South Korea has banned the use of international offsets in its emissions trading scheme, leaving Australia isolated as one of the few places planning to allow in a large number of carbon credits from projects in developing countries.
The South Korean government will force its large greenhouse gas emitters to meet carbon targets through domestic cuts alone from the start of its scheme in 2015 until at least 2020.
Under proposed rules released this week, carbon credits created through United Nations-approved clean energy projects in the developing world will not be permitted until 2021. After that, businesses can use them to offset 10 per cent of their emissions.
It follows the European Union increasing limits on the UN offsets it allows in its scheme, and comes as it is considering ways to increase its depressed carbon price.
Under current plans, the Australian scheme allows businesses to offset up to half of their emissions with international credits from 2015.
The number of offsets is likely to be limited between 2015 and 2018 by a minimum, or floor, carbon price of $15 a tonne. Even if companies were to buy offsets during these years, they would have to pay a ”top-up” charge to ensure they paid at least $15.
But analysts have predicted the flood of available UN credits may lead to the Australian price crashing to $4 once the floor price is removed if nothing is done to limit the number of international offsets. It would result in nearly all the cuts Australia paid for happening offshore.
Erwin Jackson, deputy chief executive of the Climate Institute, said South Korea’s stance reflected a trend of carbon schemes limiting their linkage to international markets.
He said Australia might need to alter its scheme to ensure businesses had an incentive to cut emissions at home.
”At the moment countries are insulating themselves against weakness in the international market to ensure their carbon prices are high enough to drive investments in clean energy,” he said.
California will not allow international offsets when it starts trading next year, and China is said to be considering a floor price. New Zealand allows unlimited use of offsets.
South Korea’s decision comes as the federal government is struggling to find a way to stabilise the price once the carbon tax becomes an emissions trading scheme in 2015. Legislation to tackle the issue is expected later this year.
Greens Leader Christine Milne said South Korea and California were focused on driving domestic cuts quickly and their decision reflected risks associated with international offset markets. She said the Greens had worked to limit the number and type of international permits allowed.
A government spokesman said Treasury analysis showed that banning the use of international offsets would double the cost of Australia reaching its bipartisan emissions target.
Coalition climate action spokesman Greg Hunt said South Korea’s decision showed Labor’s policy was not sustainable.
