South Korea Enacts Cap-and-Trade Program

The Republic of Korea’s National Assembly on May 2 passed legislation that will mandate cuts in greenhouse gases (GHGs) starting in 2015. The Act on Allocation and Trading of Greenhouse Gas Emissions Allowances passed with a near unanimous vote of 140-0, with three abstentions. It follows the country’s voluntary GHG emissions reduction target of 30% of business-as-usual projections by 2020 and a 2010-passed Green Growth Act that pushes for more renewable energy.

Under the emissions trading law, the government must draw up a national allocation plan based on three-year periods starting in 2015. It applies to companies that emit 125,000 metric tons or more of carbon dioxide a year (Figure 6) and to factories and buildings that produce 25,000 metric tons of carbon dioxide a year. About 95% of emissions permits will be allocated for free to companies for the first and second phase. Third-party participation in the emissions trading market is limited for up to six years.

6. Tamping down carbon emissions. South Korea’s recently passed emissions trading scheme will affect generators that emit 125,000 metric tons or more of carbon dioxide a year. About 43% of the country’s power was coal-fired in 2010. This image shows Korea Midland Power Co.’s (KOMIPO’s) Boryeong Thermal Power Plant, South Korea’s largest thermal power plant and a POWER October 2008 Top Plant. The plant produces 4,000 MW from eight coal-fired units, 1,800 MW from four combined-cycle units, and around 7.5 MW from hydroelectric and photovoltaic solar power plants. Courtesy: KOMIPO

The emissions trading scheme was hotly opposed by South Korea’s industrial sector, which said it would increase costs and make South Korean industries less competitive abroad. The program was proposed by lawmakers from both the ruling party and the opposition party, who agreed that it was necessary to reduce the country’s emissions efficiently and develop renewable technologies. It faced repeated delays over the past two years, stalled by pushback from industry.

According to 2009 figures from the International Energy Agency, South Korea ranks as the eighth-largest emitter of GHGs in the world. Thirty-four countries around the world now use an emissions trading scheme as a vehicle to drive down carbon emissions. South Africa announced a carbon tax in February that will be effective in 2013, Mexico passed a voluntary emissions trading program in March, and Italy passed a carbon tax in April. China, meanwhile, is gearing up to start an emissions trading scheme in 2015, under which seven regions (including Beijing) will operate a pilot program based on total energy consumption targets. India, whose government has already imposed a coal tax of about a $1 per metric ton of coal produced and imported into India, began a pilot trading scheme in March 2011 in three densely populated regions.

—Sonal Patel is POWER’s senior writer.