South Korean lawmakers are set to approve an emissions-trading system that gives companies more free permits and longer lead time than originally planned to cut back on pollution linked to climate change.
The National Assembly plans to vote before the end of today on a bill that sets 2015 as the deadline for starting what would be the third cap-and-trade system in Asia. It was backed on February 8 by ruling and opposition parties of the assembly’s committee on climate changes. The ruling Saenuri Party has a majority of 174 seats in parliament, indicating the legislation will pass its final hurdle, even without the backing of opposition parties.
South Korea, which originally planned to start emissions trading in 2013, postponed it to 2015 after the nation’s largest companies opposed the plan, saying it will hurt their competitiveness in global markets. In the latest revision, the government raised the number of permits to be distributed free and lowered ceilings on fines for non-compliance.
“The government doesn’t want to shock industries with the scheme,” Moon Young Seok, vice president of state-run Korea Energy Economics Institute, said in an interview. “It is taking a step forward as planned, but abating the pace.”
South Korea is the world’s eighth-largest carbon emitter based on 2009 figures from the International Energy Agency. The country’s greenhouse-gas emissions almost doubled since 1990 to 580 million metric tons in 2005, making it the fastest-growing emissions source among 34 nations in the Organization for Economic Cooperation and Development, Bloomberg New Energy Finance said in February 9 report.
Australia, New Zealand
Australia voted last year to start a cap-and-trade system in 2015. New Zealand already started emissions trading in 2009, and the European Union has operated the world’s biggest emissions market since 2005.
South Korea set a target in November 2009 to cut emissions by 30 per cent from forecast levels by the end of the decade. The country announced this voluntary target at the United Nations climate summit in Copenhagen in December 2009.
South Korea imposed reduction goals in October 2011 on 458 polluters starting this year. They range from factories, buildings and livestock farms that produce at least 25,000 tons of carbon dioxide a year.
The Federation of Korean Industries and the Korea Chamber of Commerce & Industry, the nation’s top two business lobbies, asked the government to delay introducing the plan, saying it will increase costs and make industry less competitive against countries that don’t impose charges on emissions.
Unsettled business
“There’s a long way to go until the emission trading system will be settled in the country,” said Chung Suh Yong, a professor at Korea University in Seoul.
Kim Tae Yoon, head of the Strategic Industries Team of the Federation of Korean Industries, which has 500 members, said companies will assess whether to invest in reducing carbons or buy permits on the market.
The government is already providing tax and financial incentives to encourage companies to cut their discharges, including a supplementary payment, or feed-in tariff, for renewable energy generated from 2002 until 2011. These tariffs were replaced with a 2 per cent renewable portfolio standard, starting this year. The country’s 14 power generators and other energy producers are required to derive a fixed quota of their energy output from renewable sources, including solar and wind. The mandatory cap will be raised to 10 per cent by 2022.
Free permits
The Korean government may give companies more than 95 per cent of their permits for free for three to six years, according to the bill. The government has yet to announce any rules governing compliance, such as how many so called international offsets would be allowed in the program.
South Korea would emit 742 million tons in 2020 assuming it has no program to cut emissions, Andrea Du Rietz, a London-based analyst at New Energy Finance, said in the note on February 9.
The country would need to cut its 2020 emissions to 520 million tons to meet a 30 per cent reduction target, generating demand for abatement of 775 million metric tons over six years, Reitz said. Those reductions could come from lower emissions inside South Korea or spending on offsets, whereby richer nations wins credits for funding pollution abatement in poorer countries, Rietz said.
The penalty is set at three times the prevailing market price with a maximum of 100,000 won ($89.17) per ton. The government raised the free allocation from original 90 per cent, and lowered the upper limit on penalties five times during consultations with industries.
