k-ets progress & operational status · 2. ets linkage link with other ets systems would be...
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K-ETS Progress & Operational Status
22 October 2018
1
1. Carbon Pricing Mechanism in Korea
2011-2014
2011GHGs: 125kt,Energy: 500TJs
2015
Approx. 592 Companies(`17)(GHG Emission over 125kt)
2017
1st Stage Allocation Plan for Phase II(2018) established
2018
2nd Stage Allocation Plan for Phase II(2018-2020) established
2021-
5 yrs for each Phase from Phase III
2012-13GHGs: 87.5kt,Energy: 350TJs
2014 ~GHGs: 50kt,Energy: 200TJs
Allow 3rd party participation
Link to other ETS
* TMS : GHG Emission & Energy Consumption Target Management System
2
1. Target Management System
Features- Command and control
- Target setting through consultation with assigned companies
- Companies emitting over 50kt of GHG and consuming 200TJs of energy / Facilities over 15kt, 80TJs
Governance- MOE oversees operation of TMS (Rule-setting, Monitoring each ministry)
- Each ministry regulates their designated sectors
3
1. Target Management System
Process cycle of TMS
Year T
• Assignment( ~ 30 Jun.)
Year T+1
• Statement report( ~ 30 Mar.)
• Target setting( ~ 30 Sep.)
• Implementation plan report( ~ 31 Dec.)
Year T+2
• Implementation(1 Jan. ~ 31 Dec.)
Year T+3
• Implementation result report( ~ 30 Mar.)
• Verification(1 Apr. ~ )
4
2. Preparatory stage for ETS
Development of MRV for individual companies
- Establish and consolidate MRV system before the start of ETS
- Make the Government and companies better understand MRV system
Information Collection
- Understand individual, sectoral and general GHG emission status through the reports
- Identify potential subject entities of ETS
5
Comparison of K-ETS and TMS
Type Type
RegulationRegulation
Regulated gasesRegulated gases
Threshold
Period
Allocation
MRV
Early actionoffsets
Banking/Borrowing)
Trading
Penalty
AllocationAllocation
Market Mechanism (Pricing) Market Mechanism (Pricing)
6 GHGs6 GHGs
Emitters of 25KtCO2-eq or more Voluntary participantsEmitters of 25KtCO2-eq or more Voluntary participants
3~5 years3~5 years
Operational guidelines, 3rd party verificationOperational guidelines, 3rd party verification
Free allocation + auctioning(1st phase(`15~`17): free allocation)
Considering total amount of permit, 10%Considering total amount of permit, 10%
AllowedAllowed
AllowedAllowed
Penalty to emissions non-compliancePenalty to emissions non-compliance
6 GHGs, energy consumption6 GHGs, energy consumption>25ktCO2 (~’11.12.31)>20ktCO2 (‘11.1~)>15ktCO2 (‘14.,1~)
>25ktCO2 (~’11.12.31)>20ktCO2 (‘11.1~)>15ktCO2 (‘14.,1~)1 year1 year
Free allocation(Grandfathering, Benchmarking) Free allocation(Grandfathering, Benchmarking) Operational guidelines, 3rd party verificationOperational guidelines, 3rd party verification
Determined by contribution factor, no guidelines Determined by contribution factor, no guidelines
Not allowedNot allowed
Not allowed Not allowed
Penalty under KRW 10mnPenalty under KRW 10mn
Command and ControlCommand and Control
RegulationRegulation
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1. Scope
Types of GHGs- Carbon dioxide(CO2), Methane(CH4), Nitrous Oxide(N2O), Hydrofluorocarbons(HFCs),
Perfluorinated Chemicals(PFCs), Sulfur Hexafluoride(SF6)
Types of emissions : Direct emissions- GHGs emissions by combusting fuel or using F gas, etc.
Types of emissions : Indirect emissions- GHGs emissions by using electricity or steam supplied by others
K-ETS includes Scope 1 + Scope 2
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2. Sectors
Industry sector as basic coverage
- More than 70% of the entities in K-ETS system is in industry sector
Building sector
- Building and communications are included in this sector, to mitigate emissions from buildings and
communications industry
K-ETS covers various sectors including industry, building, transport, energy sectorspublic
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2. Sectors
Transport sector
- Aviation industry is included in transport sector
Energy sector
- To include emissions from power generation, power and energy entities are subject to K-ETS
Public and waste sector
- Public services such as water supply, waste and wastewater treatment has carbon costs
- So public and waste sectors are subject to K-ETS too, to internalize those carbon costs and
enhance efficiency by mitigating GHG emissions
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1. Allocation
100% free allocation- As it was 1st time introducing the ETS in Korea, 100% free allocation was intended to:
- stabilize K-ETS and build experiences
- ensure compliance of entities and related players
Allocation methodologies- GF methodology was applied to most of the sectors
- BM-based methodology applied to refinery, aviation and cement industries
100% free allocation through GF and BM methodologies
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2. Coverage
5 sectors, 23 subsectors, from 525 entities in 2015 to 592 entities in 2017
Sector Industry Building Transport Energy Public & Waste
Subsector
MineralFood&beverage
TextileWoodPulp
RefineryPetro-chemicalGlass&ceramics
CementSteel
Non-ferrousMetals
MachinerySemi-
conductorsDisplay
ElectronicsAutomobilesShip-building
BuildingCommunications Aviation Power & Energy Water supply
Waste
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1. Allocation results
1,608 million tons of initial allocation, 1,685 million tons in total
Categories 2015 2016 2017 SUM
Initial allocation 543,107 535,858 529,648 1,608,613
Change of allocation
Additional allocation 9,091 16,105 26,326 51,492
Cancellation 13,351 20,615 10,620 44,586
Early action - 29,412 21,980 51,392
Change of plan - - 18,643 18,643
Total allowances 538,847 560,760 585,977 1,685,584
Unit : kt
12
2. Reserved allowances
89,438kts compiled – 75,581kts(84.5%) used
Categories Market stability Other purpose Early action Total
Allowances Compiled 14,316 23,730 51,392 89,438
Allowances Used(Used/Compiled)
4,938(34.5%)
19,450(81.9%)
51,392(100%)
75,780(84.7%)
Allowances Left 9,378 4,280 0.2 13,658
Unit : kt
13
3. Operational status of offset mechanism
252 methodologies registered, 139 projects approved, 22.4 million tons accredited
Methodologies
- Total 252 methodologies - 211 CDM (83.7%), 41 domestic(16.3%) - registered
Project approval
- Total 139 projects(90 CDM, 49 domestic) approved
- 47 renewable energy, 24 N₂O reduction, 22 fuel conversion, 17 waste heat recovery, 10 landfill gas
utilization, 10 SF₆ reduction, 9 other projects
14
3. Operational status of offset mechanism
Accredited Credits
- Total 22.4 mn tons from 82 projects accredited
- 9.6 mn from N₂O reduction , 5.8 mn from landfill gas utilization , 4.5 mn from SF₆ reduction,
2.1 mn from renewable energy, 0.2 mn from fuel conversion
KCUs (Korean Credit Units) Issued
- 15.3 mn tons(68.5%) from 22.4 mn tons of accredited credits converted to KCUs and used
for transaction or compliance
15
4. Compliance results
1,669 mn tons emitted, 16.6 mn tons (0.98%) of surplus allowances
Unit : million t
Categories 2015 2016 2017 Total
Number of entities 524 562 592 -
Total Allowances 538.8 560.8 586.0 1,685.6
Amount of Emission 542.7 554.3 572.0 1,669
Surplus/Shortage -3.9(0.7%) 6.5(1.15%) 14.0(2.39%) 16.6(0.98%)
16
4. Compliance results
Status by entities
- 402 entities (67.9%) had surplus out of 592 entities (2017)
- 190 entities (32.1%) had shortage
17
5. Traded volume & price
85.1 mn tons, 1,712 bn KRW traded
Categories 2015 2016 2017 2018 ( ~ 9 Aug.) Total
Traded volume (Mt) 5.73 11.9 26.26 41.26 85.15
Total traded amount (bn KRW) 63.1 200.7 544.7 903.5 1,712
Avg. Price (KRW)12,028 17,367 21,131
20,374
- Traded volume, aggregate turnover : KAU+KCU+KOC, in and out of KRX system- Price : Price of KAU traded each year in KRX system
18
5. Traded volume & price
Volume Price
19
1. Allocation
Launch of auctioning
- 3% of the allowances would allocated through auctioning in Phase II
- 100% free allocation is applied for some of the industries considering international
competitiveness or carbon leakage
- Trade intensity and additional cost increase are considered to determine such industries for 100%
free allocation
Launch of auctioning and wider application of BM-based methodology
20
1. Allocation
Wider application of BM methodology- To promote investment for emission reduction and innovation
- BM based methodology applied to 4 more industries (power, group energy, industrial complex,
waste) along with 3 initial industries (refinery, cement, aviation)
Total allocation- 1,796,133,085t of allowances are allocated for Phase II (1,642,980,666t of initial allocation)
- Reserved allowances are 153,152,419t
Launch of auctioning and wider application of BM based methodology
21
2. Introduction of market maker (planned)
Market maker- Invite public financial institutions as market maker
- With actions to be taken by market maker, risk of low market liquidity could be reduced
- Policy details such as type and level of incentives for market maker, institution, timing of
introduction are now being considered
Allowances for market maker
- 5,000kt of allowances from 153,152,419 of reserved allowances are allocated for market maker
Introducing market maker from 2019 is now in consideration
22
3. Emission reductions from abroad
Progress- Initially, reductions from overseas mitigation projects with direct participation were initially
planned to be counted as offset credits from 2021- With related regulations amended in 2018, the timing was brought forward to 2018
Expected Impact
- Promotion and spillover of mitigation techniques
- Development of mitigation potentials in developing countries
- Contribution to implementation of 2030 roadmap and NDC
Emission reductions from CDM projects abroad with direct participation of domestic(Korean) entities are accepted as offset credits (2018 ~ )
23
1. Participation of 3rd Party
Accepting participation of 3rd parties is planned for Phase III- Preparation of policy measures to prevent market abuse or interference
- Maximize the benefit of market functions
2. ETS linkage
Link with other ETS systems would be necessary, and also planned for Phase III
- Promote international cooperation on MRV to guarantee equivalence of each credit
- Regulation-setting
- Contribution to implementation of 2030 roadmap and NDC
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