Only Prices Soar... The Stalled 'Third-Party Participation in Carbon Emission Trading'

Ministry of Environment: "Concerns that Third-Party Profit Maximization May Only Raise Prices, Currently Collecting Opinions"
Negative Sentiment Emerging Internally

Major Emitters Emphasize Securing 'Price Stability'... Oppose Without Mechanisms to Control Price Surges
Industry: "Third-Party Participation Should Occur Within the Scope of Activating Trading Liquidity"

[Sejong=Asia Economy Reporter Joo Sang-don] The Ministry of Environment’s plan to introduce ‘third-party participation’ to revitalize the carbon emissions trading market is currently stalled. Initially, the plan was to allow third parties such as securities firms, other than carbon emissions allowance holders, to participate in the trading market to increase liquidity. However, concerns have recently grown that if third parties withhold supply to profit from rising allowance prices, it could only fuel further price increases.

A Ministry of Environment official said on the 9th, "We are collecting opinions mainly from carbon emissions allowance holders regarding the introduction of the third-party system," adding, "While it was expected that third-party participation would make it easier for demand companies to secure allowances, there is significant opposition arguing that profit maximization by third parties could only drive prices higher."

At the end of last year, the Ministry announced the ‘National Emissions Allowance Allocation Plan for the Third Phase of the Greenhouse Gas Emissions Trading Scheme (2021?2025),’ which explicitly included the introduction of third-party participation. Due to the large price fluctuations of allowances, it was judged that market participation by third parties such as securities firms would help stabilize trading. Accordingly, the Ministry considered designating some securities firms on a trial basis, allowing each to trade 200,000 tons of allowances.

However, the sentiment has shifted recently. Within the Ministry, the view that third-party participation would not significantly contribute to price stability has gained traction. Minister of Environment Han Jeong-ae recently stated, "From the perspective of companies needing carbon allowances, there would be no objection if price fluctuations remain small after the introduction of the third-party system," but added, "If prices rise sharply, the supply might decrease." She suggested that third parties, acting as intermediaries between supply and demand, could instead disrupt the market.

Major emitting industries, who are both demand and supply parties in the carbon allowance market, also emphasize securing price stability as a prerequisite for third-party participation. The steel, cement, refining, and petrochemical sectors commonly state, "We support it if measures to ensure price stability are in place, but we oppose it if there are no mechanisms to control sharp price increases." An industry insider said, "While third-party market participation can be advantageous in securing liquidity when allowances are needed, market price volatility could increase depending on their holding limits," adding, "Third-party participation should occur within a scope that reduces volatility while activating trading liquidity."

Hwang Se-woon, Senior Research Fellow at the Korea Capital Market Institute, said, "Carbon emissions trading itself is very sluggish, so if third parties trading for investment purposes participate, it could create additional trading demand for allowance holders, potentially making trading more active," and added, "Moreover, information would be more sensitively reflected in allowance prices, enabling more accurate price evaluation." However, he also acknowledged the possibility of price increases due to third-party participation. He said, "Interest in allowances may increase, and demand perceived as investment assets could flow in, which indeed raises the likelihood of price increases," and cautioned, "When a specific entity exerts oligopolistic influence in the trading market, such phenomena may occur, so there must be mechanisms to appropriately limit this."

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