Country Snapshot: South Korea

Publication October 2015


INDC

On 30 June 2015 South Korea submitted its Intended Nationally Determined Contribution (INDC) to the UNFCCC, putting forward an economy-wide target to reduce its Greenhouse Gas (GHG) emissions by 37% below business-as-usual (BAU) emissions to 850.6 MtCO2e by 2030 across all economic sectors. This target equates to limiting GHG emissions in 2030 at 536 MtCO2e excluding land-use, land-use change and forestry (LULUCF). According to South Korea’s submission,

‘Korea will partly use carbon credits from international market mechanisms to achieve its 2030 mitigation target, in accordance with relevant rules and standards.’

The Korean government has stated that it will develop a detailed plan to implement its target in consultation with all of the relevant stakeholders once international targets have been finalised.

This target has been deemed inadequate by environmental commentators and they have criticised South Korea for not going far enough with its plans to reduce GHG emissions. However, in justifying its target the Korean submission stated that,

‘Korea accounts for approximately 1.4% of global greenhouse gas emissions (including LULUCF, according to the WRI CAIT 3.0), but has set a fair and ambitious target to the extent possible.

Korea’s mitigation potential is limited due to its industrial structure with a large share of manufacturing (32% as of 2012) and the high energy efficiency of major industries. Given the decreased level of public acceptance following the Fukushima accident, there are now limits to the extent that Korea can make use of nuclear energy, one of the major mitigation measures available to it.

Despite the challenges, Korea has set a target for 2030, which is expected to be in line with the recommendations of the IPCC Fifth Assessment Report to reduce global greenhouse gas emissions by 40-70% from 2010 levels by 2050.’

The full text of South Korea’s INDC submission can be accessed here.

Carbon pricing

South Korea’s Emissions Trading Scheme (KETS), which imposes caps on emissions from 525 of the country’s largest companies (including 5 domestic airlines) is the world’s second largest carbon market.

Under the scheme, which was launched on 12 January 2015, South Korea’s power generators, petrochemical firms, steel producers, car makers, electro-mechanical firms and airlines have been given a fixed amount of permits to cover their emissions until 2018. Any company emitting more GHG than they have permits to cover must buy additional allowances, otherwise known as Korean Certified Emission Reduction (KCERs)1, from others in the market. The total emissions covered by KETS is approximately 66% of the country’s annual GHG emissions.

The International Carbon Action Partnership (ICAP) has provided detailed information on KETS. The KETS will have a one year compliance period and has been separated into three trading period phases; phase I (2015-2017), phase II (2018 – 2020) and phase III (2021 – 2025).

ICAP’s KETS detailed information sheet can be found here.

In 2015 and 2016 the price threshold will be KRW 10,000 (EUR 7) for one KCERs. However, analysts have predicted that South Korea will soon have the highest carbon price due to the fact they have underestimated their target emissions and Thomson Reuters Point Carbon predicted in 2014 that emissions in South Korea,

‘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 $93 (£57) per tonne of CO2 - well above the $9/t (£5) paid by emitters in Europe and $12/t (£7) charge for firms in California.’

Entities that are covered by KETS can use offsets to meet up to 10% of their surrendering obligation. In Phase I & II only domestic offsets are accepted: domestic credits from non KETS sectors and “Korean Permits” coming from emission reduction projects which meet CDM (as defined below) methodologies and are implemented domestically. Projects implemented before 14 April 2010 are not eligible to issue KCERs. In Phase III the use of international offset credits will be limited to half of the offset limitation.

Domestic offsets scheme

In July 2010, the Korean Government announced a national framework to develop Carbon Capture and Sequestration (CCS) technology, with the aim of developing two commercial-scale plants by 2020. The Korea CCS 2020 Project has been established to secure original CCS technology to economically capture CO2 from large final emitters.

The Korea Carbon Capture and Storage Association (KCCSA) was established in July 2010 under the Ministry of Knowledge Economy. It has the central objective of supporting research, development and deployment of CCS technology in Korea and to facilitate the strategic planning and assessment of R&D programs for demonstration, commercialization and industrialization of CCS.

There are twenty-eight Clean Development Mechanism (CDM) projects in South Korea registered with UNFCCC and the total expected annual KCERs is 10 million. Further details on the projects can be found here.

The Korea Voluntary Emission Reduction Program (KVER) implemented by Korea Energy Management Corporation (KEMCO) has the objective of supporting Korean Small and Medium Companies and to build capacity in tackling climate change. Companies which are eligible to apply to be involved in the KVER projects are those companies without a reduction obligation under KETS. The incentive for companies to participate is that the government will purchase KCERs from certified projects to promote companies participation and to reward voluntary GHG emissions reduction efforts.

According to an IETA report on KETS2, the supply of offset KCERs is expected to remain lower than the potential demand. Demand for offsets is expected to range between 17 million and 56 million tonnes of CO2 per year. The supply of Korean CDM projects is expected to be around 9-10 million tonnes per year based on the historical average issuance rate and after the exclusion of controversial projects using methodologies related to adipic acid and HFC23. The potential supply from the projects under KVER is expected to be around 0.5-1 million tonnes per year.

As a result, the supply of credit offsets or offset KCERs would lag the potential demand by 30% or around 5 million tonnes every year, accumulating to 30 million tonnes by 2020. The compliance entities may also choose to continuously bank offset KCERs due to the uncertainty in the market which will, again, reduce the supply of offset KCERs in the market.

Renewable energy

The government of South Korea announced the Fourth Basic Plan for New and Renewable Energy in September 2014. The plan identifies and sets a specific target of providing 11% of the country’s total primary energy supply with new and renewable energy by 2035. Under this plan, the Korean government seeks to develop solar energy and wind power as key resources while reducing the proportion of waste-derived energy. Increasing renewable energy from its current 2% to 11% by 2035 seems significantly low compared to the targets in the EU (27%), US (27%) and Japan (21%).

However, the government has made clear its intention to encourage investment in the development of renewable energy by easing regulations and presenting profit based business models to encourage private investment.

The Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy can be found here. The purpose of the Act is to contribute to the preservation of the environment, the sound and sustainable development of the national economy, and the promotion of the national welfare by diversifying energy sources through the promotion of technological development, use and distribution of renewable energy.

Energy efficiency

Fourth Basic Plan for New and Renewable Energy seeks to invest in energy efficiency in buildings and residential in order to reduce energy wastage. The blueprint focuses on expanding public and private partnerships in new and renewable energy sector by building market base for renewables and reducing over-emphasis on government-led financing of clean energy projects. The plan set out a reduction target of 11.3 percent between 2007 and 2012.

In 2008, South Korea announced its Basic National Energy Plan 2008 – 2030, which aims to reduce energy intensity by 46% between 2007 and 2030.

The government has introduced tax reductions for businesses that invest in energy saving facilities or low interest loans to help facilitate improvements in energy efficiency. The Korean INDC submission stated that,

‘In the building sector, the Korean government is seeking to manage energy efficiency from the design stage to the operation stage by means such as establishing the Green Building Standards Code and a system for the Performance Evaluation of Eco-friendly Homes.

In the transport sector, the Korean government is continuing to expand infrastructure for environment-friendly public transportation, while introducing low-carbon standards for fuel efficiency and emissions produced from automobiles. The Korean government has decided to strengthen the average emission standard from 140g/km in 2015 to 97g/km in 2020. The Korean government provides various incentives, including tax reductions for electric and hybrid vehicles in order to promote low-carbon vehicles.’

Financial support

According to the national energy plan announced in January 2014, the renewable energy target, 11 percent of the total energy supply from renewable sources by 2035, was reaffirmed.

To reach this goal, the government is focusing on initiatives in the following four areas:

  • strategic R&D and commercialization;
  • promotion of industrialization and market creation;
  • promotion of exports of new and renewable energy products; and
  • infrastructure development.

The total budget for renewable energy in 2015 has reached KRW7.8 trillion (EUR619.09 million, USD697.2 million) to develop technologies; support renewable energy distribution, and promote entering overseas markets. The government also supports overseas renewable energy business for small and medium-sized enterprises with a budget of KRW10 billion in 2015.

The Financial Support Program for Renewable Energy in South Korea has a total budget for 2015 of KRW6.4 billion for R&D support, KRW319.2 billion for the feed-in tariff, KRW115 billion for soft loans, and KRW102.9 billion for distribution support.

Additionally, as a part of the 2009 budget, the government pledged KRW94.3 billion (USD72 million) for the One Million Green Homes Project. The intent is to build one million homes by 2020 that use one of the following renewable energy technologies: solar thermal, solar photovoltaic, geothermal, biomass and wind energy. Each year, the government will set a new budget for the coming year. The budget in 2014 is KRW54.9 billion, and the cumulative budget for the Project reached KRW671.2 billion from 2004 to 2014.

The green homes being built are environment-friendly and use new and renewable energy resources. In addition, green homes create no carbon emissions and use less energy, water and natural resources.

The Korean government has shown its willingness to support renewable energy projects. For example, the government provided circa $US293 million of funding towards the Sihwa Lake Tidal Power Station which is the world’s largest tidal power installation and contributed a significant portion of the $8.2 billion need to fund a 500 turbine off-shore wind project off the country’s west coast.


Footnotes

1

1 KCER = One tonne of CO2 reduction permit


Recent publications

Subscribe and stay up to date with the latest legal news, information and events...