`Year end battle` on carbon emission right allocation delay…Next year business in `uncertainty`
Ye Jin Soo | jinye@ | 2017-12-04 10:40:00
Issue analysis
’Carbon emission right’ price to have increased due to uncertain policy
The price of greenhouse gas emission rights is skyrocketing given the uncertainty of government policy. The Korean government has been unable to determine the quota of emissions allowances a month ahead of the second phase of the plan (2018-2020), which will start next year. It is December, however, companies are not even able to plan their business plans next year due to lack of emission rights.
According to the Korea Exchange on December 3, the price of greenhouse gas trading was KRW 24,800 per ton, In the first half of the opening of the greenhouse gas trading market in 2015, it was nearly three times higher than KRW 10,000 per ton. Previously, the government also suggested that the appropriate price of the emission standard be KRW 10,000. In fact, compared with international prices, the price of emission credits is analyzed as `abnormal surging` due to delayed allocation of emission rights. The KAU price per day was KRW 23,500 per ton, which was 2.4 times higher than the EU ETS price (KRW 9,700). The price of offset emission (KOC) (CER) price (KRW 217), which is 10.9 times higher than the EU`s CER price.
Companies that have been thrown into the cliffs of emissions trading are rolling around, concerning about a fines bomb, which is three times the market price that would be imposed if the company could not obtain the volume of emissions rights next year. Under the emission trading system, which started in earnest in 2015, companies must reduce greenhouse gas emissions by their ownership of the emission rights or purchase them from the market. Demand for carbon credits is growing rapidly, especially in the energy-consuming sector, but there is a serious imbalance in supply and demand as companies that are left with carbon credits are reluctant to put them on the market. An anonymous creditor expert said, "We had originally planned to allocate company-specific emission allowances in June. In the past five months, we have to look at structural factors as to what the government has done and why." It will not be possible to give up the quota for the second period of a month ahead of the next month, "he said.
Meanwhile, the reason for the surge in the emission rights is due to the view that the regulations will be strengthened in the future and the allocation of the emission rights in the second plan period. It is analyzed that it is because the general department of emission authority changed from Ministry of Strategy and Finance to Ministry of Environment, but work transfer was not completed. In this regard, it is pointed out that the second task quota should have been issued even if the task force including related ministries was created in the second half of this year. The government plans to temporarily allocate the volume next year at the end of the year, and plan a second reduction roadmap next year.
A corporate finance executive pointed out, "In the next year, the shortfall is worth KRW 6 billion, and it is necessary to pay the fines of KRW 18 billion, three times the market price. We are looking into brokers to save them.” A company representative said, "The government is putting a dump on the companies while postponing the policy." If a company lacking emission credits fines three times the average price of the emission market this year at KRW 23,106, the total amount of penalties will be up to KRW 2.5 trillion". He said.
According to a paper titled "The Effect of the Greenhouse Gas Reduction Policy," which is an analysis of the panel data of 6192 companies by Prof. Yoon Jong-min of Hongik University (economics), about 22% of the total greenhouse gas reduction of 90 billion tons in 2015 (20 billion tons) of emissions trading system. It is an analysis that the mid- to long-term investment for the greenhouse gas emission trading system is urgent. To invest in greenhouse gas reduction investments, it is necessary to invest in facilities for 3 to 5 years, but the market is not functioning properly and companies are putting off investment. Companies are asking for 14.3 million tons of government reserves to stabilize their prices or improve market conditions so that they can buy emissions credits in Europe. A carbon creditor expert said, "In order for companies to make active investments next year when the energy paradigm shifts, we will have to take urgent measures at the end of the year to completely eliminate institutional uncertainty."
By Ye Jin Soo jinye@
[ copyright ⓒ The Digitaltimes ]
’Carbon emission right’ price to have increased due to uncertain policy
The price of greenhouse gas emission rights is skyrocketing given the uncertainty of government policy. The Korean government has been unable to determine the quota of emissions allowances a month ahead of the second phase of the plan (2018-2020), which will start next year. It is December, however, companies are not even able to plan their business plans next year due to lack of emission rights.
According to the Korea Exchange on December 3, the price of greenhouse gas trading was KRW 24,800 per ton, In the first half of the opening of the greenhouse gas trading market in 2015, it was nearly three times higher than KRW 10,000 per ton. Previously, the government also suggested that the appropriate price of the emission standard be KRW 10,000. In fact, compared with international prices, the price of emission credits is analyzed as `abnormal surging` due to delayed allocation of emission rights. The KAU price per day was KRW 23,500 per ton, which was 2.4 times higher than the EU ETS price (KRW 9,700). The price of offset emission (KOC) (CER) price (KRW 217), which is 10.9 times higher than the EU`s CER price.
Companies that have been thrown into the cliffs of emissions trading are rolling around, concerning about a fines bomb, which is three times the market price that would be imposed if the company could not obtain the volume of emissions rights next year. Under the emission trading system, which started in earnest in 2015, companies must reduce greenhouse gas emissions by their ownership of the emission rights or purchase them from the market. Demand for carbon credits is growing rapidly, especially in the energy-consuming sector, but there is a serious imbalance in supply and demand as companies that are left with carbon credits are reluctant to put them on the market. An anonymous creditor expert said, "We had originally planned to allocate company-specific emission allowances in June. In the past five months, we have to look at structural factors as to what the government has done and why." It will not be possible to give up the quota for the second period of a month ahead of the next month, "he said.
Meanwhile, the reason for the surge in the emission rights is due to the view that the regulations will be strengthened in the future and the allocation of the emission rights in the second plan period. It is analyzed that it is because the general department of emission authority changed from Ministry of Strategy and Finance to Ministry of Environment, but work transfer was not completed. In this regard, it is pointed out that the second task quota should have been issued even if the task force including related ministries was created in the second half of this year. The government plans to temporarily allocate the volume next year at the end of the year, and plan a second reduction roadmap next year.
A corporate finance executive pointed out, "In the next year, the shortfall is worth KRW 6 billion, and it is necessary to pay the fines of KRW 18 billion, three times the market price. We are looking into brokers to save them.” A company representative said, "The government is putting a dump on the companies while postponing the policy." If a company lacking emission credits fines three times the average price of the emission market this year at KRW 23,106, the total amount of penalties will be up to KRW 2.5 trillion". He said.
According to a paper titled "The Effect of the Greenhouse Gas Reduction Policy," which is an analysis of the panel data of 6192 companies by Prof. Yoon Jong-min of Hongik University (economics), about 22% of the total greenhouse gas reduction of 90 billion tons in 2015 (20 billion tons) of emissions trading system. It is an analysis that the mid- to long-term investment for the greenhouse gas emission trading system is urgent. To invest in greenhouse gas reduction investments, it is necessary to invest in facilities for 3 to 5 years, but the market is not functioning properly and companies are putting off investment. Companies are asking for 14.3 million tons of government reserves to stabilize their prices or improve market conditions so that they can buy emissions credits in Europe. A carbon creditor expert said, "In order for companies to make active investments next year when the energy paradigm shifts, we will have to take urgent measures at the end of the year to completely eliminate institutional uncertainty."
By Ye Jin Soo jinye@