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The South Korean government announced new measures to facilitate the nation’s carbon trading market, including plans to open the carbon market to individual investors and introduce carbon-related financial products from 2024 onwards.
The government unveiled the new measures on Wednesday following a government carbon emission meeting, which are in response to fundamental challenges in the current trading system, which is a key means to achieve the Nationally Determined Contributions (NDCs) target.
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho highlighted the government’s determination for a more accessible carbon market, citing tight regulations as one reason behind the high price volatility in the market. “We will eliminate regulations that may impede the facilitation of free trade of carbon credits among businesses and open up the market,” Choo said.
The government adopted the carbon trading system in 2015 to reduce greenhouse gas emissions by charging businesses for their carbon emissions and allowing them to trade surplus credits with businesses in need. However, the system has been criticized for its low trading volume and high price volatility, which is around four times higher than that of the stock market.
In response, the government aims to attract private funds to the carbon market and secure liquidity by introducing carbon-linked financial products, such as exchange-traded notes and funds, starting in 2024. In line with this decision, the government will enter into agreements with the securities and asset management industries.
With these carbon ETNs and ETFs, it will be equally as easy for individual investors to invest in domestic carbon credits as equities. ETFs linked to carbon credits in the European Union (EU) carbon market are currently available in the market, but there are no products based on domestic carbon credits. The government also plans to establish a domestic carbon futures market by 2025.
The government also plans to expand the scope of participants in the carbon trading market to include delegated entities, such as brokerage houses and asset management firms. Currently, only spot transactions between businesses are allowed in the market and the government plans to develop the legal and institutional framework for this change within this year, allowing delegated entities by next year and individuals by 2025.
By Hong Hae-jin and Chang Iou-chung
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