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South Korea May Launch World’s Most Ambitious Cap And Trade Market
With roughly 18 months until launch, South Korea appears ready to create the world’s most ambitious cap and trade market, with the highest global price on carbon. South Korea historical and forecast emissions image via BNEF These findings jump from a Bloomberg New Energy Finance (BNEF) white paper analyzing how potential market designs could affect the nation’s carbon price and market efficiency, and are a reminder that global cap and trade could still be integral to combating climate change. South Korea’s government is finalizing system design, set to launch in January 2015 , but BNEF predicts it could ultimately cover 70% of national emissions and reach $90 per ton of carbon. Ambitious Goals Would Force Tough Cuts Criticism of the EU emissions trading scheme (ETS) centers on if it actually forces industry to cut pollution, but that won’t be the case in South Korea. “If the government implements the scheme without any changes, it will have major implications for Korean companies,” said Richard Chatterton of BNEF. Over 450 entities participate in the country’s existing greenhouse gas inventory, covering more than 60% of South Korea’s emissions. These entities are all large-scale emitters, and submit annual emissions and energy consumption data to the government, which then sets reduction targets for the subsequent year. BNEF’s projections assume the same entities would be covered by the ETS, and are based on South Korea’s emissions reductions target of 30% below current trends by 2020. This goal will require a 19% reduction from 2010 levels, and compared to Australia’s 14% and the EU’s 5% reduction target, make the Korean system without equal. South Korea emissions abatement forecast image via BNEF In order to meet its goal, BNEF predicts South Korea would need to cut its emissions by 836 million tons (Mt) of carbon relative to business-as-usual between 2015 and 2020. Demand for emission reductions would thus rise to 200 million metric tons per year (Mt/yr) by 2020 – almost double demand projected for the EU ETS, even though South Korea’s program is only 20% its size. But Reducing Those Emissions Won’t Be Easy However, BNEF expects South Korea will face challenges meeting these goals. The proposed system design restricts the use of carbon offsets to 28% of reduction requirements up to 2020, and starting in 2021 only offsets from domestic projects would be eligible for polluters. South Korea emissions abatement demand forecast image via BNEF This tight offset market means South Korea’s ETS could be painful for the country’s industrial sector as they’re forced to buy permits or cut emissions. 598Mt of emissions reductions – nearly 75% of total cuts – will need to come from the industrial and power sector, meaning the cost of electricity and manufactured goods would rise. Further complicating matters, South Korea’s industrial sector is already fairly energy efficient as a result of historically high energy prices, exposure to international fuel price shocks, and national investment in energy efficiency programs. Clean Energy Is A Clear Solution…But Not Short-Term So if offsets are going to be at a premium, and much of the country’s energy efficiency potential has already been realized, where will South Korea’s emissions reductions come from? The clearest solution, as in most cases, is cutting coal-fired electricity generation. BNEF sees the power sector offering the most abatement opportunities both short and long term. Short-term, the white paper estimates South Korea could reduce emissions in 2020 by up to 64Mt/yr by substituting natural gas for coal-fired power. This assumes natural gas generation utilization capacity rises from current projections of 27% in 2020 to 70% South Korea has traditionally relied upon imported liquefied natural gas (LNG), but tight supply and volatile price swings lead BNEF to predict electricity generation will shift toward higher-efficiency fossil fuel or renewable generation , and overall energy efficiency measures will rise outside of the industrial sector. In fact, BNEF predicts the ETS will feed into South Korea’s renewable portfolio standard to expand demand and boost renewable generation to 55 gigawatt-hours (GWh) in 2020 – a 700% increase from 2010. Toward A Global Carbon Market Via South Korea But the best way for South Korean polluters to comply with the ambitious reduction goals may not be within its borders – BNEF recommends linking to other functional carbon markets with an abundance of low-cost abatement options. Two other mature markets will be operating in 2015 when South Korea’s system launches: the EU-Australian, and California-Quebec linked programs. BNEF predicts EU-Australian allowance prices will be below $40 per ton, and California-Quebec around $50 per ton in 2020. Global cap and trade allocation demand forecast image via BNEF Linking to these two systems would benefit all parties. South Korea’s ETS will create demand four times greater than California’s system , and 60% higher than the EU-Australia scheme. Thus, South Korea reduces abatement prices by accessing cheaper permits from other systems, while boosting demand and whittling away surplus permit supply in other carbon markets. Perhaps most promising in this equation, BNEF’s estimates don’t even consider China’s fledgling market. Seven regional pilot programs began rolling out this year, and they will cover up to 1 billion tons of emissions by 2015 before the country launches its own national system in 2020. Remember China is by far the planet’s biggest emitter of carbon. Oh Wait, Industry May Have Its Day Of course, these rosy scenarios hinge on the ETS unfolding as originally proposed, and that’s far from a certainty. South Korea’s government is consulting with large emitters this month, and they have called for many revisions to loosen the strict allowance, offset, and reduction policies. South Korea cap and trade timeline image via BNEF The ETS “Master Plan” is due to be published in December 2013, and it will provide the legal basis for emissions reductions until 2018. So South Korea, it’s decision time. Stay on your ambitious path, and cut emissions 30% while helping create a truly global carbon market . Or, water down the system proposal, and watch your national emissions climb 28% by 2020, according to BNEF – no pressure. Continue reading
Crikey Clarifier: Why Is The EU Carbon Scheme Hitting Our Budget?
Monday, 20 May 2013 Erwin Jackson Crikey Clarifier Last week’s federal budget showed the impact that Europe’s emissions trading scheme is having on Australia’s carbon scheme. The EU carbon price is currently a low 3.55 euros (A$4.67) per tonne of CO2. From 2015, when Australia’s carbon scheme is due to morph into an ETS and will be linked with the EU carbon market, our carbon price is now forecast to be much lower than expected. In the short term, this means less revenue from Australia’s carbon price — hence some budget cuts to climate programs last week. So why is the European carbon price so low — and what’s going to happen next? Firstly, don’t let this issue distract the debate from the fundamentals. The threat of repeal of the carbon price under a Coalition government creates far greater short-term uncertainty around Australia’s carbon price than the low EU carbon price does. For an investor, decisions around the future of EU carbon markets pale against the prospect of doing business in a country that would be the first to dismantle a carbon market. Secondly, the basic rationale for building the link between the two schemes (Australia’s and the EU’s) remains strong. In the longer term, linked markets will be central to boosting the more ambitious global action needed to cut emissions. Remember all the calls for Australia to wait till there is a global market for carbon? It’s not going to pop into place like Dr Who from the Tardis. It is going to come from markets growing and linking. Like Australia’s and EUs, like California’s and Quebec’s, and like China’s seven pilot schemes (China’s national scheme is due to start after 2015). Thirdly, recent budget changes in clean energy and other programs show that an over-reliance on the purse strings of governments does not provide policy stability. The government is better placed to define clear rules for the private sector to follow to reduce emissions. These are the principal policies that can help the government (of whichever party) meet the full range of their bipartisan target to cut emissions by 5 to 25% by 2020 (on 2000 levels). Why is the European carbon price low, and is it a problem? The main reason for the low EU price is that the limit Europe has placed on emissions is not ambitious enough. Like Australia, the EU plans to use the cap it places on emissions from its domestic industries as the principal mechanism to achieve its pollution targets. The economic downturn and the emission reductions from its ambitious renewable energy and energy efficiency policies mean the EU is likely to over-achieve its current 2020 target (i.e. it will pollute less than the cap). The EU system is acting like the market should — emissions are down, demand for emission credits is soft, so the price is low. This problem has been exacerbated by the EU being too generous in giving away free emission credits to some industries, and the lack of flexibility to adjust to changed circumstances. This is not a problem for the EU in meeting its emission targets at lowest cost. But it is a problem if you are an investor seeking to bankroll a major investment in clean energy (this is why the UK has implemented a minimum carbon price in its domestic electricity industry of around A$25/tonne). We are already seeing the EU starting to be challenged by Asia, particularly China, as the world’s clean energy superpower. Without stronger long, loud and legal price signals this is likely to continue. Why has the situation not been fixed so far? Recent attempts to bolster confidence in the EU carbon market have narrowly been put off by countries such as Poland, which want to protect their coal interests, or those that say “let the market sort itself out”. Upcoming German elections have not helped either. Chancellor Angela Merkel has been more timid than normal in sending a strong signal that the EU needs to be a leader in climate change. Does it seem that the EU will solve the problem? Even without short-term interventions, eventually, yes. The fundamentals of the European carbon market indicate prices will rise later this decade as market participants start to factor in the EU’s post-2020 emission caps (the EU has agreed to reduce its domestic emissions by 80-95% below 1990 levels by 2050). Current forecasts by market analysts suggest that EU carbon prices will average around A$10/tonne (a range of $3-$17) over the period to 2020, and up to $39/tonne in 2020. The European Commission is also re-engaging parliamentarians. In June it will revisit proposals to bolster short-term prices. The commission has also begun the process that seeks to strengthen the EU’s 2030 emission targets, which would result in even higher prices emerging later this decade. How would a low European carbon price affect Australia (especially from 2015)? A lower EU carbon a price means that meeting Australia’s emission targets can occur more cheaply. Australia should commit to a fairer contribution to global climate action and toughen its current minimum target to cut emissions by 5% by 2020 — the minimum should be around a 15% cut. Low short-term prices strengthen the case for policies such as the Renewable Energy Target to help grow a lower carbon Australian economy, until global prices better reflect the benefits of reducing emissions in the medium to long term. Continue reading
House for sale in Hervey Bay Queensland
House for sale in Hervey Bay Queensland. Continue reading
