Carbon emissions trading kicks off
On Monday, the Ministry of Environment and the Korea Exchange held the opening ceremony of the emissions trading market at the exchange’s main office in Busan and kicked off the trading.
“With the opening of an emissions trading market, Korea can now lead in carbon emissions reductions,” said Korea Exchange Chairman and CEO Choi Kyung-soo. “We won’t focus on the short-term achievements of this market, but gather wisdom and support to develop this market in the long term.”
Korea’s emissions trading plan went into effect this year. The government’s target is to reduce the country’s normal volume of greenhouse gas (GHG) emissions by 30 percent by 2020.
Last month, the government announced that 525 companies will be subject to GHS emissions regulations and allocated a total of 1.59 billion Korean Allowance Unit (KAU) emission rights to them, which can be used from 2015 to 2017. Companies in power generation and the energy industry were given the most, 735 million KAU.
One KAU is equivalent to one ton of GHG. The government previously set the base price for 1 KAU at 10,000 won ($9).
In the trading market, companies can trade their emissions trading rights like a stock. For instance, if a company intends to release more GHG than it is given, it will have to purchase additional rights in order to avoid a fine. The fines will triple the trading price of GHG emission rights with a maximum limit set at 100,000 won per additional ton.
Korea Exchange said the carbon emissions trading market is open from 10 a.m. to noon and companies that have been given GHG emissions trading rights can participate along with three state-run banks. So far, 499 out of 525 companies have registered in the market.
On debut day, the price for emissions rights closed at 8,640 won, a 9.9 percent increase from the opening price of 7,860 won, Korea Exchange said.
Korea Exchange said its carbon emissions rights price on Monday was similar to trade on the European Energy Exchange, where the latest price was 6.70 euros ($8). But the trading volume on the first day was only 1,190 KAU.
Analysts said the emissions trading market for this year is expected to be unpopular as companies are allowed to use their 2016 and 2017 emissions rights this year, so there’s no reason for them to spend money for rights on the market.
“Companies can either save or actually use their emissions rights for 2016 and 2017, so the trading volume should be very limited,” said Park Jong-sun, a researcher at Eugene Investment & Securities. “As the details of the system is not decided, trading will not be active and its impact on industry this year should be small.”
Insiders are concerned that trading of emissions rights could be concentrated in one specific period and could jack up the price. In June 2016, the 525 companies that have GHG emissions rights will have to report their actual emission volume to the government, and those who don’t have enough GHG emissions rights may rush to secure additional rights.
Local industry has been complaining that their allocated GHG emissions volume is too small and worry that there will be a preponderance of buyers in the market.
Last month, 28 business groups including the Federation of Korean Industries and 38 companies in the energy industry released a statement asking the government to award 2.02 billion KAU for the next three years, and were stunned when they were given only 1.59 billion KAU.
More than half of the companies have already appealed the GHG emissions allocations to the Ministry of Environment, which will review extra allocations to these companies.
“If we can’t buy GHG emissions from the market, we will have to pay fines,” a statement said. “This will amount to extra costs of 12.7 trillion won for the next three years for 525 companies.”
The government said it is monitoring the price of GHG emissions rights and if its three-month average price is 10,000 won, it will enter the market to stabilize prices. But of the government’s 88.8 million KAU GHG emissions quota reserves, only 14.1 million KAU, or 0.84 percent, is reserved for market-stabilizing purposes.
BY JOO KYUNG-DON [email@example.com]