[Exclusive] Securities Firms Also Allowed to Trade Carbon Emission Permits Starting Next Month

Ministry of Environment to Announce Administrative Notice on Draft Ordinance Regulating Third-Party Requirements
Expected to Stabilize Supply and Demand and Mitigate Price Volatility

[Asia Economy Reporters Joo Sang-don (Sejong) & Park Cheol-eung] Starting as early as this October, securities firms will be allowed to participate in the carbon emissions trading market. Currently, only companies related to carbon emissions can buy and sell emission permits, but the government has decided to allow third parties (securities firms) who are not direct parties to participate in the market.

According to the government on the 1st, the Ministry of Environment plans to issue an administrative notice this month on the draft ordinance titled “Ordinance on Emission Trading Brokerage Companies in the Emission Trading Market,” which permits third-party participation in the carbon emissions trading market. A Ministry of Environment official stated, "We have settled on allowing securities firms to participate in the emission trading market," adding, "The ordinance drafting process is expected to be completed by the end of next month at the earliest." The government’s efforts to address carbon emissions are becoming more concrete, as evidenced by the passage of the “Carbon Neutrality and Green Growth Basic Act (Climate Crisis Response Act),” which sets the national greenhouse gas reduction target (NDC) at over 35% by 2030, in the National Assembly yesterday.

Under the current Act on Allocation and Trading of Greenhouse Gas Emission Permits (Emission Trading Act), securities firms are in principle allowed to participate in the emission trading market. This is because “emission trading brokerage companies” are defined as investment brokerage firms under the Capital Markets and Financial Investment Business Act. However, detailed requirements such as information and communication networks and information processing systems that these companies must have are delegated to be specified by the Minister of Environment through an ordinance. The specific qualification requirements for securities firms to engage in emission trading will be finalized through the ordinance to be issued next month.

The Ministry of Environment plans to limit the emission permit holding cap per securities firm to 200,000 tons. This is in response to concerns that securities firms participating in trading to realize profits might drive prices up. If all 30 domestic securities firms participate, they would account for 13.6% of last year’s trading volume (44 million tons). A Ministry of Environment official said, "About 10 securities firms are currently understood to be interested in participating," adding, "Initially, emission permits worth around 2 million tons are expected to be traded."

If the related ordinance is enacted as scheduled by the end of next month, each securities firm can start trading emission permits after filing a report on the relevant business with the Financial Supervisory Service. A Ministry of Environment official said, "As market liquidity increases, it is expected that the price volatility observed in the existing market will be alleviated."

Meanwhile, discussions on energy tax reform, including the introduction of a carbon tax, are also gaining momentum. The National Assembly Budget Office recently launched a bidding process for a research project titled “Study on the Development Direction of Energy Tax System in Response to Carbon Neutrality.” The Budget Office stated, "It is necessary to review various options, including maintaining and improving the existing energy tax system and introducing new taxes such as a carbon tax." In the political arena, Gyeonggi Province Governor Lee Jae-myung and others have pledged to introduce a carbon tax, making it a major issue in the upcoming presidential election.