It is a system for cutting production of gases that cause global warming.
Recently, the South Korean government announced that it would open a market for trading carbon dioxide emissions at the end of this year. Why is the market being established and how would trading take place?Carbon dioxide is important to human life because it plays a crucial role in the earth’s ecosystem. For instance, carbon dioxide is required, along with water and sunlight, for photosynthesis in plants, which produce glucose and oxygen as byproducts.
Meteorologists have determined that excessive concentration of carbon dioxide in the earth’s atmosphere causes global warming. Global warming results from excessive emission of greenhouse gases, of which carbon dioxide accounts for more than 80 percent. Carbon dioxide is mainly emitted from burning coal or fossil fuel.
At the 1992 United Nations Conference on Environment and Development in Rio de Janeiro, Brazil, 154 member countries signed the UN Framework Convention on Climate Change, the first global effort to reduce global warming by cutting carbon dioxide emissions. To implement the principles set out in the framework convention, 38 industrialized nations agreed to the Kyoto Protocol in 1997 in Kyoto, Japan. It went into effect in 2005, after years of delay.
Under the Kyoto Protocol, 36 industrialized countries have committed to cut their combined emissions by at least 5 percent below 1990 levels between 2008 and 2012. Each country that signed the protocol agreed to its own specific target. The United States and Australia later rejected the protocol.
Under the protocol, emissions trading was also introduced in a bid to reduce the burden on countries that have to reduce carbon dioxide emissions. “Carbon markets” were first introduced in London in 2002; similar markets have been set up in the United States, Germany and France.
According to the International Bank for Reconstruction and Development (IBRD), the size of the emissions trading market had skyrocketed from $500 million in 2004 to $11 billion in 2005, and nearly tripled to $30 billion last year.
The market size grew because industrialized countries had imposed allowances of greenhouse gas emissions on their companies. These industrialized countries had cut their greenhouse gas emissions because of the Kyoto Protocol.
Korea was categorized as a developing country when the protocol was agreed to and has not been required to cut carbon dioxide emissions.
According to the Commerce Industry and Energy Ministry, South Korea was the world’s 10th-largest emitter of carbon dioxide, with 590 million tons of carbon dioxide emissions in 2004. Thus, it is likely that Korea will be required to cut emissions after 2013. This is why the government decided to open the country’s emissions trading market.
The trading is conducted with the transferable unit of one ton of carbon dioxide. One ton of carbon dioxide is traded at prices from between 8 and 10 euros, up to 30 euros ($11.34 to $14.18, up to $42.50) among European Union countries.
In South Korea, it is likely to be traded at the price of 5,000 won ($5.40) per ton.
The trade might seem complicated at first. As a simple illustration, let’s say company A emits 100 tons of carbon dioxide per year. If the company reports to the Korean Energy Management Corporation that it would reduce greenhouse gas emissions by 10 tons per year, the government would verify the company’s report and set the amount of emission cuts required of the company.
If at the end of the year company A cuts emissions by 30 tons, following verification, the government would give it credits or allowances to emit 20 tons of carbon dioxide.
If company B, required to reduce its emissions by 50 tons, cuts only 30 tons, it would have to buy an equivalent number of credits from company A to compensate for the 20 tons of emissions Company B missed in its target.
Company A earns a profit by reducing its emissions, and Company B satisfies compliance with the required emissions cut by buying credits at an expense lower than possible fines imposed by the government. At the same time, the government would be able to maintain the overall amount of carbon dioxide emissions through the market.
Emission credits are also traded like stocks. There is a fund to invest in a company that is likely to reduce emissions efficiently. Last month, such a fund was introduced in Korea.
The United States and the European Union have been at odds on how to reduce greenhouse gas emissions. The EU has been actively complying with required emissions cuts; meanwhile, the United States withdrew from the Kyoto Protocol in 2001 to protect its domestic industries. Instead, the United States is proposing an initiative involving voluntary measures to be devised through a conference last week of major emitting countries.
There is also criticism that emissions trading would shift the burden from major polluting countries or companies that recklessly emit greenhouse gases. For instance, a company that buys credits for 100 tons of greenhouse gas emissions could try to emit greenhouse gases until it uses up the credits.
“It is possible that the environmental issues could be taken over by economic rules if the credits are traded like stocks,” said Ahn Jun-kwan, an official at the Korean Federation for Environmental Movement. “Diverse alternative options and complementary measures are necessary to efficiently cut emissions.”
Another criticism is that developing countries would be more severely damaged than industrialized countries when the emission cuts are required of all countries.
Critics argue that developing countries would be burdened with tremendous expenses since these countries trail industrialized countries in technology to control emissions.
Some argue, moreover, that it is unfair for developing countries to shoulder responsibility for environmental problems caused by industrialized countries.
By Jang Wook JoongAng Ilbo [soejung@joongang.co.kr]
with the Korea JoongAng Daily
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