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A report by a climate group reveals that South Korea’s biggest carbon emitters have profited from selling their unused emissions permits, while failing to curb their greenhouse gas output.
Excess credits sold for millions
A climate group based in Seoul, Plan 1.5, reported that the 10 biggest carbon emitters in South Korea made profits from selling nearly 22 million tons of unused emissions permits in the eight-year period from 2015 to 2022, earning 475 billion won ($357 million) in the process. The group’s analysis shows that the nation’s cap-and-trade system, which covers nearly 700 companies, had a surplus of 39.2 million tons in 2021 and 2022 combined. This amounts to about 6% of Korea’s total emissions in 2022.
Flawed system fails to reduce pollution
South Korea was one of the first countries in Asia to launch an emissions-trading system, but it has not been effective in incentivizing industrial polluters to reduce their emissions. The main reason is that too many allowances were given out, mostly for free, resulting in a low carbon price and a lack of scarcity. The report urges the government to improve the system, which is a key component of the nation’s commitment to cut its greenhouse gas emissions by 40% from 2018 levels by 2030.
Kwon Kyungrak, a program director at the climate group Plan 1.5, criticized South Korea’s carbon market for failing to achieve its main goal, which is to impose a cost on the polluters with high carbon emissions. He said in an interview that the government should cut the number of permits by around 30% from the present amount by 2030, or else the scheme will remain a profit-making device for these firms.
Government plans to tighten the cap
The government announced in October that it plans to strengthen the setting of the total emission cap to increase the pressure on companies to cut their emissions, after consulting with stakeholders. However, the details and timeline of the reform have not been disclosed yet.
Posco, the country’s largest emitter, said that it had unused carbon permits in 2022 because a typhoon disrupted its steel production, leading to lower emissions. The steel giant earned 31.1 billion won that year from selling permits, but bought 21.3 billion won worth of credits in 2021, it said.
South Korean permits lag behind EU prices
The price of carbon permits in South Korea has fallen sharply by about 43% in the last 12 months, reaching 9,130 won per ton. This is much lower than the price of carbon permits in the European Union, which has the largest and most established cap-and-trade system in the world.
The EU carbon market has experienced a dramatic increase in prices, hitting new records of over 60 euros per ton, as the EU aims to achieve its ambitious climate goals and cuts down the number of permits available. The EU system was not always successful, however. It faced major difficulties in its initial stages, with prices plummeting more than 90% after the 2008 financial crisis resulted in an oversupply of permits.
The future of carbon trading in South Korea Despite the shortcomings of the current system, some experts believe that carbon trading can still play a vital role in South Korea’s transition to a low-carbon economy. They argue that the system needs to be reformed to reflect the true cost of carbon emissions and to create a stronger incentive for companies to invest in clean technologies and energy efficiency.
They also suggest that the system should be linked with other carbon markets, such as the EU’s, to create a larger and more liquid market that can foster international cooperation and innovation. “Carbon trading is not a silver bullet, but it can be a powerful tool to drive down emissions and spur green growth,” said Lee Jae-hyung, a professor of environmental engineering at Seoul National University, in an interview. This is a chance for the government to reform the scheme and match it with the worldwide movement of carbon valuation and zero-emission goals.
