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South Korea Releases ETS Details

by Mary Swire, Tax-News.com, Hong Kong

16 November 2012


Following the obtaining of parliamentary approval in May this year for its introduction in 2015, the South Korean government has now also approved the policies and procedures for the country’s carbon emissions trading scheme (ETS).

The ETS, which has been delayed from its previously-planned launch in 2013, is the crucial element in the country’s pledge, at the 2009 Copenhagen summit, to reduce South Korea’s emissions by 30% below their forecasted 2020 levels.

The ETS will impose a limit on greenhouse gas emissions by selected companies (issuing more than 125,000 tons per year) and individual plants (issuing more than 25,000 tons per year) causing high pollution, and would establish a trading system whereby companies would have to purchase credits if they wished to exceed their limits, or sell them if they were able to reduce emissions.

However, during the first three years of the scheme’s operation, from 2015 to 2017, companies and plants would be allowed 100% of their benchmarked emissions limit without charge. That would reduce to 97% from 2018-2020 and 90% for the next three years. The penalty for non-compliance has been set at three times the prevailing market price, with a maximum of KRW100,000 (USD92) per metric ton.

It has been said that annual carbon emissions by South Korea, globally the eighth largest emitter of greenhouse gases, have already doubled to around 640m tons, from only 350m in 1990, and could have reached over 740m tons by 2020 without action by the government.

It has been estimated that, from 2018, if their emissions do not reduce, the purchase of the 3% reduction by industries would cost KRW4.5 trillion, rising to KRW14 trillion for 10% after 2010. Business associations have therefore warned that the ETS could put South Korean companies at a severe cost disadvantage, despite the transitional arrangements, if its commencement came before the country’s competitors introduce equivalent schemes.

The South Korean ETS will only be the third in the Asia-Pacific region, following Australia and New Zealand. While the European Union has operated a scheme since 2005, and China also has announced its intention to introduce an ETS in 2015, Japan and the United States, two of South Korea’s main competitors, have no such schemes.

TAGS: environment | compliance | tax | business | tax compliance | law | carbon tax | Korea, South | regulation

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