SK Market: Korean carbon traders to switch offsets from CDM to Korea ETS

Published 09:38 on March 6, 2015  /  Last updated at 15:36 on May 11, 2016  /  Asia Pacific, Kyoto Mechanisms, South Korea  /  No Comments

Trading firms Korea Carbon and Ecoeye are two of several companies in the process of cancelling CERs from CDM projects to have them replaced with offsets eligible for the supply-hungry Korean emissions market.

Trading firms Korea Carbon and Ecoeye are two of several companies in the process of cancelling CERs from CDM projects to have them replaced with offsets eligible for the supply-hungry Korean emissions market.

CER prices in the European markets hover around the €0.40 mark, around 98% lower than four years ago, offering little return for the 91 South Korean projects registered in the CDM.

Meanwhile, the Korean carbon market is suffering from a complete supply drought amid company complaints that the government has issued far fewer permits than they need to meet their targets. Permits are currently bid at 10,100 won (€8.37), with nothing on the offer side.

CANCELLATIONS

Korea Carbon is in the process of cancelling CERs it has bought from 17 Korea-based CDM projects, CEO Thomas Winklehner told Carbon Pulse.

When the government has approved a project, companies can swap proof of cancellation of CERs from that project with a corresponding number of Korean Credit Units (KCUs), which can be sold into the Korean market.

The option is only available for CERs issued for emission reductions achieved after Apr. 14, 2010.

“As many companies that have an allocation in the KETS are short, it’s crucial to bring new supply of carbon credits to the market for the trading scheme to function properly,” Winklehner said.

Another trading firm, Ecoeye, said it too is in the process of switching markets.

“We have gotten approval from the government for our own project already, and we will convert (the CERs) to KCUs soon,” Lee Jong-ho, a trader with Ecoeye, said.

“We are still looking for Korean CERs which have not yet been surrendered in the EU ETS,” he added.

STEADY FLOW

The Ministry of Environment approved the first CDM project in January, an N2O destruction scheme owned by Hu-Chems Fine Chemical Corp. The first issuance of KCUs from it is expected in late March or early April.

The project generates around 1.45 million offsets per year. Korea Carbon and Ecoeye were two of several companies owning a share of the CERs.

The ministry did not immediately respond to questions about further applications, but market participants said several other projects were seeking to go the same route.

“Last month, five Korean CDM project owners and CER owners applied to register their projects into the Korean registry,” one broker told Carbon Pulse, adding that at least three of the projects are expected to win approval later this month.

The process of cancelling CERs to get KCUs means Korean projects seeking to switch markets are not constrained by unclear regulations, unlike in China, where several thousand projects face the potential prospect of higher domestic prices.

The UN has developed rules to let them leave the CDM, but most market participants are doubtful of their chances to be approved in the Chinese market, although some have decided to give it a try.

By Stian Reklev – stian@carbon-pulse.com

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