South Korea’s weak 2030 target could add to short-term surplus in ETS, analysts say

Published 10:35 on July 28, 2015  /  Last updated at 10:35 on July 28, 2015  /  Asia Pacific, South Korea  /  No Comments

South Korea could add as many as 123 million extra CO2 allowances to its emissions trading scheme for the 2015-2017 period as a result of the low ambition in its INDC, analysts at Thomson Reuters Point Carbon said.

South Korea could add as many as 123 million extra CO2 allowances to its emissions trading scheme for the 2015-2017 period as a result of the low ambition in its INDC, analysts at Thomson Reuters Point Carbon said.

The permit allocation until the end of the decade is based on South Korea’s target of keeping 2020 emissions 30% below BAU levels.

But in its INDC, which it submitted to the UN last month, South Korea said it would adjust its climate policy after the 2030 target had been formally agreed in Paris in December.

By 2030, it will reduce its emissions to 37% below BAU levels, but about a third of the cuts will come from the international carbon market.

According to Point Carbon analysts, if you draw a linear reduction path from now to 2030, South Korea’s 2020 emissions would be 15.7% below BAU levels, not 30%.

“If the government revises the allocation decision for the first trading period of the ETS in consideration of the 2030 target, we estimate the cap for the first trading period will be 1,810 Mt and 123 Mt of allowances will need to be added on the current allocation level,” the analysts said in a report seen by Carbon Pulse.

That would make the surplus for the first three years of the scheme balloon to 146 million allowances, they said.

The power sector would be short 186 million tonnes over the period, but that would be dwarfed by industrial emitters and others amassing 332 million surplus permits.

Under the revised scenario, the ETS would be overall short for a single year for the first time in 2019, but glut from previous years would mean the market would still be long at the end of 2020.

The government has not specified which changes it will consider making after the Paris summit, and it may well stick to its current goal for 2020. But adding allowances would be tempting as several industrial lobby groups are currently suing the government, claiming they have received around 10% fewer allowances than they need.

Despite most analysts saying the Korean ETS is long, not a single allowance has traded since January due to a complete lack of supply as industrials have stayed away from the market.

By Stian Reklev – stian@carbon-pulse.com

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