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How to Fix a Broken ETS : A Korean Case Study

The Korean Emissions Trading Scheme(K-ETS), which was introduced in accordance with the Framework Act on Low-Carbon Green Growth (2012), covers 73.5% of total greenhouse gas (GHG) emissions and is the nation's most important regulatory tool for GHG emissions reductions. The scheme is now going through its third compliance period (2021–2025), following the first (2015–2017) and second (2018–2020) compliance periods.

If the K-ETS had been effective, participant companies should have increased their investments on energy savings in accordance with the emissions allowance cost. On the contrary, the investment for energy savings in the industrial sector have decreased since the introduction of K-ETS. These facts attest to the K-ETS’s poor performance in inducing GHG emission reductions.

Our estimation show that the industrial sector gained a total of approximately KRW 564.3 billion from emissions trading during the first and second compliance periods from the emissions allowances that the Ministry of Environment allocated to participant companies, as well as early action credits, additional allocation of allowances due to change in the NDC, banking and borrowing of allowances, and bonus allowances from changes in entity boundaries

Thus, we would like to suggest 5 suggestions to fix the K-ETS : (1) Adjustment of emissions cap in accordance with the enhanced 2030 NDC, (2) Substantial increase of auctioning in light of the EU CBAM, (3) Price floors to safeguard the incentives for emissions reduction, (4) Implementation of coal generation cap or a single benchmark for coal and LNG in order to facilitate reductions in the power sector, (5) Fundamental change to calculation of the total emissions cap.

Please see the details as delow. Thank you.

Plan 1.5 Climate Proposal_How to Fix a Broken ETS
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