Carbon trading issues, prospects
There are 10 markets for carbon emissions trading in the world with the EU accounting for nearly three-fourths of the activity. Total trading volume in the global carbon market was 10.9 billion tons of carbon dioxide in 2012, up 25.3 percent from 2011, but the value declined 36.7 percent to 6.2 billion euros ($8.4 billion).The EU’s economic slump since 2009 has depressed carbon emissions and created a glut in the supply of emission rights. By the end of 2012, a surplus of about 2 billion tons of carbon dioxide emissions rights were available on the market. Prices for the rights in the EU declined from $18.90 per ton carbon dioxide in January 2011 to $6.07 in August 2013.
The EU is strengthening assessments of cap amounts, reducing caps by year, expanding the number of industries that can trade emissions and delaying the release of some rights. Various measures are likely to help abate the steep decline in the price of emissions permits, but a rebound to previous levels cannot be expected soon.
Another issue in the global carbon market is China’s cap and trading of emissions. China has invested more than $200 billion to comply with the clean development mechanism (CDM) of the Kyoto Protocol, but greenhouse gas emissions have increased by an average of 8.5 percent annually since 2007. In contrast, the United States’ annual emissions declined 2.1 percent and the EU’s 2.2 percent on average.
This has spurred China’s plan to launch a carbon emissions trading system in 2015. Pilot trading systems are to be installed in Shenzhen, Shanghai, Beijing, Tianjin, Chongqing, Guangdong and Hebei. The total allocation for the seven pilot areas is more than 600 million tons of carbon dioxide. That would likely make China the No. 2 carbon emissions trading market in the world after the EU. However, to expand emissions trading nationwide in 2015, adjustments to the system and policy direction must be transparent and understood by industries.
Third is the possible withering of Australia’s carbon tax. Australia became the world’s first and only country to impose a fixed-price carbon tax scheme. It called for a tax of 23 Australian dollars ($21.62) per ton of carbon dioxide through 2015. However, the carbon tax was sharply higher than the EU’s emission rights price, placing a heavy burden on the economy. The opposition Liberal Party, tapping into public and corporate opposition to the additional tax burden, won the Australian general election in September. The Liberal government aims to quickly scrap the carbon tax, and the fate of a 2014 emissions trading plan proposed by the previous administration is uncertain. But if emissions trading begins, the price of emissions would fall to EU levels. Under the trading plan, Australia also would link up with the EU’s carbon market in 2015 to allow its companies to purchase EU’s emissions rights, which would reduce costs for Australian companies.
Korea ranks seventh in the world for greenhouse gas emissions and plans to promote an emissions trading system in 2015 with a target of reducing total global greenhouse gas emissions 30 percent by 2020. In order to minimize errors as a latecomer, Korea should look at cases of failure in EU and Australia, as well as benchmark new markets such as China’s, to build a trading system that raises Korean corporate competitiveness and synergy.
To this end, a complementary system is needed, such as introducing a flexible cap allocation system and permitting purchase of overseas emissions rights. Companies obviously must step up preparations for emissions trading by securing technologies that are efficient and pollution free. In particular, energy management systems should be encouraged for more efficient use of power in factories and buildings. It also will be important to maximize efficiency of greenhouse gas emissions reduction by sharing best practices for each work site.
Furthermore, businesses that have entered or plan to enter China must be mindful of its emissions trading plans. There are more than 3,300 Korean manufacturers in China and about 1,000 of them are in one of the seven pilot trading areas. It is important that these businesses prepare by getting ready for an emissions trading system throughout China by 2015. To this end, by internalizing the reduction of greenhouse gas emissions, businesses can secure emissions reduction certification in China through Chinese CDM-related projects.
*The writer is research fellow at the Samsung Economic Research Institute. Visit www.seriworld.org for more SERI reports.
by Cho Yong-kwon
with the Korea JoongAng Daily
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