Korea to Allow Delegated Trading of Domestic Greenhouse Gas Emission Allowances Similar to Stocks

In September 2023, the Ministry of Environment announced plans to activate the domestic emission allowances market by allowing delegated trading. While this plan was partially disclosed, practical implementation was expected to take time due to the need for legal grounds and system refinements.

👉 Related feed on emission trading market activation plan: https://bsbibv.tistory.com/entry/%EA%B5%AD%EB%82%B4-%ED%83%84%EC%86%8C%EB%B0%B0%EC%B6%9C%EA%B6%8C-%EA%B0%9C%EC%9D%B8-%EB%98%90%EB%8A%94-%EA%B8%B0%EA%B4%80%ED%88%AC%EC%9E%90%EC%9E%90%EA%B0%80-%EC%82%AC%EA%B3%A0-%ED%8C%94-%EC%88%98-%EC%9E%88%EC%9D%84%EA%B9%8C-%EB%B0%B0%EC%B6%9C%EA%B6%8C-%EA%B1%B0%EB%9E%98%EC%99%80-%EA%B4%80%EB%A0%A8%EB%90%9C-%EB%AA%A8%EB%93%A0-%EA%B2%83

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On January 9, 2024, the amendment to the 'Act on the Allocation and Trading of Greenhouse Gas Emission Allowances' was passed by the National Assembly, providing the legal basis for delegated trading.

Furthermore, on June 25, 2024, more specific details on the promotion of delegated trading were disclosed, marking the start of substantial system improvements. Although full system readiness will require additional time,

👉 Press release on the agreement for the establishment of the delegated trading system (June 2024): https://www.me.go.kr/home/web/board/read.do?pagerOffset=0&maxPageItems=10&maxIndexPages=10&searchKey=title&searchValue=&menuId=10525&orgCd=&condition.createDeptName=%EA%B8%B0%ED%9B%84%EA%B2%BD%EC%A0%9C%EA%B3%BC&boardId=1683390&boardMasterId=1&boardCategoryId=&decorator=

 

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Comparison of the system before and after the allowance of delegated trading

Comparing the system before and after the allowance of delegated trading is as follows:

(Current): Unlike general stock trading, transactions are limited to the Korea Exchange (KRX) platform, restricting system participants and making it difficult for third parties (institutions, individuals, etc.) to participate in the future.

(After): Similar to general stock trading, market participants can trade through securities firms' HTS (Home Trading System) and MTS (Mobile Trading System) instead of the exchange platform, making it easier for third parties (institutions, individuals, etc.) to participate in the future, beyond the 700 or so allocated companies.

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Reasons for the Previous Restriction on Third-Party Trading of Emission Allowances

Until now, third-party trading of emission allowances was not permitted, and only allocated companies were allowed to trade. The background for this restriction is as follows:

"Korea's emission trading system mandates that companies emitting a certain amount of greenhouse gases (those with a recent three-year average total greenhouse gas emissions of 125,000 tons or more or companies with facilities emitting 25,000 tons or more) must trade and submit emission allowances. These companies are required to participate in the emission trading market, with over 700 companies currently participating.

This mandatory participation is why third-party involvement in the emission market has been restricted, unlike other financial product markets.

The purpose of the emission trading market is more focused on 'companies achieving their reduction targets' rather than 'stimulating investment in carbon reduction.'

Therefore, from the industry's perspective, and to maintain stable and predictable emission allowance pricing, granting trading qualifications to third-party investors without the obligation to trade and submit allowances has been highly restricted."