In the last week of January, the Republic of Korea’s Cabinet approved the 2017 allocation plan for the Korean Emissions Trading System (K-ETS). The Ministry of Strategy and Finance told media that the endorsed plan increases allowance allocation by 17 million above the previous goal, bringing the total to 538.9 million allowances for the 2017 compliance year.
The changes in allocation follow the government’s broader adjustment of the K-ETS to meet Korea’s NDC target of reducing emissions 37% below business-as-usual by 2030. The increase in allocation may also address industry concerns regarding the number of allowances required over the next year. The KETS is a key policy instrument to reaching Korea’s 2030 target. It currently covers around 68% of Korea’s GHG emissions, with 525 businesses covered in the electricity, steel, cement, petro-chemical, building, waste, and domestic aviation sectors.
As the 2017 allocation will not take place until after the current compliance cycle is completed in June, analysts do not expect it to affect the short-term supply or market price of allowances. Over the last month, the market price of Korean Allowance Units (KAUs) has continued to rise, reaching a high of KRW 26,500 (EUR 21.71) this week.
The allocation plan for phase two of the K-ETS, beginning in 2018, is set to be finalized by the middle of this year. From 2018 onwards, benchmarking is expected to replace free allocation based on historical emissions as the main allocation method. The government also plans to gradually introduce auctioning in phase two, with 3% of allowances earmarked to be sold at auction in 2018.
