South Korea launched its cap-and-trade system Monday, an act that makes the country home to the world’s second-largest carbon trading market.
The cap-and-trade system, which was approved by the country’s National Assembly in 2012, will cap the emissions of 525 of the biggest companies in the country. Overall, South Korea has capped its 2015 to 2017 country-wide emissions at 1.687 million metric tons of carbon dioxide equivalent.
Anders Nordeng, a senior analyst with Thomson Reuters Point Carbon, told Reuters that the system may take some time to warm up.
“We expect modest volumes initially, probably for the first six months,” he said. “Partly because the mechanism is new and relatively unfamiliar for the participants, partly because we think many Korean industrials will avoid acting in a manner that would give their competitors any indications on their growth rate.”
According to Reuters, experts estimate that the price for carbon permits in South Korea will start at less than $10 and increase to about $30 by 2017.
The system is part of the country’s goal to reduce its greenhouse gas emissions by 30 percent below current levels by 2020. The country is hoping to cut its transportation emissions by about 34 percent, its power generation emissions by about 26 percent and its public sector emissions by about 25 percent. In addition to the cap-and-trade system, South Korea has also said it plans to create an “Eco-friendly Transportation Campaign” and campaigns calling on South Koreans to dress according to the seasons in order to save energy spent on heating and cooling. Some cities in South Korea have also taken steps to curb their contribution to climate change: in October 2013, residents of the city of Suwon ditched their cars for 30 days, opting for more climate-friendly transportation options such as walking or biking.
South Korea’s carbon market is second in size to the European Union’s, which covers 28 E.U. countries as well as Iceland, Liechtenstein and Norway. Japan also has a cap-and-trade system in Tokyo, and Kazakhstan and Croatia created trading schemes in 2013. Other countries and regions have also implemented trading programs: in the U.S., the Regional Greenhouse Gas Initiative (RGGI) has created a carbon trading system among nine Northeast states, and California also has its own cap-and-trade system.
In June, a study found that, for the U.S., implementing a country-wide cap-and-trade program could be cheaper than imposing regulations on vehicles and power plants.
“With a broader policy, like cap-and-trade, the market can distribute the costs across sectors, technologies and time horizons, and find the cheapest solutions,” study co-author Valerie Karplus, member of the MIT Joint Program on the Science and Policy of Global Change, said in a press release on the study. “So the market encourages emissions reductions from sectors like electricity and agriculture, and requires reductions from vehicles and electricity at a level that makes economic sense given an emissions target. On the other hand, narrow regulations force cuts in ways that are potentially more costly and less effective in reducing emissions.”
China is also planning on implementing a carbon trading system, which is expected to launch in 2016 and is also predicted to surpass the E.U.’s system as the world’s largest. Right now, China has a network of seven carbon markets in cities and provinces across the country, a system that’s serving as a pilot program in preparation for the country’s national market.