South Korea to start emission trading in 2013-2015

SEOUL Mon Feb 7, 2011 4:47am EST

SEOUL (Reuters) - South Korea will start carbon emission trading between 2013 and 2015 after strong opposition from industry to the government's initial plan to start in 2013, a presidential secretary said on Monday.

The decision is a breakthrough for powerful export-led conglomerates, which have been pushing for a delay given competitor nations such as Japan and the United States have delayed or shelved emissions trading schemes for now.

"It is no longer an issue whether or not the government would implement cap-and-trade systems. We aim to get parliamentary approval on the bill before its general session," Kim Sang-hyup, a secretary to the President for green growth, told Reuters in an interview.

Parliament's general session begins on Sept 1 each year.

"However, we will fully reflect industrial opinions in the bill to prevent them from reducing international competitiveness and help them minimize any damage," he said.

The revised bill, which would be presented to parliament later this month, would include an increased percentage of free carbon allowances from the 90 percent originally planned, but not as high as 100 percent, Kim said.

Under the original plan, the remainder would be auctioned, with the proportion to be auctioned to increase over time after the first phase.

Europe's $100 billion emissions trading scheme, the world's largest, covers nearly half of all EU emissions and relies on member states allocating emissions allowances to 11,000 industrial installations. Companies get most permits free now but many power generators will have to pay for all of these from 2013 in the scheme's third phase.

South Korea's scheme would cover about 60 percent of the nation's greenhouse gas emissions. If passed by legislators, it could become the region's second cap-and-trade scheme after New Zealand's.

REACHING CONSENSUS

The government initially set a plan for a three-phase cap-and-trade scheme, with the first phase starting in 2013 to run through 2015, then two subsequent phases running for five years each from 2016.

"We are not backing off. Unlike other countries, we reached further consensus with industry to move forward...as this scheme should be conducted under consensus with industry," he said. He added the government would rework penalties as industries have demanded lighter fines for non-compliance.

President Lee Myung-bak earlier on Monday urged flexibility on the trading plan, saying the government would introduce the scheme "at an opportune time after thoroughly sounding out the opinions of industries".

Major business groups on Monday filed a petition to the government calling for a moratorium on the plan.

The petition said full-fledged trading could cost up to 14 trillion won ($12.57 billion) to South Korean manufacturers if 100 percent of credits were eventually provided at a cost via auctioning.

"I understand concerns from industry...But we need to overcome a carbon trade barrier actively and act pre-emptively," Kim said, adding the bill was revised during last week's Lunar New Year holidays.

Emissions from South Korea's economy have doubled since 1990, are slightly larger than Australia's nearly 600 million tonnes and, on a per-capita basis, are on par with some European nations.

The government aims to reduce greenhouse gas emissions by 30 percent from projected levels by 2020.

Under emissions trading, a government sets a cap on carbon pollution and relies on an ever-decreasing supply of permits for each tonne of emissions to push companies to become more efficient. To help soften the impact, permits can initially be given out for free and then move toward full auctioning.

The proposed legislation would allow banking and borrowing of allowances and participants can buy permits from each other. Companies, for example, holding excess allowances can use them later.

($1 = 1,113.6 won)

(Editing by David Fogarty)

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