On 7 March 2018, the Korean Ministry for Environment (MoE) released draft rules surrounding the auctioning of allowances, as well as on the use of international offsets; both key elements of the revised rules for phase two of the Korea Emissions Trading System (2018-2020). From next year, at least 3% of allowances will be auctioned rather than given away freely. According to the draft guidance, auctions will take place monthly and will be subject to a number of limitations. Specifically, only companies that do not receive all their allowances for free will be eligible to bid – a list of eligible bidders will be published by the MoE later this year. Additionally, no one bidder can purchase more than 30% of the allowances of one auction. The auctions will be subject to a minimum price, which will be set by the government for each auction based on recent market developments.

The MoE also provided guidance on the use of international offset credits, which were ineligible in phase one (2015-2017). In phase two, trades of Certified Emission Reduction (CERs) units from international Clean Development Mechanism (CDM) projects developed by domestic companies will be allowed, up to 5% of each entity’s compliance obligation. To be eligible, the company generating the offset credits must be established in South Korea or be a foreign subsidiary that is 100% owned by its South Korean parent company. The company must also own at least one fifth of the emissions reduction project itself. Furthermore, the CERs must be generated by emission reduction activities after 1 June 2016.