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South Korea and Australia - how comparable are proposed emissions trading schemes.

Mick Keogh - Friday, May 04, 2012

The decision by the South Korean Parliament to adopt legislation creating an emissions trading scheme has been welcomed by Australian policymakers and climate change advocates, but a close look at the available details of the South Korean Scheme suggests there are some fairly major differences between the two schemes.

The decision by the South Korean Parliament has been welcomed by Climate Change Minister Greg Combet and mentioned by other members of the government including Parliamentary Secretary Mark Dreyfus. The South Korean decision has also been hailed by the Climate Institute. The general sentiment of commentary on the decision by South Korea is that it confirms that Australia is not 'going it alone' and signals the potential for an expansion of international carbon markets. Some details of the Korean scheme are starting to be made available (see here and here).

However, the differences between the two schemes suggest that it might be some time before the carbon price in South Korea approaches that proposed in Australia, and therefore the potential for interaction between the two schemes might be some considerable time in the future. In particular, the Korean scheme is based largely on freely allocated emission permits for the first five years, with participating companies only having to purchase a small proportion of required permits.

The following table attempts to compare the two schemes - albeit the details of the South Korean Scheme are still somewhat uncertain. The dramatic difference in the total annual cost estimates for the two schemes highlights the difference in approaches being taken.

 

 

Australia

South Korea

Scheme commencement

1 July 2012

January 1st,2015

Coverage

A facility producing more than 25,000 tonnes of emissions annually.

A corporation producing more than 125,000 tonnes of emissions annually, or an individual facility producing in excess of 25,000 tonnes of emissions annually.

National emissions covered

Approximately 60%

Approximately 60%

Permit availability

Unlimited numbers of permits available over the period from 2012 to 2015 at a fixed price. Limited numbers of permits from 2015 onwards at market price.

Permits allocated to participants, presumably based on existing emission levels.

Permit price

$23 per permit in 2012, increasing by 5% per annum.

95-100% of permits allocated free of charge, presumably based on existing emission levels, during the first two phases to 2020. Balance of permits auctioned.

Annual scheme cost for participants (estimated)

US $9 - $10 billion

US $4.2 billion

Export competitiveness measures

Up to 95% of required permits free of charge for some eligible high emissions intensity exporters.

Almost all permits free of charge.

International linkage

Proposed from 2015, when companies will be able to meet 50% of emission liabilities by purchasing international carbon offsets.

Proposed from 2015. Apparently no limits on the use of international offsets.



 
Comments
Jody commented on 07-May-2012 01:02 PM
The only real difference is the initial cost of the permit. After 2015, carbon will be traded, and that will be at a rate the market sets. It is expected that all companies producing primary emissions will be required to offset or trade their carbon. South
Korea is just one of 39 countries that already have a carbon pricing policy, if you want another comparison, look at the cost in Europe, where it has been in existence for almost a decade.
Mick Keogh commented on 07-May-2012 03:51 PM
Not correct. A key difference is that Australian emitters have to PURCHASE permits, rather than receive them via free allocation. In addition, the Australian government proposes a fixed minimum price ($15 - rising by 4% pa) for permits post 2015, and also
a limit on the extent to which emission liabilities can be met with international credits (50%). Given current EU carbon prices, this will mean a substantially higher effective Australian carbon price, unless policies change.

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