South Korea’s Carbon Trading Program: A Boon for Biggest Emitters, but a Blow to Climate Advocates
South Korea’s most-polluting companies have raked in a whopping 475 billion won ($357 million) by selling unused carbon emissions permits in the first eight years of the nation’s program, according to a climate advocacy group. The top 10 emitters alone sold approximately 22 million tons of excess credits between 2015 and 2022, as reported by Plan 1.5, a Seoul-based organization dedicated to fighting climate change. With nearly 700 companies covered by the cap-and-trade system, South Korea ended up with a surplus of 39.2 million tons in 2021 and 2022 combined, equivalent to around 6% of the country’s total emissions in 2022.
South Korea was among the first nations in Asia to implement an emissions-trading system. However, the current program has fallen short of effectively incentivizing industrial polluters to reduce their emissions due to an oversupply of allocations, many of which were provided for free. The findings of Plan 1.5’s analysis have further heightened the pressure on the government to revamp the program, which is a central component of South Korea’s commitment to reducing greenhouse gas emissions by 40% from 2018 levels by 2030.
According to Kwon Kyungrak, a program director at Plan 1.5, “South Korea’s emissions trading scheme has failed to serve its main purpose, which is to make carbon-intensive companies pay for their pollution.” Urging substantial reforms, Kwon suggests that the total amount of allocations in 2030 should be reduced by approximately 30% to prevent the scheme from becoming a mere tool for profit-making by these companies.
In response to these concerns, the government has announced plans to strengthen the setting of total emission allowances after consulting with stakeholders. The goal is to create greater incentives for companies to actively cut down on pollution.
Even Posco, South Korea’s largest emitter, found itself holding unused carbon permits in 2022 due to a typhoon disrupting its steel production. Consequently, the company reported a reduction in emissions and earned 31.1 billion won from selling permits that year. However, Posco invested 21.3 billion won in allowances in 2021.
While South Korean permits have experienced a 43% decline over the past year, currently priced at 9,130 won per ton, they still pale in comparison to those in the European Union, home to the world’s largest cap-and-trade system. The success of carbon trading in the EU was not immediate, with permits plummeting over 90% following the 2008 financial crisis, resulting in an industry-induced surplus.
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The South Korean carbon trading program remains a critical area of focus, as it holds the potential to significantly impact the country’s journey towards achieving its emission reduction goals. It is essential to address the program’s shortcomings and ensure that it fulfills its intended purpose of holding polluting companies accountable for their environmental impact.