Performance evaluation of ETS implementation from the perspective of national greenhouse gas reduction linkage

Abstract

The first planning period of the Emission Trading Scheme (herein referred to as ETS), which was introduced to reduce domestic greenhouse gases, has recently ended (three years from 2015 to 2017), and its performance is being evaluated based on confirmed results of the project. As is already well known, the importance of ETS can be recognized from the fact that the amount of greenhouse gases emitted by Korea’s ETS-participating companies accounts for about 65 to 70 percent of the nation’s GHG emissions, and here, the basis for continuous evaluation of performance can be found. Considering the purpose of the ETS introduction, a comparative analysis was carried out in terms of the national GHG emission forecast (herein referred to as BAU), reduction targets and emissions to evaluate performance of the implementation from the perspective of linkage with the national GHG reduction performance. We also looked at the appropriateness of the supply and demand for emission rights in the ETS market. As a result, it can be said that the total amount of certified emissions within the first planned ETS period did not exceed the total amount of pre-planned emission rights, which means that ETS were discharged within the pre-targeted level. However, from the perspective of a national reduction target, ETS performance varies from year to year, and this can be confirmed to be because of the number of emission rights that vary from year to year of operation. In other words, the ETS was properly managed in that it did not exceed the total amount of emission rights in terms of the overall planning period, but in terms of assessing whether the national GHG reduction targets were met, the change in the volume of emission rights per year had an adverse effect. In addition, a review into the issue of over-allocation of ETS emission rights is requested from the perspective of implementing the national GHG reduction targets. The target for reduction of ETS relative to the ETS BAU remains at a level of 7.9% based on the pre-allocation standard, which can be confirmed to be far below the 13.4% target for national GHG reduction within the same period. Ultimately, due to the large amount of emission rights, we can ascertain that it is likely that they have not been the sufficient cause of reductions. In addition to the link between the performance of ETS implementation and the achievement of the national GHG reduction, to review the medium and long-term direction for development of an ETS, alternatives including utilizing auction revenues and strengthening the link between the national carbon market and the mechanisms of the international carbon market should be consistently reviewed. * The following content summarizes parts of “Analysis on the Effects of Implementing a National GHG Emissions Trading Scheme”, a policy study by the Korea Environment Institute (KEI), and identifies implications and policy direction through in-depth discussions.