Analysts say that because the South Korean government under-estimated 2020 emissions carbon allowances could be driven to US$93/tonne when its cap and trade scheme launches.
That would see South Korea set for the world’s highest carbon prices when the country’s emissions cap and trade scheme gets under way at the start of 2015.
Analysts say the Korean government has refused to alter its estimates for future 2020 greenhouse gas emissions under a business as usual (BAU) scenario.
The estimates dictate the cap on carbon emissions for around 400 companies covered by the Korean Emissions Trading Scheme (KETS) and could see the price set by the scheme rise drastically.
Thomson Reuters Point Carbon said this week that emissions could be up to a third higher than the BAU estimates, leading to low levels of supply and high levels of demand for emissions allowances in the market.
With limited emission reduction potential for heavy industry, South Korea’s carbon price is likely to rise to around US$93 a tonne of CO2, well above the US$9/t paid by emitters in Europe and US$12/t charge for firms in California, Thomson Reuters Point Carbon predicted.
“Our greenhouse gas model for entities that are to be covered under KETS suggests that the BAU emissions would be in the order of 430Mt in 2020, around 100Mt higher than the official estimate from the government,” said Jelena Simjanovi?, emerging markets manager at Point Carbon.
“Korean industry is already fairly efficient, it doesn’t have many opportunities for internal abatement below US$93.
“Thus, a cap even tighter than that foreseen in our model implies that companies could face the non-compliance penalty of US$93/t almost from the outset of the market.”
South Korea is the world’s sixth largest exporter and domestic industry groups have argued the country’s competitiveness could suffer if the carbon price imposed is much greater than those set in the US, Europe, or China.
However, the government sees KETS, which will cover around 60 per cent of the nation’s emissions, as a key plank in its plan to reduce overall emissions 30 per cent by 2020.
It still has the opportunity to alter its market cap in the year before the market begins.
