REFILE--S. Korea releases tough CO2 caps on utilities, industry

Wed May 28, 2014 4:48am EDT

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May 28 (Reuters) - South Korea plans to impose tough caps on CO2 emissions from utilities and industry as part of a carbon trading scheme that will be the world's second biggest when it opens at the start of next year.

The country on Wednesday announced detailed plans for the market, the backbone of its strategy to restrict greenhouse gas emissions in 2020 to 30 percent below business-as-usual levels.

Under the trading scheme, carbon dioxide emissions from power generators and manufacturers will be capped at 1.64 billion tonnes over the 2015 to 2017 period, the Ministry of Environment plan showed.

That means emissions in the sectors covered will be capped at 547 million tonnes per year. Analysts at price forecasting firm Thomson Reuters Point Carbon estimated in March that emissions from those sectors would grow to 618 million tonnes in 2020 under a business-as-usual scenario.

"The cap is too far below the expected amount (of emissions)," said Jin Kim, a carbon expert with consultancy TITC.

"The Korean carbon price would be the highest in the world."

The government has said it expects Korean carbon permits to trade at around $20, well above the $3-$12 range seen in markets in Europe, the United States, China and New Zealand.

But some analysts have said the price could rocket towards $98, the penalty firms have to pay per permit if they don't meet their targets.

South Korea has limited options to cut emissions through fuel-switching or technological upgrades, and emitters will not be able to use low-cost offset credits from abroad to help meet their targets.

Emitters will be given one permit for each tonne of CO2 they can release into the atmosphere. Those who exceed that level must buy permits in the market.

"The total amount will be allocated to each business entity based on their past emissions record and their plans to establish or expand facilities," the ministry said in a statement.

"When emissions increase due to the establishment or expansion of facilities during the commitment period, additional permits can be allocated to the business."

Industry has protested against the planned market, saying it would be too costly. It earlier succeeded in getting the scheme's launch delayed by two years from 2013.

The draft plan will now go to public consultation, with a final version to be approved by cabinet by the end of June. Permits, issued to companies in October, will be traded on the Korea Exchange (KRX).

The market is expected to be the world's second biggest after the European Union, and will reinforce Asia's emerging role as a hub for carbon trading.

China has launched six regional markets and plans to introduce a national scheme before the end of the decade, while Kazakhstan started an emissions market last year. (Reporting by Stian Reklev in Beijing; Editing by Joseph Radford)

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