Transition Sector

Table 2-2 shows the final emissions allowance and certified emissions of the transition sector during the first phase. The transition sector produced more certified emissions than the final allowance throughout the first phase, generating 777.1 million tCO2eq in total emissions, three percent more than the final allowance. This is because the power generation energy industry, which accounts for the bulk of business activity in the sector, generated more emissions than the allowance. It produced 714.9 million tCO2eq in emissions in the first phase, 3.8 percent greater than the final allowance. The collective energy industry, by contrast, managed to keep its emissions at 23.3 million tCO2eq, 18.8 percent short of the final allowance. Industrial clusters, too, exceeded the final allowance by 4.9 percent, producing 38.9 million tCO2eq in certified emissions (Table 2-2).

Table 2- 2. Final Emissions Allowances and Certified Emissions: Transition Sector

(Unit: Million tCO2eq)

Year

Power generation energy Collective energy Industrial clusters Sector-wide Final

allowance

Certified emissions

Final allowance

Certified emissions

Final allowance

Certified emissions

Final allowance

Certified emissions

2015 229.3 231.2 7.1 6.0 10.9 11.9 247.3 249.1

2016 226.0 237.4 8.9 7.6 10.7 12.7 245.6 257.8

2017 233.3 246.2 12.7 9.6 15.5 14.3 261.5 270.2

Total 688.6 714.9 28.7 23.3 37.1 38.9 754.4 777.1

Note: Industrial clusters were reassigned to the transition sector from the industrial sector for this analysis.

Sources: GIR (2019), pp. 37-39 and ETRS (2019), compiled and edited by the author.

The excess in certified emissions likely exerted pressure on target businesses, particularly those in the power generation energy industry, to lower their emissions. Businesses in this industry thus solved the problem by purchasing additional emission permits on the emissions trading market and also converting their external reductions into Korean Credit Units (KCUs) (Table 2-3).

During the first phase, the power generation industry needed permits for an additional 26.3 million tCO2eq. The industry thus purchased Korean Allowance Units (KAUs) for 46.3 million tCO2eq and converted their reduction records into KCUs as well as purchasing KCUs. The industry ended up selling its surplus KAUs worth 9.2 million tCO2eq to other industries. Overall, the industry bought itself room for 10.9 million tCO2eq, slightly less than the combined amount of its KCU conversions and purchases, by the end of the first phase, which was then carried forward to the first year (2018) of the second phase (Table 2-3). The power generation energy industry accounted for significant amounts of both emission permit inflows in the form of KAU purchases and KCU conversions and also emission permit outflows by way of KAU sales and carryforwards. These transactions suggest that some businesses in the industry

struggled to secure permits for their emissions, while others had more permits than necessary.

The collective energy industry ended up generating certified emissions that fell 5.4 million tCO2eq short of the final allowance, 5.0 million tCO2eq of which it traded to other industries. Industrial clusters needed permits for 1.8 million tCO2eq more than their final allowance. Industrial clusters appear to have solved this problem by purchasing 2.1 million tCO2eq in KAUs (Table 2-3).

Table 2- 3. Emission Permit Trading, Submissions and Carryforwards: Transition Sector (2015-2017) (Unit: Million tCO2eq) Power generation energy Collective energy Industrial clusters Sector-wide

Certified emissions 714.9 23.3 38.9 777.1

Allotted/traded KAUs

Final allowance 688.6 28.7 37.1 754.4

Bought 34.7 0.3 2.5 37.5

Sold -9.2 -5.0 -0.4 -14.6

Subtotal 714.1 24.0 39.2 777.3

KCUs

Converted 9.5 0.01 0.1 9.61

Bought 2.1 - 0.1 2.2

Sold - - - -

Subtotal 11.6 0.01 0.2 11.8

Submitted

KAUs

General¹ 695.4 23.2 35.6 755.2

Borrowed² 7.9 0.1 3.2 13.2

KCUs 11.6 0.01 0.1 11.7

Subtotal 714.9 23.3 38.9 777.1

Carried forward³ KAUs 10.9 0.6 0.4 14.9

KCUs - - 0.004 0.004

Note: Figures have been rounded up to the closest 100,000 tCO2eq and may not add up.

1. “General” refers to the amount of emission permits allocated and returned (submitted) in the given year.

2. “Borrowed” refers to the amount of emission permits allocated and returned (submitted) for the whole phase.

3. Carryforwards indicate the amount of unused emission permits carried forward into the succeeding year, i.e., 2017.

Source: GIR (2019), p. 45 and p. 61, compiled and edited by the author.

As Table 2-2 shows, the amount of certified emissions grew steadily across all industries in the transition sector during the first phase of the ETS. Table 2-2, however, shows the overall certified emissions of both businesses that were newly subject to the ETS as well as businesses whose industry categorization changed over the course of the first phase. In other words, it reflects the effect from the increase in the number of target businesses. We should therefore look to other data in order to ascertain the exact trend of certified emissions by industry.

We can control the effects of newly subject businesses or those whose industrial categorization changed by narrowing our analysis to businesses targeted by the ETS in every year of the first phase and identifying their total and average certified emissions. The power generation energy industry, for one, retained the same number of businesses, 15, throughout the first phase. The industry-wide total certified emissions can therefore tell us about the emissions trend of these businesses. The industry’s total and average certified emissions grew 2.7 percent from 2015 to 2017, and again by 3.7 percent from 2016 to 2017 (Table 2-4).

The collective energy industry had 14 target businesses in 2015, which increased by two in 2016, and again by four in 2017. Without the number of newly subject businesses controlled, the industry’s total certified emissions grew 27.4 percent from 2015 to 2016, and by another 26.1 percent from 2016 to 2017. When the analysis was narrowed to the original 14 businesses, however, total certified emissions rose 21.6 percent from 2015 to 2016, and only 7.0 percent from 2016 to 2017 (Table 2-4). In other words, although the industry’s total certified emissions continued to grow from year to year, the rate of increase slowed in the latter two years of the first phase. The apparently significant rise in the industry’s total certified emissions from 2016 to 2017 owes to the fact that the number of targeted businesses in the industry increased significantly.

With all targeted businesses counted, the average certified emissions per business in the collective energy industry grew by 11.7 percent and 12.1 percent in 2016 and 2017, respectively. Average emissions per business among the original 14, however, grew by 21.7 percent and 6.9 percent, respectively, over the same period (Table 2-4). The rate of increase in average certified emissions per business industrywide was smaller than the rate for the original 14 businesses in 2016 thanks to the addition of new businesses. Conversely, the rate of increase industrywide was larger than the rate for the original 14 businesses in 2017 because of the base effect, i.e., the increase in the number of businesses lowering the average certified emissions per businesses in 2016.

There were 10 industrial clusters targeted in 2015, with three more clusters added in 2017. Total industry-wide certified emissions, without controlling for the change in the number of businesses, grew by 6.6 percent and 12.8 percent in 2016 and 2017, respectively. Of the 10 original industrial clusters counted since 2016, however, total certified emissions grew by 6.6 percent from 2015 to 2017, and fell 1.6 percent from 2016 to 2017 (Table 2-4). Industrywide emissions grew over time because of the addition of new clusters.

The newly added industrial clusters played a substantial role in changing the industrywide average certified emissions per cluster. Specifically, average certified emissions per cluster was down, significantly, 13.3 percent, between 2016 and 2017. Of the 10 original clusters, however, the average dropped by a mere 1.7 percent (Table 2-4). The actual decrease in certified emissions per cluster, coupled with the increase in the number of clusters, has done much to lower average emissions per cluster industrywide drastically.

Table 2-4. Trend in Certified Emissions: Transition Sector

(Unit: Thousand tCO2eq)

Industry Subject 2015 2016 2017

Power generation energy

Yearly

Number of businesses 15 15 15

Total certified emissions

231,234 237,435 246,237

n/a (2.7%) (3.7%)

Average certified emissions per business

15,416 15,829 16,416

n/a (2.7%) (3.7%)

Overall

Number of businesses 15 15 15

Total certified emissions 231,234 237,435 246,237

n/a (2.7%) (3.7%)

Average certified emissions per business

15,416 15,829 16,416

n/a (2.7%) (3.7%)

Collective energy

Yearly

Number of businesses 14 14 14

Total certified emissions 5,998 7,291 7,803

n/a (21.6%) (7.0%)

Average certified emissions per business

428 521 557

n/a (21.7%) (6.9%)

Overall

Number of businesses 14 16 18

Total certified emissions 5,998 7,644 9,641

n/a (27.4%) (26.1%)

Average certified emissions per business

428 478 536

n/a (11.7%) (12.1%)

Industrial clusters

Yearly

Number of businesses 10 10 10

Total certified emissions 11,916 12,697 12,489

n/a (6.6%) (-1.6%)

Average certified emissions per business

1,192 1,270 1,249

n/a (6.5%) (-1.7%)

Overall

Number of businesses 10 10 13

Total certified emissions 11,916 12,697 14,317

n/a (6.6%) (12.8%)

Average certified emissions per business

1,192 1,270 1,101

n/a (6.5%) (-13.3%)

Note: Figures in parentheses indicate the rate of increase over the preceding year.

Source: ETRS (2019), compiled and edited by the author.