South Korea began brokered emissions trading Monday, stepping up efforts to curb carbon output and pull more liquidity into the credits market.
The new system permits the trading of carbon credits much like equities, widening access by giving institutions an easier entry point.
The rollout builds on last year’s amendment to the Act on the Allocation and Trading of Greenhouse Gas Emission Permits to allow brokered trading via securities companies and the naming of NH Investment & Securities as the first broker to pilot the scheme. Since then, the Ministry of Climate, Energy and Environment, the Korea Exchange and NH Investment & Securities have jointly developed the brokered trading platform.
The shift brings new participants into the market, adding to allocation-eligible entities and market-makers, which until now had been the only groups permitted to trade carbon credits directly on the Korea Exchange. These “third-party participants” include financial institutions and investment entities — such as asset managers, fund management entities, trust companies, banks and insurers — as well as pension fund operators.
Under the new structure, third-party participants can trade only through brokered channels, while allocation-eligible entities and market-makers can choose either direct or brokered trading, but not both.
South Korea is one of few jurisdictions running a carbon credits market, led globally by the European Union and several other advanced emissions trading systems.
The need for measures to boost trading is also rising, with Korean emission allowances priced far lower than in other markets. According to April data from the World Bank, Korean allowances have averaged just $6 per ton this year, compared to roughly $70 in the EU, $65 in Switzerland, $57 in the UK, $32 in New Zealand and $12 in China.
“With NH Investment & Securities serving as the sole operator for now, we anticipate more securities firms to offer brokered emissions trading as the system beds in,” a Korea Exchange official said.
jwc@heraldcorp.com
