"Carbon Emission Trading System, Ultimately Must Move to Free Allocation"

Professor Yoo Jong-min of Hongik University Department of Economics
Claims at the Economic and Business Studies Conference on the 27th

[Sejong=Asia Economy Reporter Moon Chaeseok] Experts have argued that the government's carbon emission allowance policy should be changed from paid allocation to free allocation. Currently, the government sets annual emission quotas for 684 high-emission companies and requires them to purchase emission allowances, but this is ultimately seen as a shackle that restricts the trading market.

Professor Yoo Jong-min of the Department of Economics at Hongik University made this statement on the 27th as a presenter at the Spring Joint Academic Conference on "Innovative Growth of the Korean Economy and Market-Friendly Regulation," hosted by the Korean Economic Association and the Korean Academic Society of Business Administration.

At the conference, Professor Yoo argued that there is not a strong correlation between the government's policy to expand paid allocation and the reduction of carbon emissions. This is because the government only collects corporate assets through fiscal means, while the country's carbon emissions remain unchanged. Rather, he pointed out that the expansion of paid allocation policies could cause side effects such as ▲hindering corporate investment decision-making ▲limiting the growth of Korea's emission trading market ▲increasing the likelihood that overseas countries will apply Korea's high regulatory standards to our multinational corporations. Professor Yoo said, "Even if the current '90% free allocation and 10% paid allocation' changes to '90% paid allocation and 10% free allocation,' Korea's carbon emissions will remain the same," adding, "This is because companies will fully utilize their emission rights in some way equivalent to the amount issued." He explained, "In the end, the government is just collecting corporate assets. Whether the fiscal funds are used to build solar power plants or to support electricity fees is uncertain, but rather than inducing carbon reduction through state-led initiatives, it is better to leave it to corporate judgment."

This view differs from the government's stance. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, recently stated at the Foreign Economic Ministers' Meeting that "paid allocation will be gradually expanded." The proportion of paid allocation has been increasing from 0% (2015?2018) to 3% (2018?2020) and 10% (2021?2025).

The government also restricts the "annual rollover strategy," where companies hold emission allowances until the next year. It becomes increasingly difficult to adopt a wait-and-see approach by continuously holding allowances to invest the following year, anticipating higher prices overseas. According to the Emission Trading Act, the 684 designated companies must register their emission allowance certification by May 31 each year and can only apply for rollover or borrowing until June 10. The amount of rollover allowed by the government has been decreasing to three times the average net sales volume (2018→2019), twice (2019→2020), and once (2020→2021) annually.

According to the UK energy think tank Ember, on the 25th (local time), the closing price of emission allowances in the European market was 53.07 euros per ton, a 64.2% increase from 32.32 euros at the end of last year. According to the Korea Exchange, during the same period, the closing price in the Korean market fell by 26.1%, from 23,000 won to 17,000 won per ton. Naturally, investing in the rising European market is a rational decision, but in Korea, the volume of rollover transactions is restricted. Korea already has high regulatory intensity, significant uncertainty, and lacks even a futures market, which increasingly discourages investment. Consequently, the growth of Korea's emission trading market slows down.

Professor Yoo said, "Maintaining rollover restrictions while strengthening the paid allocation system is double regulation," adding, "Companies will be more focused on meeting carbon reduction quotas rather than finding ways to adjust emissions according to market prices to earn profits and protect the environment."

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