South Korea does not have a Carbon tax, but does have a trading system. Korean Emission Trading System (KETS) has been in operation since January 2015, becoming East Asia’s first nationwide mandatory ETS and the second-largest carbon market after the EU ETS. KETS is designed to play an important role in meeting Korea’s 2030 NDC target of 37% below BAU emissions and is now in its second phase, which runs from 2018 to 2020.
In order to achieve the national greenhouse gas reduction target effectively, South Korean government has established and operated a ‘national emission quota allocation plan’ for each period in which the total amount of emission credits is determined and allocated to each company. In accordance with the Emissions Trading Act, South Korea is in the process of implementing the second planning period (2018-2020) starting with 2015-2017. This applies to companies with an average annual total of 125,000 tons or more of greenhouse gas emissions over 3 years, companies with 25,000 tons or more, and voluntarily applied as designated allocators. Materials to be managed are six items: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrogen fluorocarbon (HFCS), perfluorocarbon (PFCS), and sulfur hexafluoride (SF6). The allocation method is divided into past emission-based allocation (GF) and grandfathering (BM), and historical activity data-based allocation (BM, Benchmark).
Unstable prices for carbon credits should be improved. As of January 2020, the price of carbon credits (KAU19) recorded an average of 34,938 won. This is a 51% increase from the same period last year. Initially, the government promised to keep the emission trading price at 10,000 won per ton, but in December last year it exceeded 40,000 won. Currently, the closing price of carbon credits is determined by the bid price. For example, if there is a trading volume during opening hours, the closing price is applied as the next day price, but if there is no trading volume, the highest price among the bidding prices is formed as the base price. Some are calling for a revision of the emission trading market operating regulations in order to capture unstable carbon credit prices.
From 2021, many changes are expected in Korea’s carbon trading market. In the third planning period (2021~2025), the carbon trading scheme will allow third parties such as financial investment companies and private investors to participate in the market, also introduce carbon emission derivatives. In particular, the participation of financial investment companies is expected to provide a buffer between demand and suppliers.
Activity Rating: ****Moving Ahead
I agree with the Ministry of Environment’s press release that the efforts to reduce greenhouse gas emissions must be prioritized in order to stabilize the price of carbon credits. As the IMF recommended in October, I would like to ask you for further discussion with the Ministry of Strategy and Finance on the introduction of carbon taxes to reduce carbon dioxide.
Minister: Cho Myung-rae
Address: Government Complex-Sejong, 11, Doum 6-Ro, Sejong, 30103, South Korea
International Carbon Action Partnership – Korea Emissions Trading Scheme (2020 Jan)
Korea Environment Corporation ‘Progress of ETS’