More than 465,000 cancelled CERs are poised to find a new life in the Korean carbon market as offsets, offering a degree of respite for the supply-starved market, as the government works to simplify the scheme’s complicated offset rules.
The CERs, which were cancelled on Friday by the UN, were generated by the South Korea-based Sihwa Tidal Power CDM Project and will soon be converted into Korean Offset Credits (KOCs), according to a Monday update of a UNFCCC website.
The project is owned by Korea Water Resources Corp., but it is unclear if they are the owners of the annulled credits. The conversion is due to take place at an August meeting of a South Korean verification committee.
The supply boost will provide some relief for emitters in the Korean market, which are involved in a fierce stand-off with the government over allocation levels.
ETS participants claim the market is under-allocated, and as a result have not traded a single Korean Allowance Unit (KAU) – the staple currency in the nascent scheme – since mid-January.
The government has so far refused to issue more KAUs amid claims that its policies are already too weak to meet its international pledge of keeping 2020 emissions 30% below BAU levels.
Analysts Climate Action Tracker last week echoed that criticism, claiming the country’s 2030 climate target is “inadequate”.
In the meantime, some 780,000 offsets have traded on the Korea Exchange since early April, most of which were converted CERs.
“There is very little activity in the market as most issued KOCs have already been sold,” one market participant told Carbon Pulse.
The source also said the government is likely to introduce changes to simplify the Korean ETS’ complicated offset rules.
At the moment, new offsets, whether cancelled CERs or newly-generated domestic units, are issued as KOCs, which are traded OTC and can be held by anyone.
For the offsets to be eligible for compliance in the ETS, however, they need to be converted into Korean Carbon Units (KCUs), which can only be traded on the Korea Exchange, and only by companies covered by the ETS and four public policy banks that have been given access.
“There is some work being done to bring KOC trading onto the exchange but might take some time still,” the source said.
By Stian Reklev – email@example.com