Feb 12 South Korea's refusal to revise estimates of future greenhouse gas emissions could earn it the world's highest carbon price, and have a potentially damaging impact on its export-oriented industry, according to a report released by Thomson Reuters Point Carbon.
The country's environment ministry last month decided to stick to previous projections on how much carbon dioxide (CO2) South Korea would emit in 2020 under a business-as-usual (BAU) scenario, despite critics saying that the estimates were too low.
The BAU estimate will dictate the cap on carbon emissions for around 400 of South Korea's biggest firms when the country launches its emissions trading scheme on Jan. 1, 2015.
The scheme is to be the centrepiece of government efforts to meet a national target of cutting emissions by 30 percent below BAU levels by 2020.
The Point Carbon report said BAU emissions from sectors covered by the scheme, for example power generation and manufacturing, could be around a third higher than the government's estimates.
Point Carbon conducts analysis and price forecasting for the carbon and power markets.
South Korea "risks imposing a very high carbon price on its covered facilities if it maintains its current forecast", the analysts said in a report published on Wednesday.
With limited emission reduction potential, South Korea's carbon price is likely to rise to $93 per tonne of CO2, the penalty for non-compliance under the scheme, the report said.
In comparison, carbon prices in Europe are around $9/tonne, while emitters in California pay around $12.
"Such a high price could have a significant impact on Korea's export-oriented industry," the report added.
South Korea is the world's sixth biggest exporter, selling goods like semiconductors, cars, steel, ships and petrochemicals for around $550 billion each year.
Industry lobby groups have argued the country's competitiveness could suffer if the government imposes a much higher carbon price than those faced by rival firms in Korea's main export markets - China, the United States and Japan.
The Point Carbon analysts said the chances of high South Korean prices were increased by the Ministry of Trade, Industry and Energy's decision last month to lower the target for new nuclear capacity, a move that could increase power sector CO2.
The analysts said that, as a result, the environment ministry might be pushed to revise its projections.
According to the law underpinning the South Korean market, a detailed plan outlining carbon caps for each participating plant must be approved by the country's cabinet before the end of June, leaving limited time to make major changes. (Reporting by Stian Reklev; Editing by Michael Szabo and Simon Cameron-Moore)