South Korea launches world’s second-biggest carbon market

Trading started on Monday in South Korea’s new emissions trading scheme, which will impose caps on emissions from 525 of the country’s biggest companies and becomes the world’s second biggest carbon market.

The Korea Exchange began the national cap-and-trade system to join the government’s efforts to curb greenhouse gas emissions to 30 per cent below business-as-usual (BAU) levels over the next five years.

Under the scheme, South Korea’s power generators, petrochemical firms, steel producers, car makers, electro-mechanical firms and airlines have been given a fixed amount of permits to cover their emissions for the next three years.

The government has set the total amount of allowed emissions for the 2015 to 2017 period at 1.687 million tonnes of carbon dioxide equivalent. Any company emitting more than they have permits to cover must buy allowances from others in the market.

In Monday’s trading, a first batch of permits went through at 7,860 won ($7.26) each before the price climbed to 8,640 won ($7.97), similar to price levels in the European market, the world’s biggest. In the first day of trading, four deals for a total of 1,040 permits went through on the Korea Exchange (KRX), which hosts trading under the scheme.

“I expect that the carbon trading scheme will help (companies) effectively reduce carbon emissions and help the green industry grow,” KRX Chairman Choi Kyung-soo said in an opening ceremony held at the Busan headquarters. “(The KRX) will make efforts to develop the carbon market in the mid- and long-term, not focusing on the short-term market performance.

South Korea is the second country in Asia after Kazakhstan to launch a nationwide emissions market. Regional schemes are in operation in China and Japan. The EU market will be dwarfed by the eventual national scheme in China, which should be fully operational in 2020.