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South Korea Approves Carbon Trading Scheme

Date: 03-May-12
Country: SEOUL
Author: Meeyoung Cho, Eunhye Shin and Eun Jee Park

South Korea's lawmakers approved a national emissions trading scheme on Wednesday to tackle its growing greenhouse gas emissions, overcoming strong industry opposition and joining a growing number of nations to put a price on carbon.

Of the 151 lawmakers who voted, 148 approved the scheme, underscoring bipartisan support for a cap on carbon emissions, in stark contrast with the United States and Australia where emissions trading has been deeply divisive.

Analysts and officials said the program won approval, despite fears it would hurt the economy, because of the long-term benefits to the country's huge conglomerates from being more energy-efficient and exporting greener goods.

The scheme has not generated the same bitter public debate as in Australia and the United States, with the public more concerned with neighbouring North Korea.

"This is to develop green industry technologies and technology to reduce energy consumption, and develop those as one industry ... ultimately we want to organize markets for green business ahead of other countries," said Yang Soogil, chairman of the Presidential Committee on Green Growth, told Reuters.

The scheme caps carbon pollution across the economy, from steelmakers, ship-builders and power generators to even large universities, encouraging them to become more energy efficient.

South Korea is the world's fifth-largest oil importer and the number two buyer of liquefied natural gas after Japan, so curbing energy imports would bring big savings.

LINKING

The program, due to start Jan 2015, opens the possibility of linkage to other schemes as part of a global effort to curb the growth of carbon pollution, which scientists blame for heating up the planet and triggering more chaotic weather.

To meet the mandatory cap, firms can trade emissions permits or buy carbon offsets from U.N.-backed clean energy projects in poorer nations.

Carbon analysts and investors said the details of the scheme were still quite vague, which made it difficult to predict its impact on the U.N. scheme.

Links with the European Union's emissions trading scheme - the world's largest - might not be possible until around 2018 at the earliest, said Barclays Capital analyst Trevor Sikorski.

"The European Commission would want to be comfortable with the rules and the operation of the scheme, and so linking would not really begin to be considered until after there are a few years of experience," he told Reuters.

Global carbon markets were valued at around $120 billion last year but would be worth much more if established and emerging schemes were able to trade with each other.

COST CONCERNS

Final details of South Korea's program are still to be worked out, but the latest draft said it was likely to cover 60 percent of the country's greenhouse gas emissions. It focuses on industrial operations producing more than 25,000 tons of carbon dioxide (CO2) a year.

The nation's top industry body fought the scheme, saying it would add unnecessary costs and that competitor Japan has yet to put a price on carbon.

The Federation of Korean Industries has said the scheme would add initial costs of 4.7 trillion Korean won ($4.2 billion) even when 95 percent of pollution permits are given for free.

Each permit represents a ton of carbon emissions, with free permits awarded during the scheme's two first phases, spanning 2015-2017 and 2018-2020. The rest would be auctioned.

The government says the scheme is crucial to reining in emissions from Asia's fourth-largest economy, which have doubled since 1990, and to meeting a pledged goal of reducing emissions by 30 percent from projected levels by 2020.

"The opposition had no reason to oppose as they have been supporting the bill. Industry should be the one that's mostly worried about the outcome," Heo Seong-wook, professor of law from Seoul National University, told Reuters, referring to the country's powerful industrial conglomerates called chaebols.

Yet despite their political clout, objections from industry have not swayed lawmakers, Heo said, in part because of ongoing talks among political leaders to try to rein in big corporates.

"The parties might be concerned that if they actively support industry's opinion, they might be seen as not so friendly towards ordinary people," Heo said.

Many Korean firms, particularly big exporters, remain unconvinced but have nonetheless been preparing, analysts say.

Top emitters include major employers such as POSCO, the world's No.3 steelmaker, and Samsung Electronics, the world's biggest electronics firm by revenue.

"The news of carbon emission trading would not come as an immediate shock to the steel industry as steelmakers have prepared for the scheme," an analyst at Daishin Securities, Mun Jeoung-up, said.

Another analyst at Hanwha Securities, Kim Kang-o, said, "If the cost burden accounts for a certain percentage of operating profits, that is a problem ... Whether the industry would pass on the cost to consumers is also an important factor."

Additional reporting by Nina Chestney and Jeff Coelho.

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