Title The total emission permits allocated set at 1,777,130,000 tons for the next three years
Source Ministry of Environment
Date 2018-09-12 PM 4:39:51 Hit 917
▷ The Ministry held a public hearing on the second phase of the Korea’s Emissions Trading Scheme or KETS (from 2018 to 2020)

July, 12th, 2018- As the emission permits issued during the first phase of the KETS (from 2015 to 2017) were 0.95% in surplus, which is around 15 million tons, the government conducted a tentative analysis.  

The Ministry of Environment (Minister Kim Eunkyung) held a public hearing on the second phase of KETS at EL tower, Seocho-gu, Seoul, at 2pm on July 12.  

KETS has been implemented since 2014 to encourage large-scale greenhouse gas emitters* such as power generation companies and steel companies.

* ▲ Businesses whose annual GHG emissions are or over 125,000 tons (designated by industry unit)
Or ▲ those with facilities whose annual GHG emissions are or over 25,000 tons (designated by facility unit)

The government set an overall limit of emissions allowed by setting each phase of KETS as three to five years and each business can reduce GHG emissions directly or buy emission permits considering the reduction costs. This provides flexibility for a cost-effective GHG reduction process across the country.     

* (The first phase) 2015 to 2017,
(The second phase) 2018 to 2020,
(The third phase) A five-year period starting from 2021

At the public hearing, the ministry unveiled the total emissions allowed, which is 1,777,130,000 tons, for the second phase from 2018 to 2020, a total of three years.  

The proposed distribution plan also contains the overall factors of emission permit distribution and trade for the second phase.

The Ministry consulted associated government ministries from June 25 to July 5 and held an industry briefing session on June 28 to formulate this plan.

Also, the ministry came up with the proposed distribution plan by reflecting industry-wide opinions, holding conferences for each industry starting from July 2, and forming a public-private permanent consultative body consisting of around 20 representatives, including climate change and energy experts, civil society, industry and local governments on July 9.

The number of total emissions allowed for the next three years, which is 1,777,130,000 tons, is 2.1% larger than the allowed emissions, 1,740,710,000 tons, during the period from 2014 to 2016, which serves as a basis period for the emission permit distribution.

This is a result of reflecting the revision, and it complemented "the Roadmap to Achieve National GHG Reduction Goals", so as to agree with the NDC targets*. Also, the government took into account an expected increase in GHG emissions, considering recent growth of industries.  
* 37% GHG reduction below the 2030 BAU levels (An additional 536 million tons of emissions will be reduced apart from the planned GHG reduction in the roadmap)

Unlike the first phase when all the emissions were distributed for free to the industries, 3% of the total emissions will be distributed under the paid allocation system to 26 industries, including power generation companies, for the second phase.

However, the international trade sector and *industries where this scheme can have a huge impact on production costs will apply the standard of EU and the state of California, which have their own emissions trading scheme. Therefore, for those industries, the total emission permits will be distributed for free as usual.  

* ▲ industries rely on trade more than 30% ▲ those with whose production costs are more than 30%, ▲ those relying on trade more than 10% and production costs accounting for more than 5% (Article 14 of the Enforcement Decree of the Act on the Allocation and Trading of Greenhouse Gas Emission Permits)

Industries such as steel, semi-conductor, display, electrical electronics, automobiles, shipbuilding and cement are subject to free distribution, as usual.

Part of the expected revenue from selling permits will be reinvested in industries for GHG reduction innovation by assisting GHG reduction facilities of SMEs and permit buyers.

Also, to distribute emission permits more fairly, the Benchmark method will be more widely applied. Based on the Benchmark, the more efficient the facility is, the more permits will be distributed.  

This distribution method, using the "Benchmark", is currently employed by EU and other governments, given the fact the "Grandfathering method", which distributes permits in proportion to the GHG emissions of the past, is disadvantageous to highly efficient facilities.  

During the second phase of KETS, the power generation industry, the group energy industry, industrial complex, and the waste management industry will be added to the groups subject to the "Benchmark method", such as the oil refining, cement and aviation industry.

To facilitate the emissions trading market, public financial institutions, such as the Development bank, Industrial Bank of Korea, will play as a market maker.

The number of emission permits allocated for making the market has been set at five million tons, considering the number of permits traded during the first phase.

As this will assure the market’s liquidity aside from the government’s market stabilization measures, it is expected that businesses will not face difficulty buying permits.  

In addition, the approval standard for carrying forward unused permits will be strengthened, to avoid the shortage of circulating permits caused by businesses who do not sell surplus permits but carry them forward to the next phase.

Those with surplus permits can carry forward a certain number of permits* in proportion to the amount of net sales.

* Only annual net sales (sales amount x purchase amount / three years) during the second phase can be carried forward

However, the Ministry has prepared *an exceptional standard which allows permit buyers to carry forward remaining permits (the odd or change) after they submit a certain number of permits to the government based on their emissions record.

* 25,000 tons for businesses designated by industry unit,
5,000 tons for those designated by facility unit

The Ministry of Environment will reflect the reasonable opinions that will be proposed during the public hearing to the distribution plan.

The distribution plan will be reviewed by the Distribution Committee (chaired by Minister of Economy and Finance) and the National Green Growth Committee (co-chaired by the Prime Minister and Chairman from the private sector), and will finally be confirmed at a deliberation at cabinet meeting, which will be held at the end of this month.  

In the case of the first phase, the total of number of permits distributed were around 1.685 billion tons, but it has been estimated that the total emissions by certified businesses for calculating permits stood at around 1.67 billion tons.

Based on this analysis, it is deemed that the issued permits were in surplus by 0.93%, which is about 15 million tons.  

Also, about 22 million tons of reduced emissions, which can be converted into offset permits, were certified, thanks to the performance of external campaigns during the same period.

Of the 15 million tons of surplus permits and 22 million tons of reduced emissions, thanks to external performances, it is expected that the number of permits carried forward to the second phase will exceed 35 million tons, which will ease the burden on industries to reduce emissions.
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