On 11 July 2018, the Korean government released the allocation plan for the second phase of its emissions trading system (ETS). According to the plan, 1.777 billion Korean Allowance Units (KAUs) will be issued to 591 companies for the 2018-2020 period, which represents a 2.1% increase compared to the first phase (2015-2017). Market participants would receive nearly 548 million permits annually, with a further 14 million set aside in a market stability reserve for auctioning, 5 million for a ‘market maker reserve’, the latter of which has been put in place by the government to be supplied by identified public banks in the case of low market liquidity.  Additionally, some 134 million is set aside for the new entrants reserve. This amounts to a total cap of 1.796 billion tonnes for the second phase.

Other changes to the ETS for the second phase include: (i) an expansion of benchmark based allocation; (ii) the introduction of auctioning with power generation, telecommunication, aviation and others required to purchase 3% of their allowances through monthly auctions; (iii) new rules for allowance banking; and (iv) amended offset criteria that allows for the restricted use of international credits.

The draft plan is expected to be approved by the National Assembly by the end of July.