Despite the Surge in Carbon Emission Trading Market, Related Disclosure Compliance Rate is Only 20%

[Asia Economy Reporter Park Jihwan] Although the domestic carbon emissions trading market is rapidly growing every year, the compliance rate for related disclosures to provide information to investors is only 20%. The Financial Supervisory Service (FSS) has decided to establish best practices for the disclosure requirements in accounting standards in line with market growth.

According to the FSS on the 8th, the average annual trading price of domestic emission permits last year was 29,604 KRW per ton, approximately three times higher than 11,013 KRW per ton in 2015, the first year the emissions trading market was established. The trading volume also increased 7.7 times, from 5.7 million tons in 2015 to 43.9 million tons last year.

To achieve the goals of the global greenhouse gas reduction agreement, the "Paris Agreement," the government declared "2050 Carbon Neutrality" in October last year and pledged to reduce national greenhouse gas emissions to zero by 2050. Accordingly, the government allocates emission permits to greenhouse gas emitting companies either free of charge or for a fee and allows greenhouse gas emissions within the allocated limits.

Analyzing the financial statements of the top 30 listed companies that received emission permits from the government, the FSS found that the scale of emission permit-related assets and liabilities has been increasing annually. As of the end of last year, these companies held emission permit assets worth 523.7 billion KRW and emission liabilities of 709.2 billion KRW, representing increases of 142.1% and 7.8%, respectively, compared to 2017.

Although the emissions trading market is rapidly growing, most companies are not providing detailed explanations regarding emission permit-related disclosures such as notes. Among the 30 listed companies analyzed, 24 applied the Korean Generally Accepted Accounting Principles (K-GAAP) for emission permit-related accounting policies, but only six companies fully disclosed the note requirements mandated by the accounting standards. Nine companies did not disclose any K-GAAP note requirements. Companies are required to disclose the quantity of emission permits allocated free of charge by the government (by compliance year), changes in the number of emission permits held, changes in the amounts of emission permit assets and liabilities, and estimated emission volumes.

The FSS plans to establish best practices for emission permit-related note disclosures so that users of financial statements can obtain useful financial information through consistent and faithful disclosures by companies. An FSS official stated, "Until the IFRS is established, we will continuously monitor whether listed companies apply K-GAAP or other standards for emission permit accounting and faithfully disclose related information in the notes."

This content was produced with the assistance of AI translation services.