South Korea’s emissions trading scheme on Wednesday broke a nine-month deadlock when it saw its first allowance trades since Jan. 16, but market participants were unconvinced the deals represent a lasting new trend of improved liquidity.
Three deals for a total of 12,000 Korean Allowance Units (KAUs) went through on the Korea Exchange within 40 seconds of each other, all at 11,300 won ($9.78), 1,000 won or 9.7% higher than where the KAUs have been stuck since Apr. 23.
The Korean ETS saw a handful of KAU trades during the first week after its Jan. 10 launch, but not a single allowance had changed hands since amid industry complaints that the market has been at least 10% under-allocated.
Most analysts say the market is long, but several industry organisations have filed lawsuits against the government, demanding more permits.
“I think that the market hasn’t changed, but it’s going to be interesting to see whether today’s trades were a one-off or some more liquidity will be shown over the next few days,” one trader said after Wednesday’s deals.
The little liquidity there is in the Korea ETS is primarily concentrated around Korean Offset Credits (KOCs), issued by the government after Korean CDM project-owners cancel a similar number of CERs.
Last month the government issued some 2.5 million KOCs, and according to market participants, all or most of those have been snapped up in the OTC market at undisclosed prices.
KOCs must be converted into Korean Carbon Units (KCUs) before they can be used for compliance in the emissions trading market. So far, KCUs are the only offsets offered on the exchange, and few of them get that far before they are bought.
To date, 780,000 KCUs have traded on the exchange and the last deal registered saw 500,000 offsets trade at 10,550 won each on June 19.
The exchange is planning to introduce KOC trading as well, but there is no information on when that might happen.
“There’s no progress to get KOCs listed on KRX to increase liquidity. It’s unlikely that KOC trading will be possible on KRX this year,” the trader said.
By Stian Reklev – stian@carbon-pulse.com
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