Isra-Mart srl : Emissions trading

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The government has hinted at a delay in launching a greenhouse gas emission trading system. A government bill put on public notice last November set the start date on Jan. 1, 2013. The Presidential Committee on Green Growth reported to President Lee Myung-bak on Thursday it would make the bill more flexible regarding the timing of implementation and allocation of emissions permits before submitting it to the National Assembly in February.

The government has taken a step in the right direction, given strong opposition from business circles to the legislation. Since November, companies in energy-intensive sectors such as steelmaking, power generation and chemicals have raised their voices against it. Business organizations and, to the embarrassment of the presidential committee, even the Ministry of Knowledge Economy joined the corporations in demanding that emissions trading be delayed until after 2015.

The legislation envisions a cap and trade system in which a company that discharges emissions above its cap is required to purchase extra credits ― licenses to pollute ― from other companies.

Companies claimed that the bill would impose too great a burden on them and seriously undermine their competitiveness. If enforced in its present form, they feared, it could force some sectors to cut output. An expert from the state-run Korea Energy Management Corp. predicted a drop in steel production due to the government scheme. A cut in steel output would hit the auto and shipbuilding sectors as well. He also said a cement manufacturer that discharges 10 million tons of greenhouse gases a year would have to purchase emission credits worth 70 to 300 billion won a year to maintain its output, a cost too high for the company to bear.

Industrialists also pointed to the recent failure of advanced countries such as Japan, the United States and Australia to pass their carbon trading plans through parliament. On Wednesday, Canada said it is not interested in setting up a cap and trade system without similar steps being taken in the U.S. China, the world’s No. 1 polluter, said it would introduce cap and trade within the next five years, a lukewarm commitment at best.

Under these circumstances, critics warn that Korea would risk putting its companies at a competitive disadvantage if it presses ahead with its initial scheme. Korea, they advise, should wait until its rivals take action.

But President Lee Myung-bak hates such a cautious approach. He wants to boldly move ahead of the pack and make Korea a regional leader in GHG emissions trading. Referring to corporate resistance to the government’s plan, Lee said in late December, “Most companies seem to regard carbon emissions trading as a regulation. But it is important to see its positive aspects. It is a business in its own right and can play a significant role in boosting economic growth.”

The government’s cap and trade scheme was intended to jump-start the carbon emissions trading business. It was also aimed at facilitating Korea’s voluntary efforts to cut its GHG emissions by 30 percent from projected levels by 2020. Korea set this reduction target in 2009, although it was under no international obligation to do so.

But the government’s plan, however well-intentioned it may be, cannot succeed without cooperation from the participating companies. To win their compliance, the government needs to address their concerns. The implementation schedule should be made more flexible taking into account slow progress in global efforts to combat climate change. A binding agreement has yet to be forged to replace the Kyoto Protocol that expires in 2012.

While the government needs to alleviate the burden on corporations by easing the terms of allocating emissions credits and promoting emissions reduction in nonindustrial fields such as transportation and buildings, companies should also take their share of responsibility. Emissions reduction is an obligation they cannot avoid.