to be finalised. This FlagPost provides a summary of the Korean scheme with a little bit of background.

With a planned start date of 1 January 2015, the Korean ETS is expected to cover at least 450 entities and about 60 per cent of national greenhouse gas emissions. All industries and buildings are included in the scheme and must participate if their annual emissions exceed the annual emissions threshold for liability. The threshold has been set at 25,000 tonnes of carbon dioxide equivalent, which is the same as Australia's.

The Korean Government announced in 2009 its intention to reduce national emissions by 30 per cent on business-as-usual projected levels by 2020. For Asia's fourth largest economy, this would mean that emissions in 2020 are 4 per cent less than in 2005, despite economic growth in the intervening period. The ETS is not expected to deliver the full cut but will be an element of the greater effort. The ETS target (or cap) is not known at this stage.

Three initial phases have been outlined. The first will go from 2015 to 2017. The second will start in 2018 and finish in 2020. The third phase, and subsequent ones, are expected to be 5-year terms. Although no specific assistance for exposed industries has been provided (so far), the government will begin by providing 95 per cent of all carbon credits for free, auctioning the remaining 5 per cent. It is expected that the level of free allocations will decrease gradually leading eventually to full auctioning of permits. Banking and borrowing will be allowed, but any limitations on this have not be

made clear. Non-compliance would be penalised with a fee of around AUD85 for each tonne over a company's cap.

Carbon credits from the Kyoto Protocol's international mechanisms will be accepted under the Korean ETS. It is not clear yet whether official links will be established with other schemes around the world (such as the European scheme, Australia's, New Zealand's, and smaller regional schemes in North America) but it is likely that discussions will begin soon.

In the lead up to a full ETS, the South Korean government established in 2010 a Greenhouse Gas and Energy Target Management System. Under this scheme, companies with emissions above the 25,000-tonne threshold are required to monitor, report on and limit their annual emissions to below set caps. There are no credits or tradable entities. Simply, those companies that exceed their annual cap are penalised with a one-off fee of around AUD8,500. It is expected that the existing scheme will become redundant under the new ETS in 2015.

(Most of the information in this FlagPost is sourced from PointCarbon)