Cap-and-trade
February 7, 2011
While the United States and Japan have delayed their plans for carbon emissions trading, South Korea seems to be moving ahead with a cap-and-trade plan of its own.
South Korea’s emissions doubled between 1990 and 2005, as the country went through a period of rapid industrial growth, becoming one of Asia’s most affluent countries. Now the world's fifth-largest importer of oil, South Korea’s emissions were just over 600 million tons in 2007, which was slightly more than Australia produced.
Despite stiff opposition from industry leaders, a bill will be presented to parliament later this month, which sets out a plan to reduce emissions by 30 percent by the year 2020. The country's export-led economy is dominated by powerful conglomerates. They are worried that South Korea could lose its competitive edge to countries without cap-and-trade schemes.
Carbon trading schemes enable energy-intensive industries to buy and sell permits that allow them to emit carbon dioxide into the atmosphere. Companies that exceed their limit are able to buy unused permits from firms that have taken steps to cut their emissions. Those companies that exceed their limit and are unable to buy spare permits are usually fined.
If this bill passes parliament – which starts its general session in September – it will lead to the establishment of a new carbon trading market in South Korea between 2013 and 2015.
Waiting for 'opportune time'
South Korean officials are promising swift action, as they try to calm fears in the business sector. "We aim to get parliamentary approval on the bill before its general session," Kim Sang-hyup, secretary to Korea's President for National Future and Vision, told Reuters new agency. "However, we will fully reflect industrial opinions in the bill, to prevent them from reducing international competitiveness and help them minimize any damage."
South Korean President Lee Myung-bak said a trading scheme would be implemented "at an opportune time after thoroughly sounding out the opinions of industries." Meanwhile, major business groups filed a petition with the government on Monday, calling for a moratorium on the plan. They argue that full-fledged trading could cost South Korean manufacturers up to 14 trillion won (9.3 billion euros).
From exporter to importer
Endre Tvinnereim, an Oslo-based senior analyst for Point Carbon, said Europe's percentage of free carbon allowances are currently at levels similar to those in South Korea.
"The main impact will be that it will be good news for the use of carbon trading as an instrument, because it will be the first system of its kind in Asia, unless you count New Zealand," he told Deutsche Welle.
South Korea currently serves as a kind of supply center, from which European and Japanese companies can harvest carbon credits. But Tvinnereim said that if the cap-and-trade system is approved, South Korea will go from being an exporter to an importer of credits.
Author: Gerhard Schneibel (Reuters)
Editor: Saroja Coelho