Liable entities(covered entities) participating in the Korean Emssion trading system have to submit KAU(Korea Allowance Unit, Emission Credit) corresponding to the amount of emissions they emitted in one year in the followin year(Usually at between Jun and August). They have to submit KAU equal to tons of CO2 they emitted last year. At this time, companies that emit more emissions than the allocated emissions rights must purchase KAU or borrow(from the KAU of the following year). On the other hand, companies that emit less CO2 than the allocated KAU can sell the remaining KAU or roll them over to the next year. However, if unlimited borrowing and roll over is allowed, price fluctuations in the maket may worseon, so the amount of borrowing and roll over is limited, and it differs from phase and year. Lets find about this.
| K-ETS exprienced a surge in price in phase 1(2015-2017) and phase 2(2018-2020) due to 'roll over' problem. Companies prefered to roll over the remaining KAU rather than sell them since they worried about change in policy. thus, even though there was ample room for emission permits overall, price soared as there were no companies selling KAU. the price of 1 KAU rose to 40,000won at that time. |
Overview of emission allowance carryover
As mentioned earlier, companies that emit less greenhouse gases than the allocated emissions rights can sell the remaining emissions rights and carry them over to the next year(roll over). The 3rd Allocation Plan defines emission credit carryover as follows. “A person who holds an emission right may carry over the emission right* to the next implementation year of the relevant planning period or the first implementation year of the next planning period with the approval of the competent authority (Article 28, Paragraph 1 of the Act).” In other words, a company may transfer the emission right to the next implementation year. It can only be carried over until.
* Emissions credits (KAU) and offset credits (KCU)
Approval standards roll over KAU
1. Criteria for roll over approval amount of liable entities
1-1) Carryover within the planning period: Applications for carrying over emissions credits between implementation years within the 3rd planning period are approved only within the scope of the following standards, and can only be carried over to the next implementation year within the 3rd planning period.
(1) Carryover of KAU21 (KAU21 --> KAU22): Carryover is possible up to twice the net sales volume of KAU21
Net selling volume = ‘Selling volume – Purchase volume’ registered in the emissions register and offset register until the day before the day the company applied for carryover to the next implementation year.
※ The quantity of KAU and KCU in each implementation year exchanged for other KAU, KCU or KOC or allocated for a fee through auction is excluded from the calculation.
(2) Carryover of KAU22 (KAU22 --> KAU23): Carryover possible up to twice the net sales volume of KAU22
(3) Carryover of KAU23 (KAU23 --> KAU24): Carryover possible below KAU23 net sales volume
(4) Carryover of KAU24 (KAU24 --> KAU25): Carryover is possible up to twice the net sales volume of KAU24.
1-2) Carryover between planning periods (KAU25 --> KAU26): Applications for carrying over emissions credits from the 5th implementation year of the 3rd planning period to the 4th planning period will be approved only within the scope of the following standards, and will be approved only within the scope of the 4th planning period. It can only be carried forward to the first performance year of the period.
Only the average annual net sales amount* of the company's 3rd planning period emissions rights (KAU21∼KAU25) and offset emissions rights (KCU21∼KCU25) will be carried forward.
* The ‘sale quantity – purchase quantity’ registered in the emissions register and offset register until the day before the day the company applied for carryover to the 4th planning period divided by the number of implementation years of the 3rd planning period to which the company applied
※ Quantities that exchange KAU21∼25 and KCU21∼25 with KAU, KCU, or KOC of other planning periods or are allocated at cost through auction are excluded from the calculation.
※ To enable processing of the remaining amount after emission trading and submission, KAU and KCU with a total of less than 100 tCO2-eq per company subject to allocation are approved when applying for carryover, regardless of the above standards.
2. Standards for carryover approval for non-allocated companies
Excerpt from the 3rd allocation plan
Effect of carryover and disposition of remaining emissions permits not carried over
1. Effect of carryover: When carryover is approved, the quantity of emission permits for the implementation year in the emission permit holder's emission permit register is changed. In other words, if KAU21 is carried over by 100, KAU21 in the emissions register will decrease by 100 and KAU22 will increase by 100. The generated KAU22 can be traded immediately.
2. Handling of remaining emissions rights that have not been carried over: A company can submit emissions rights equivalent to the amount of greenhouse gases it emits to the government and sell or carry over the remaining emissions rights. However, even if you try to sell emissions credits after the submission deadline, sales are virtually impossible after submission because there are no allocation target companies willing to purchase them. If these unsold emissions rights cannot be carried over (due to reasons such as exceeding the carry-over limit or exceeding the period), they will automatically expire 6 months after the end of each implementation year. In other words, it will disappear from your account.
In fact, there is a lot of debate about the necessity and problems of carrying over emissions permits, and we will look at this in more detail in the next feed.