2012-5-3  Source: Carbon Trade Exchange

South Korea yesterday approved a national emissions trading scheme, becoming the latest country to deploy a cap-and-trade system to control its greenhouse gas output.

Despite some industry opposition, South Korea managed to avoid the wrangling that has dogged the introduction of similar schemes in Australia and the US.

Bipartisan support for the idea was demonstrated with 148 out of 151 lawmakers voting for the new emissions trading scheme, which is now due to start in the world's 12th largest economy in January 2015.

The government has pledged to reduce emissions by 30 per cent from projected levels by 2020, but South Korea is currently the world's eighth largest emitter and the fastest growing source of emissions among the 34 nations of the Organisation for Economic Cooperation and Development (OECD), according to a Bloomberg New Energy Finance report in February.

Details have yet to be finalised, but it is expected that the new scheme will cover around 60 per cent of the country's carbon output by focusing on industrial operations producing more than 25,000 tonnes of CO2 per year.

Although 95 per cent of the permits polluters need will be given away for free in the first six years, the Federation of Korean Industries complained the scheme would add initial costs of 4.7 trillion Korean won (£2.6bn).

However, the government has been keen to emphasise the long-term benefits to the country's corporations of reducing energy consumption and leading the market in green goods.

"This is to develop green industry technologies and technology to reduce energy consumption, and develop those as one industry," Yang Soogil, chairman of the Presidential Committee on Green Growth, told news agency Reuters. "Ultimately we want to organise markets for green business ahead of other countries."

The fact the scheme starts at the same time as Australia's emissions trading system raise the possibility of linkages between the two countries, as well as New Zealand's emissions trading scheme, which was introduced in 2009.

Writing on social networking site Twitter, EU climate action commissioner Connie Hedegaard described South Korea as a "natural EU cooperation partner", raising the possibility of connecting the nascent scheme with the world's largest carbon trading system.

In related news, analysts Thomson Reuters Point Carbon, forecast a potential drop in the carbon price should François Hollande defeat Nicolas Sarkozy in Sunday's second round vote in the French Presidential election.

Hollande has said he wants to reduce the share of nuclear power in electricity generation from 75 per cent to 50 per cent by 2025 and give priority to the development of renewable energy.

However, Point Carbon said even if Hollande wins, drastic shifts to the French nuclear policy are not expected and the potential bullish price effect would most likely be "more than outweighed by the potential negative impact of the assumed bearish reaction by the financial markets."

"The most important outcome of the French presidential race will be the effort that potential winner Hollande puts into the re-opening of the European fiscal pact," added Anders Nordeng, senior market analyst at TRPC.

"A president-elect Hollande will probably send equity and financial markets down, and carbon might well follow such a potential bearish move."