Current Status of the Korean ETS

20 March 2017

Minyoung Kim

Greenhouse Gas Inventory and Research Center (GIR)

Contents

I. KETS Overview

II. Latest Policy Developments regarding KETS

III. KETS in Attaining Korea’s NDC Target

IV. Way Forward

I. KETS Overview

4

Brief History of KETS

Enacted the Act (May ‘12) and the Enforcement Decree (Nov. ‘12) on the Allocation and

Trading of Greenhouse Gas Emission Permits

Established the 1st Master Plan for the Korean Emissions Trading Scheme (KETS) (Jan. ’14)

and the National Allocation Plan for the 1st Phase (Sep. ’14)

Official launch of KETS (Jan. ’15)

Set Korea’s 2030 NDC target to 37% below BAU emissions (June '16)

Restructured the governance of KETS (June ’16):

(before) Ministry of Environment → (after) Ministry of Strategy and Finance

Established the 2nd Master Plan for KETS (Jan. ’17)

5

KETS Coverage and Governance

Inclusion thresholds: companies > 125,000 tCO2/year or facilities > 25,000 tCO2/year

GHG covered: 6 Kyoto gases (CO2, CH4, N2O, HFCs, PFCs, SF6)

Allocation method: mainly grandfathering (GF) but benchmark (BM) for some sectors

Free allocation: 1st Phase - 100%, 2nd Phase - 97%, 3rd Phase - less than 90%

Flexibility mechanisms: banking, borrowing and offsets

Sectors and entities covered: 26 sub-sectors with 600 entities (as of Feb. ‘17)

Coverage

MoSF oversees overall implementation Four ministries regulate their designated sectors GIR provides technical support

Governance

Role Responsible body

- Establishment of the Master/Allocation Plan MoSF

- Selection of liable entities - Allocation and cancellation of allowances

Each responsible ministry

- Market oversight (market stabilization measures) MoSF

- Assessment (including feasibility of offset projects) Each responsible ministry

- Approval of submissions, banking and borrowing- Imposition of penalties

Each responsible ministry

- Support for cap setting and Master/Allocation Plan establishment- KETS registry management

GIR

6

Operational Performance

KETS market results for the 1st Phase (Jan. ‘15~Mar. ‘17)

524 liable entities out of 525 successfully submitted permits for compliance (June ‘16)

- A total of 539 MtCO2e was allocated to the entities and they emitted a total of 543 MtCO2e

The total traded volume was 18.7 MtCO2e

- KAUs 5.3 MtCO2e / KCUs 3.1 MtCO2e / KOCs 10.2 MtCO2e

Over 10 MtCO2e of Korean Offset Credits (KOCs) flowed into the trading market

- 74 offset projects were approved with a total of 15.6 MtCO2e of KOCs

Price trend: (O1-2 ’15) KRW 10k (USD 8) (Q3-4 ’15) KRW 12k (USD 11)

(Q1-2 ’16) KRW 16k (USD 14) (Q3-4 ’16) KRW 18k (USD 15)

(Q1 ’17) KRW 22k (USD 19) ※ KRW 1,000 ≒ USD 0.87 as of 13 Mar. 2017

Korean Allowance Unit (KAU) Korean Credit Unit (KCU) Korean Offset Credit (KOC)

II. Latest Policy Developments

regarding KETS

8

Operational Plan by Phase

1st Phase (‘15～’17) 2nd Phase (‘18～’20) 3rd Phase (‘21～’25)

Allocation

100% free allocation, no auctioning

mainly grandfathering-based

allocation except for 3 sub-sectors

(grey clinker, oil refineries, aviation)

97% free allocation, 3% auctioned

wide application of benchmarks

less than 90% free allocation,

more than 10% auctioned

mainly benchmark-based allocation

Offset

projects

diversifying domestic and CDM

project methodologies

promoting offset projects by reducing

entry requirements for small scale

projects

promoting domestic offset projects

- developing more projects by sector

promoting overseas offset projects

- allowing offset credits from

overseas projects for compliance

drawing up guidelines on overseas

credits in accordance with the Paris

Agreement negotiations

diversifying methodologies for

overseas projects

MRV

setting up the MRV mechanisms

expanding verification bodies/verifiers

revising the emission report form for

benchmark-based allocation

updating the MRV standards

capacity building for verifiers

adopting international MRV standards

Trading

market

designating the Korean Exchange

(KRX) as an allowance exchange

implementing market stabilization

measures

launching regular auctions

considering adopting a market maker

scheme

allowing third party participation in

the trading market

Intl.

cooperation

and

incentives

international cooperation with the EU,

China and Japan

incentives for emission reduction

facilities

pursuing bilateral cooperation by

developing local emission reduction

projects

investing auction profits into

environmentally friendly projects

considering ETS linkage

diversifying investment portfolios

9

Main Policy Developments

Wide application of benchmark-based allocation for incentivizing facility and equipment

innovation

- (1st Phase) 3 sub-sectors (2nd Phase) minimum 5~6 sub-sectors

Unified allocation for new and the expansion of existing facilities

- (1st Phase) pre- and additional allocation (2nd Phase) additional allocation only

Allocation

Promoting overseas offset projects in preparation for the post-2020 global carbon market

Allowing overseas offset credits from CDM projects by Korean entities for compliance

- (before) planned from the 3rd Phase (’21~’25) (after) allowed from the 2nd Phase (’18~’20)

Offset projects

Promoting market functions by launching and implementing regular auctions

- (1st Phase) 100% free allocation (2nd Phase) 97% free allocation + 3% auctioned

(3rd Phase) less than 90% free allocation + more than 10% auctioned

Trading market

III. KETS in Attaining

Korea’s NDC Target

11

Meeting Korea’s 2030 NDC Target

KETS approach Actions taken for meeting the NDC target

Restructured the governance for responding to

climate change (June ’16)

- GHG emission reduction policy-making:

Office for Government Policy Coordination

- Overall KETS implementation: MoSF

Established the Climate Change Response

Master Plan and the 2030 National GHG

Emission Reduction Roadmap (Dec. ’16)

Drafting the 2nd National Allocation Plan in

accordance with the 2030 NDC target which will

be established by the end of June 2017

(MoSF and GIR)

12

Greenhouse Gas Inventory and Research Center (GIR)

Organizational structure Role for KETS

System

s

13

GIR’s Role for KETS

Support for cap setting and allocation plan making: technical support and advisory services

1st Master Plan for KETS (’14)

National Allocation Plan for the 1st Phase (’14)

Revised National Allocation Plan for the 3rd Compliance Year in the 1st Phase (’17)

National Allocation Plan for the 2nd Phase (’17) (in progress)

KETS registry management: data management and system maintenance

National Greenhouse Gas Management System (NGMS)

Emission Trading Registry System (ETRS)

Offset Registry System (ORS)

IV. Way Forward

15

Toward the Global Carbon Market

Promote overseas offset projects by accepting their credits for compliance from the 2nd phase

Enlarge the range of applicable offset credits and draw up guidelines in accordance with

the Paris Agreement negotiations

Promote international cooperation projects in preparation for the globally linked carbon market

Develop a bilateral cooperation model based on relationships strengthened through Official

Development Assistance (ODA) projects

Contribute to building the market by actively participating in the Paris Agreement negotiations

*Image source: ICAP (2017) Emissions Trading Worldwide: Status Report 2017

Proactive international cooperation to meet the NDC target by using international market mechanisms and to prepare for the future global carbon market

16

Korea-EU ETS Project

Agreement on Korea-EU ETS project (Feb. 2015)

- (period) 1 Jan. 2016 ~ 31 Dec. 2018 (3 years)

- (purpose) information and experience exchange on

allocation·trading·auction, carbon price modelling,

mitigation technologies, etc.

Kick-off ceremony (8 July 2016)

Projects in 2016

- Technical workshop on BM factor development (Aug.)

- Carbon price modelling workshop (Oct.)

- Technical workshop on new mitigation technologies (Nov.)

- EU visit on BM allocation (Belgium and Germany) (Dec.)

Projects in 2017

- EU visit on auctioning and technical workshops on ETS

compliance & trading strategies, verification and model

development regarding carbon price modelling, etc.

Korea-EU joint platform for information and experience exchange regarding ETS

*Image source: http://www.kets-project.eu

17

Korea∙China∙Japan Cooperation Forum

Information exchange platform in preparation for the linked carbon market

Trilateral meeting hosted by Tsinghua University and the Beijing Exchange to share each country’s

progress and discuss possible cooperation strategies (28 Mar. 2016, Beijing)

- unanimous decision to build a platform for information exchange regarding ETS and ETS linkage

by holding annual meetings/workshops among representatives (research∙government∙industry)

from each country

1st Cooperation Forum Meeting

(13~14 Sep. 2016, Beijing)

- discussed roadmap and research

targets for future carbon pricing

mechanisms among the participants

2nd Cooperation Forum Meeting

(Sep. 2017, South Korea)

- date and agenda (tbc)

*Image source: ICAP (2017) Emissions Trading Worldwide: Status Report 2017

Thank you