New carbon scheme in South Korea unlikely to achieve targets

A new carbon market in South Korea is unlikely to deliver the country’s emissions reduction targets as heavy emitters are being oversupplied with carbon credits from the outset, according to reports.

South Korea's trading market launches on 1 January 2015, and according to Thomson Reuters Point Carbon report, it will allocate 53 mega tonnes of CO2 more than is required by businesses during the scheme's initial two year trading period.

The study warns that the new carbon market is unlikely to deliver South Korea's target of reducing greenhouse gas (GHG) emissions by 30 per cent below a business as usual scenario by 2020.

Anders Nordeng, senior analyst on the Point Carbon team at Thomson Reuters, said: "With the power producers' likely shortage of allocated KAUs [emission allowances] and the possibility for fuel switching, we expect prices will be driven by the relative cost of generating electricity from gas compared to coal. Given the current fuel price trajectories, that difference is likely to be in the order of $7-8 in 2015, rising to $18 in 2016 and $30 in 2017. If power producers buy up-front to cover their future needs, we are likely to see a more flat price trajectory."

The surplus is likely to be relatively small compared to the oversupply in the European Union, which currently faces an oversupply of 2,000 Mt for a yearly supply of 1,900 Mt.

Member states are continuing to debate how to tackle the surplus with governments considering a range of reforms designed to increase the EU carbon price.