Books & Reports

Background

In January 2015, South Korea launched its Emissions Trading System (SK ETS) modeled on the European Union Emissions Trading System (EU ETS). It has become the second largest ETS in operation after the EU ETS. In the Kyoto Protocol, “flexible mechanisms” were introduced to lower the overall costs of achieving its mitigation target. These mechanisms include Clean Development Mechanism (CDM), Joint Implementation (JI), and Emissions Trading. At the Durban COP-17 in 2011, it was decided to establish a new international market mechanism (NMM) under the United Nations Framework Convention on Climate Change (UNFCCC) to complement the existing carbon market mechanism for years beyond 2020. Its details will be negotiated and worked out at upcoming meetings. We use the term “international carbon markets” collectively to refer to the existing mechanism such as ETS, voluntary markets as well as other mechanisms which are yet to take shape.

Against the backdrop of these developments, it is of paramount importance to see how South Korea can meet its mitigation target for 2030 on its own as well as working with another country with the information available. In this report, we examine the economic impacts of meeting South Korea’s mitigation target on its own, via international carbon markets, or when linked to China, the EU and Mexico’s carbon markets.

 

Key findings: Linking South Korea’s carbon market to international carbon markets would lower mitigation costs

• Using the Capri (Carbon Pricing) model, we quantified and analyzed various scenarios to meet South Korea’s carbon mitigation targets.

• The results clearly show that linking South Korea’s carbon market to international carbon markets can significantly reduce the costs of mitigation (see Section 2).

• The actual market dynamics will depend on the country that South Korea links its market with. For example South Korea would be a net seller of carbon credits to the EU, but a net buyer of carbon credits from China (see Section 3).

• The benefits of linking the SK ETS to carbon markets in similar countries, such as Mexico, would be less significant. The reason is that similar circumstances mean that the opportunities for trade would be smaller, as both countries would likely find it cheaper to achieve their mitigations domestically.

 

Recommendations: Link South Korea’s ETS to other carbon markets, beginning with low-risk pilots with voluntary carbon markets

• The results suggest that South Korea may benefit from linking its carbon market with those of other countries: this can lead to considerable cost reductions.

• However, experience shows that linking separate carbon markets is a complex challenge and may take several years to implement.

• A quick and low risk strategy to link South Korea’s carbon market to international markets is to run pilots linking South Korea’s carbon market with international voluntary markets. This could be a short/mid-term solution, a ‘stepping stone’ strategy that would offer learning opportunities. This could be complementary to the more complex process of linking the SK ETS with other major compliance markets.

• Also, linking South Korea’s carbon market with voluntary markets in developing countries would have several economic and geopolitical advantages:

– Create and enter new markets in fast growing developing countries.

– Raise South Korea’s standing, and gain concrete influence, in developing countries.

 

About Experts

최현정
최현정

글로벌 거버넌스센터, 대외협력실 / 기후변화와 지속성장프로그램

최현정 박사는 아산정책연구원 글로벌 거버넌스센터 기후변화와지속성장 프로그램 연구위원 겸 대외협력 실장이다. 공군사관학교 국방학과 교수요원(1995-1998), 일본 동경대학 사회과학연구소(2003-2004) 방문연구원, IT전략연구원(現 한국미래연구원) 연구위원(2006)을 역임하였고, 제17대 대통령직인수위원회 정책연구위원(2008), 청와대 국정기획수석실 행정관(2008-2010) 및 녹색성장기획관실 선임행정관(2010-2013)을 역임하였다. 주요 연구분야는 기후변화, 녹색성장, 신성장동력, 동아시아 발전주의 국가 모델과 산업정책, 국가미래전략 등이다. 최근 저서로는 Green Growth for a Greater Korea: White Book on Korean Green Growth Policy, 2008~2012 (Seoul: Korea Environment Institute, 2013) (With KIM Sang-hyup)이 있다. 연세대학교 정치외교학 학사와 정치학 석사, 미국 Purdue University에서 정치학 박사학위를 취득하였다.

Federico Gallo
Federico Gallo

Managing Director, Believe Green LLC

Dr. Federico Gallo has international expertise in quantitative environmental finance, and has advised top decision makers including aides to British Prime Minister Gordon Brown and Mexico’s President Felipe Calderon.Since completing his PhD in Applied Mathematics at the University of Cambridge in 2005, Federico has been applying advanced quantitative modeling skills to help solve today’s environmental and social challenges, in particular by developing market based solutions. His early work at the RAND Corporation received international media coverage, including the Economist Magazine, the BBC, and the Guardian.In 2007, Federico joined the British Government, where he led the development of a set of innovative models to quantify and analyze renewable energy and carbon finance, including carbon markets. The models played a crucial role both nationally, for example in supporting the UK Climate Change Act of 2008, and internationally, for example supporting the Prime Minister on a number of occasions, such as in preparation for Gordon Brown’s G8 meeting in Japan in 2008.Federico has also been very active on the international arena. In 2009, under the British Foreign Office, he led an international collaboration to support the development of the national carbon finance modeling capabilities in India, Brazil, Argentina, Colombia, Peru and Mexico. For example, in 2010 he led a team at the Mexican Finance Ministry to quantify its proposal for a Global Green Fund. Findings by Federico were formally endorsed by the United Nations Secretary-General (UN AGF Report), and paved the road for today’s Green Climate Fund. Federico is also a regular adviser to international organizations, including the World Bank and the United Nations.Federico holds a BSc in Theoretical Physics from King’s College London and a PhD in Applied Mathematics from Cambridge University.

김종우
김종우

여론・계량분석센터 / 계량분석프로그램

김종우 박사는 아산정책연구원의 여론·계량분석센터 센터장이며, 계량분석프로그램 선임연구위원이다. 런던대학교에서 이학학사와 임패리얼 컬리지에서 상대성이론 연구로 이학박사 학위를 취득하였으며 캠브리지대학교 컴퓨터학과에서 Diploma 학위도 취득하였다. 유럽 랜드연구소의 Choice Modelling과 Valuation팀에서 연구원으로 재직하였으며 삼성 메모리 반도체 연구소에서 책임연구원으로 활동하였다. 또한 영국의 PCMS-Datafit에서 Java 소프트웨어 개발업무를 담당하였다. 주요 연구분야는 이산선택모델, 그리고 교통, 보건, 통신 및 유틸리티 분야의 Stated Preference 모델 개발, 공공 서비스가치 책정, WTP (Willingness-To-Pay) 등이다. 주요 연구물로는 "Security at What Cost? Quantifying Individuals’ Trade-offs between Privacy, Liberty and Security,” RAND Report (2010)와 “Modelling Demand for Long-Distance Travellers in Great Britain: Stated preference surveys to support the modelling of demand for high speed rail”, RAND Report (2011)외 다수가 있다.