'Allowing Individual Trading of Greenhouse Gas Emission Permits'... ETF Products to Launch Next Year

The Government's 18th Emission Allowance Allocation Committee

Starting next year, greenhouse gas emission allowance exchange-traded funds (ETFs) will be launched.

On the 20th, the government announced measures to revitalize the emission allowance trading market at the 18th Emission Allowance Allocation Committee held at the Government Seoul Office. The emission trading system is a greenhouse gas reduction plan based on market principles, where emission allowances are allocated to workplaces emitting a certain amount of greenhouse gases, allowing them to emit that amount, and any remaining allowances after reducing emissions can be traded. However, the domestic emission allowance market has very low trading volume and price volatility is more than four times that of the stock market, rendering it ineffective.

[Image source=Yonhap News]

Accordingly, the government plans to activate the emission allowance market by allowing the launch of ETFs and exchange-traded notes (ETNs) starting next year. ETFs and ETNs are indirect investment products offered by asset management companies and securities firms, respectively. The aim is to broaden access so that anyone can easily participate in the emission allowance market. A futures market for emission allowances will also be established by the year after next. Detailed operational plans for the futures market will be prepared by next year. Once the futures market is introduced, market participants are expected to be able to hedge risks associated with fluctuations in emission allowance prices, and the price volatility itself is expected to be mitigated.

The government also decided to introduce delegated trading of emission allowances. This will allow companies to entrust emission allowance trading to securities firms, addressing the issue of companies avoiding trading due to the complexity of the trading process. As of last year, among 697 companies registered with the emission allowance exchange, 82 companies (12%) have never traded, and 384 companies (55%) participated in trading for only one month throughout the year. The government plans to expand the scope of delegated trading starting with securities firms, then to other financial institutions such as asset management companies, and eventually to individuals.

Individuals will also be able to open accounts with securities firms and buy and sell emission allowances like stocks. Before implementing delegated trading, a supervisory system comparable to that of the financial market will be established, and related education will be strengthened. The risk assessment for securities firms holding emission allowances will also be lowered to a level similar to that of comparable financial products.

The plan to increase the number of market stabilizers in the emission allowance market, currently seven, and provide incentives is also included in this market revitalization plan. The deadline for companies to convert carbon emission reduction achievements made externally into 'offset emission allowances' will be extended from 2 years to 5 years. The limit on carrying over emission allowances will also be increased from the current 'equal to net sales volume' to 'three times the net sales volume.'

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