South Korea’s emissions market finally came to life on Thursday with 168,000 allowances changing hands, but prices remained around 10% below OTC offset levels, leaving some market participants puzzled.

The KAUs changed hands at 11,300 won ($9.74), the same levels as smaller deals that went through on Wednesday, which marked the first trades  since mid-January, when 1,380 allowances traded in the first week after the launch of the scheme.

The majority of trades in the Korea ETS have been in Korean Offset Credits (KOCs), where bids in the opaque OTC market are said to start at least 1,000 won above Thursday’s KAU trades.

“It seems unrealistic to sell allowances at a unit price of 11,300 won now,” one broker told Carbon Pulse. “I believe it might not be a normal deal or at least the selling company made a somewhat bad decision.”

Many ETS participants claim they have been given too few allowances and that the government’s overall target to keep 2020 emissions at 30% below BAU levels is unrealistic.

KAU supply is almost non-existent while companies and industry lobbies focus on lawsuits against the government to increase their allocation.

Even companies that are long – and according to analysts there are many of those – have been largely uninterested in selling, either because they want to save units until later in the decade when annual allocation drops, or because it looks bad to offer KAUs while suing the government for having too few.

“I don’t believe this transaction reflects the real carbon market situation in Korea. Under the current atmosphere, it is not natural behaviour for any compliance company to sell KAUs,” the broker said.

Despite the trading activity of the last two days, market participants say regular KAU trading in the Korean market is unlikely to occur until the end of this year at the earliest.

By Stian Reklev – stian@carbon-pulse.com

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