Seoul, South Korea
On 19 August 2022, the South Korean Ministry of Environment announced that it has begun a major stakeholder consultation process as a precursor to implementing changes to its emissions trading system (ETS). The Ministry kickstarted the consultation process on 16 August by convening a Council meeting with relevant ministries, enterprises, associations, and various experts.
Launched in 2015, the Korea Emission Trading Scheme (K-ETS) covers the industrial, power, buildings, waste, and domestic aviation sectors. The stakeholder consultation has been set in motion with the aim to inject vitality into the system. Discussions will focus on three main areas of reform, led by the three respective subcommittees of the Council.
The first is on broader system improvement. Here, the ministry is considering how to better allocate ETS revenues to further climate mitigation measures. It is also discussing how South Korea can meet the requirements raised by the European Commission’s proposal to introduce a carbon border adjustment mechanism (CBAM), as well as alleviate unnecessary administrative hurdles that the ETS currently poses.
The second area centers on a process to increase auctioning share when allocating Korean Allowance Units (KAUs), as a pre-emptive response to CBAM and other potential upcoming trade requirements.
Finally, the government is considering shifting away from grandparenting towards benchmark-based allocation of KAUs, a move that comes in parallel with the proposed increase in the share of allowances that are auctioned.
The Ministry of Environment is set to regularly convene such Council meetings until the end of this year, engaging in dialogue with industry stakeholders to develop a plan for reforms to the K-ETS. Changes that can be introduced by simply revising guidelines will be implemented this year. Longer-term changes will be completed with the establishment of new rules for Phase 4 of the K-ETS, which begins in 2026.
