Public Hearing on the 3rd Greenhouse Gas Emission Allowance Allocation Plan (2021-2025)
Includes Introduction of 'Integrated BM Coefficient' Applying Same Emission Factor to Coal and LNG
KEPCO "Excessive Costs and Electricity Price Surge Feared if Emission Factors Are Integrated"
[Asia Economy Reporter Moon Chaeseok] Korea Electric Power Corporation (KEPCO) expressed concerns that the government's third national greenhouse gas emission allowance allocation plan (draft) could increase the cost burden on coal power subsidiaries and act as a factor for electricity rate hikes.
On the 22nd, according to the Ministry of Environment and KEPCO, the Ministry of Environment held a public hearing on the 'Third Plan Period (2021?2025) Emission Allowance Allocation Plan (draft)' for the power generation sector including coal and liquefied natural gas (LNG) at the Osong Convention Center (OCC) the day before.
The core of the plan is the introduction of an 'Integrated BM (Benchmark) coefficient' allocation method, which was not present in the second plan period (2018?2020). The emission allowance allocation for the power generation sector is calculated by multiplying the past power generation performance of each power plant by an 'emission coefficient.'
The integrated BM prepared by the Ministry of Environment applies the same emission coefficient to both coal and LNG power generation. According to the draft, by 2025, the coal BM emission coefficient will decrease from the current 0.8869770 to 0.6821889. Conversely, the LNG BM emission coefficient will increase from 0.3889024 to 0.6821889. This means that the free allocation of emission allowances for coal power will decrease, while that for LNG will increase.
In response, KEPCO stated, "Considering the introduction of environmental dispatch that reflects emission allowance costs in power generation costs in the electricity market, it is a necessary measure to gradually strengthen (lower) the BM emission coefficient level." However, it added, "Despite the fundamental differences in fuel characteristics between coal and LNG, artificially reversing the generation order of coal and LNG by uniformly applying an overall average coefficient could cause excessive emission allowance trading costs, raising concerns about a sharp increase in electricity rates."
KEPCO also noted that no other country operating a system of free allocation of greenhouse gas emission allowances applies an integrated BM globally. KEPCO said, "Especially LNG power plants, which have been over-allocated free emission allowances relative to their greenhouse gas emissions, may have reduced incentives to reduce emissions despite being emission sources," adding, "There is a high possibility of windfall profits from selling surplus emission allowances."
KEPCO's five power generation subsidiaries mainly operate coal power plants, while major LNG power companies such as SK E&S, GS EPS, and POSCO Energy are private large corporations, raising concerns about preferential support controversies. KEPCO stated, "With the national basic plan for power supply and demand aiming to convert coal power to LNG, and many new LNG power plants preparing to enter the market, there are concerns about inefficient facility investments by private operators due to incorrect market signals regarding greenhouse gas reduction."
Regarding the plan to increase the proportion of paid emission allowance allocation in the third plan (draft), KEPCO said, "It could be a factor for electricity rate increases." KEPCO explained, "The paid allocation ratio of emission allowances will expand from 3% to 10% during the third plan period, directly increasing costs for the power generation sector lacking allowances, which will be a factor for electricity rate hikes," adding, "Ultimately, this will translate into an economic burden across all industrial sectors."
Currently, consultations among related ministries (last month) and public hearings (from the 15th to the 21st) regarding the third plan (draft) have concluded. The third plan (draft) will be established within this month after going through 'Allocation Committee review and adjustment → Green Growth Committee review → Cabinet meeting review.'
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