Prices in the Korean carbon market surged to new all-time highs this week despite recent changes in the administration of the ETS that have brought widespread anticipation that supply will increase.
The offset contract on the Korea Exchange (KRX) rose 10% on Tuesday to close at 17,600 won ($14.59), with 8,300 Korean Carbon Units (KCUs) changing hands.
On Monday, allowances were bid up to close 5% higher at 16,800 won.
Korean Allowance Units (KAUs) are now up 40% since the beginning of the year, while KCU prices have increased 28.5% in the same period.
This week’s price hike came despite news in late February that the industry friendly Ministry of Strategy and Finance will take over ETS responsibility from the Ministry of Environment.
The cap on Early Action Credits has been lifted, which observers say could add some 40 million permits to market supply, and the government said it will consider whether to open the scheme up to UN-issued offsets.
“The recent news was bearish, but shortage continues in the near term as no changes have been made yet and compliance is coming up,” one trader told Carbon Pulse.
Emitters must hand over allowances to cover their 2015 emissions by June 30.
The high prices and low liquidity in the market are primarily caused by a lack of supply, as industry says the government has under-allocated the market by 10-20%.
Big emitters are hopeful the Ministry of Strategy and Finance will increase the level of allocation, although the ministry has not yet made any public statements about the ETS after taking over responsibility.
By Stian Reklev – firstname.lastname@example.org