A report by Bloomberg New Energy Finance and Ernst & Young forecasts that South Korea’s emissions trading scheme (ETS) could reach the penalty level of $90 per tonne of CO2 – exceeding that of any other ETS in the world.
According to the authors the high prices expected from the Korean scheme come down to three factors:
1) ambitious emission reduction targets ( 30% below business-as-usual (BAU) emissions in 2020 applied proportionately to the sectors covered by the Korean ETS or equivalent to a 19% reduction from 2010 levels);
2) high costs for achieving further abatement in a country whose electricity has half the emissions intensity of Australia’s and higher levels of industrial energy efficiency; and
3) restrictions on the use of offset credits from abroad (no more than 28% of their abatement requirement up to 2020).
However the design of the Korean ETS is yet to be finalised and the Korean government is still consulting actively with industry. The authors note that this could lead to relaxations in some of the scheme design elements such as allowances for international offsets, or the stringency of the target. These could lower the carbon price that is likely to eventuate.
The full report is available for download here.