South Korea Passes Emission Trading Scheme Media Brief

May 03, 2012 - 8:30am

Pollution limit: The South Korean Parliament has just passed a bill to establish an emissions trading scheme (see details below). This follows recent news that Mexico has passed a climate bill including emission trading, South Africa has introduced a carbon tax, a number of European countries are in the process of increasing or introducing carbon taxes (UK, Italy and Norway) and draft plans are emerging over China’s regional emission trading schemes.

The passage of the South Korean emission trading bill is further evidence that, contrary to popular belief, many leading developed and developing economies are not displacing climate change action with other economic priorities. In fact, countries like South Korea see the shift to clean energy development as crucial for their economic performance and global competitive advantage.

Strategic position: The South Korean Government sees low carbon growth as a key to its economic prosperity. South Korea ranked 4th among G20 countries as the most prepared to economically prosper in a world that limits pollution in The Climate Institute’s 2012 Low Carbon Competiveness Index.

Specific policy examples include the government’s response to the deepening recession with an economic stimulus package in January 2009 equivalent to US$38 billion, of which 80 per cent was allocated to more efficient use of resources such as freshwater, waste, energy-efficient buildings, renewable energy, low-carbon vehicles, and the rail network. In July 2009, the Government announced a Five-Year Plan for Green Growth with total funding of US$ 83.6 billion - around 2 per cent of GDP. The country also has a modest national renewable energy target as well as policies on energy efficiency such a vehicle fuel standards stronger than proposed in Australia. It has been trailing emission trading for a number of years.

Context: The South Korean government has committed internationally to reduce emissions by 30 per cent from projected levels by 2020. Australia’s 5 per cent target is around a 23 per cent reduction on projected levels. South Korea’s target is roughly equivalent to Australia’s 15 per cent target as a reduction from projected levels.

South Korea and Australia: South Korea is one of Australia’s largest trading partners and key destination for our coal exports. The emissions of the two countries are roughly the similar however Australia’s emissions per person, the emission intensity our economy energy and electricity, and contribution climate change over the last 50 years is substantially higher than South Korea’s (see Table 1). Australians, on average, are also wealthier.

The details

Start date: The emission trading scheme is to start date on January 1, 2015.

Coverage: The scheme would cover industries and emissions roughly comparable to Australia’s emissions trading scheme - around 60 per cent of South Korea's total emissions. Energy and industry are covered but transport and agriculture are unclear.

Free allocation: Between 95-100 per cent of permits to be allocated for free in phase one (2015-2017) and phase two (2018-2020). The starting point is 95 per cent is starting point and roughly the same as Australia’s initial allocation for steel, aluminium and other very emission intensive industries which is 94.5 per cent. Free allocation can be increased to 100 per cent if international climate talks are not successful.

Carbon price: To be determined. Penalty for non-compliance is three times the market price per tonne of CO2. This is capped at 100,000 won/per tonne (Au$83/tonne). On current projections Australia’s price cap would be around Au$25-30/tonne in 2015.

International trading: Bill includes provisions to link with international market, but how much and which credits are undecided.

For more information
Erwin Jackson | Deputy CEO, The Climate Institute | 03 9600 4039

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