EKYUNGYEON "Exclude Indirect Emission Carbon 'Scope 2' from Emission Allowance Regulations"

"Europe and the US Have No Indirect Emission Regulations for Electricity Use"
"Energy R&D Lags Behind China... Innovation Must Be Promoted"

A suggestion has been made to consider excluding carbon emissions indirectly caused by electricity and heat purchased externally for manufacturing processes (Scope 2) from the regulation under the Emissions Trading Scheme (ETS).

Shim Seong-hee, Senior Research Fellow at the Korea Energy Economics Institute, argued on the 22nd at the 38th forum held online by the Korea Industrial Federation, "We need to consider excluding indirect emissions from ETS regulation."

Unlike major countries in the European Union (EU), South Korea's energy and electricity markets are not liberalized. The market is centered around Korea Electric Power Corporation (KEPCO). Due to this structure, carbon-related costs are not properly reflected in electricity prices, which is why Scope 2 was included in the ETS, but this needs to be changed.

Senior Research Fellow Shim stated, "It is necessary to expand paid allocation based on emission efficiency standards to increase corporate carbon reduction incentives." Paid allocation is a system where companies buy emission permits with money; the more emissions, the more money they pay. This differs from free allocation, where the government allocates permitted emission amounts without charge.

He argued that expanding paid allocation, which leads to higher electricity prices, combined with indirect emission regulations as it is now, could cause a double burden. He said, "Expanding paid allocation leads to increased electricity rates, which can act as a double burden on the power demand sector subject to indirect emission regulations. Therefore, we should also consider excluding indirect emissions from ETS regulation."

A more cautious view was also raised, suggesting that instead of immediately excluding indirect emissions from regulation, a compensation system for companies with indirect emissions should be established and gradually improved.

Song Hong-seon, Senior Research Fellow at the Korea Capital Market Institute, said, "Rather than immediately excluding indirect emissions from the ETS, we should evaluate the achievement of policy introduction goals and gradually exclude them," adding, "We need to consider how much the paid allocation costs in the power generation sector are passed on to climate environment fees, and for industries with a large proportion of indirect emissions, establish a system to compensate indirect (emission) costs using revenue from paid allocation in the power generation sector."

Unlike South Korea, Europe and the United States do not regulate indirect emissions related to the ETS. Jeong Man-gi, Chairman of the forum and Vice Chairman of the Korea International Trade Association, said, "Korea's emissions trading scheme is implemented with stronger regulations than foreign countries, causing dissatisfaction among companies," and added, "While Korea regulates Scope 2, Europe and the United States do not have Scope 2 regulations."

Chairman Jeong emphasized that carbon emission reductions should be achieved through technological innovation and research and development (R&D) such as hydrogen reduction submission, carbon capture, utilization, and storage (CCUS), and water electrolysis rather than regulation. He added that ETS reform is necessary to promote corporate technological innovation. According to a National Assembly Budget Office survey, as of 2020, South Korea's technology level in the energy and resource sector was 80.2, lower than the United States (100), EU (98.2), Japan (91), and China (81.6). The achievement rate of the 2030 Nationally Determined Contribution (NDC) was 27.4%, lower than the United Kingdom (72.3%), EU (62.7%), Japan (39.8%), and the United States (38.1%).

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