Main climate regulations, policies and authorities
International agreementsDo any international agreements or regulations on climate matters apply in your country?
Korea is a contracting state to the following international agreements or regulations on climate matters:
- the United Nations Framework Convention on Climate Change;
- the Kyoto Protocol to the United Nations Framework Convention on Climate Change;
- the Vienna Convention for the Protection of the Ozone Layer;
- the Montreal Protocol on Substances that Deplete the Ozone Layer;
- the London Amendment to the Montreal Protocol;
- the Copenhagen Amendment to the Montreal Protocol;
- the Montreal Amendment to the Montreal Protocol;
- the Beijing Amendment to the Montreal Protocol;
- the Marrakesh Accords; and
- the Paris Agreement.
How are the regulatory policies of your country affected by international regulations on climate matters?
Under article 6 of the Constitution of the Republic of Korea, treaties duly concluded and promulgated under the constitution shall have the same effect as the domestic laws of Korea. As such, Korea carries out its obligations under international agreements through the enactment of domestic laws, regulations and policies. For example, see question 4.
Main national regulatory policiesOutline recent government policy on climate matters.
In June 2019, the Third Basic Plan for Energy (for 2019-2040) was announced by the Korean government, in which the government reaffirmed its commitment to gradually phase out nuclear energy and increase the proportion of the renewable energy-based power supply to 30-35 per cent by 2040 (from 7.6 per cent in 2017). Specifically, the government plans to: (i) reduce the total energy consumption in Korea by 18.6 per cent to 171.8 million tonnes of oil equivalent (TOE) by 2040; (ii) improve energy efficiency by 38 per cent by regulating energy demand by sector; (iii) reduce the energy consumption of energy-intensive businesses through cooperative agreements with the businesses; (iv) introduce a new fuel efficiency standard for medium-sized to large cars by 2022; and (v) rationalise the energy pricing model by adopting green pricing or implementing corporate power purchase agreements.
Main national legislationIdentify the main national laws and regulations on climate matters.
The regulatory framework for new and renewable energy in Korea primarily consists of the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy (the Renewable Energy Act). In addition, the energy policies established by the Framework Act on Low Carbon, Green Growth (the Carbon Act), the emission trading scheme, and the Act on the Allocation and Trading of Greenhouse-Gas Emission Permits (the GHG Allocation Act) that became effective in 2015 are all part of the regulatory framework for new and renewable energy.
National regulatory authoritiesIdentify the national regulatory authorities responsible for climate regulation and its implementation and administration. Outline their areas of competence.
The primary governmental authority in charge of climate change-related regulations is the Ministry of Environment (MOE). Under the initiative of the MOE, the Korean government establishes the basic plans for emissions trading (within the inclusion of national GHG emission targets) every five years. To achieve this target, the MOE also implements plans for the allocation of GHG emissions allowances.
The Carbon Act establishes the Committee on Green Growth, which formulates plans for climate change, energy and sustainable development. The Committeee comprises the Prime Minister as chairperson, the Ministers of Strategy and Finance; Science and ICT; Trade, Industry and Energy; Environment; Land, Infrastructure and Transport; and members from private sectors.
The Ministry of Trade, Industry and Energy (MOTIE) is responsible for energy-related matters that may also have implications for climate change.
General national climate matters
National emissions and limitsWhat are the main sources of emissions of greenhouse gases (GHG) (or other regulated emissions) in your country and the quantities of emissions from those sources? Describe any limitation or reduction obligations. Do they apply to private parties in your country?
According to National GHG Inventory Report of Korea for 2017, as of 2015, the main sources of emissions of GHG in Korea and their respective quantities of emissions are energy industries based on solid fuel (189,842.17Gg CO2e), manufacturing industries and construction based on solid fuel (127,598.08Gg CO2e) and road transportation (89,424.51Gg CO2e).
In 2015, the Korean government proposed to reduce GHG by 37 per cent below its business-as-usual (BAU) emissions level and introduced a GHG emissions allocation system and a national cap-and-trade system. Emissions rights are allocated to around 600 businesses that are subject to the Greenhouse Gas Target Management System (ie, companies or public entities whose total annual emissions are 125,000tCO2e or more). If emissions exceed a company’s share of allowances then that company must buy emissions rights from the emissions trading market to avoid the imposition of administrative fines.
National GHG emission projectsDescribe any major GHG emission reduction projects implemented or to be implemented in your country. Describe any similar projects in other countries involving the participation of government authorities or private parties from your country.
Korea recognises the offset of emissions rights. Businesses eligible for allowances allocation may request the competent authority to convert all or some of its GHG emission reductions generated from an external project that complies with international standards. Upon such a request, the competent authority makes the conversion and registers the Korean Offset Credits in the offset registry (article 29(1), (2) of the GHG Allocation Act). However, only certified GHG reductions from an external project may be converted, with some examples being reductions generated through a GHG reduction project implemented in a measurable, reportable and verifiable manner in compliance with international standards or GHG reduction project defined in the United Nations Framework Conventions on Climate Change and relevant protocols (article 30).
Domestic climate sector
Domestic climate sectorDescribe the main commercial aspects of the climate sector in your country, including any related government policies.
The Korean government allocates emissions rights (with emission limits) to entities. If an entity exceeds its emissions right limits, it may be subject to administrative fines. Therefore, entities may choose to purchase emissions rights through the emissions trading market to avoid being fined (thereby indirectly stimulating carbon credit trading).
In January 2015, Korea introduced a national cap-and-trade system, which enables businesses that are subject to the Greenhouse Gas Target Management System (ie, companies whose total annual emissions are 125,000tCO2e or more or companies with places of business whose annual emissions are 25,000tCO2e or more) to trade GHG emissions rights in the market.
The market was not an immediate success, with the volume of credits traded only amounting to 12,900ktCO2e, while the total cap was 539 million tCO2e (only 2.3 per cent of the cap was traded). However, with the government’s efforts to increase the supply of allowances in the market to ease the pressure on market participants, the market has become much more robust. South Korea limits the use of GHG or energy under the GHG mitigation target. Failure to comply with the limit may result in administrative fines of three times the average transaction price of the credits (article 33(1) of the GHG Allocation Act).
Furthermore, to promote the use of renewables and to further support efforts towards achieving greater reductions in GHG emissions, the Korean government invests in energy-saving facilities and equipment and also provides financial support (either free-of-charge or at low interest rates) for businesses that are related to or are investing in GHG emissions reduction efforts. For example, to accelerate the installation of renewables equipment or facilities (at a smaller scale) in homes, buildings and social welfare facilities, the Korean government provides funding to entities that rent solar power facilities to homes and other facilities. The Korean government further provides financing options at low interest rates to make funds more accessible when producing, installing or operating new and renewable energy facilities.
General GHG emissions regulation
Regulation of emissionsDo any obligations for GHG emission limitation, reduction or removal apply to your country and private parties in your country? If so, describe the main obligations.
As a part of the 2009 Copenhagen Accord, South Korea pledged to the international community that it would reduce GHG emissions by 30 per cent below its BAU baseline by 2020.
On 30 June 2015, the Korean government submitted its Intended Nationally Determined Contribution (INDC). The INDC was a proposal to designate an economy-wide target to reduce GHG emissions by 37 per cent below its BAU emissions level (ie, 850.6MtCO2e) by 2030.
The above obligations do not apply directly to private parties in Korea, but private parties have certain obligations under domestic laws and regulations on climate change.
GHG emission permits or approvalsAre there any requirements for obtaining GHG emission permits or approvals? If so, describe the main requirements.
Other than the GHG emission allowances regime under question 8, there are no separate GHG emission permits or approvals in Korea.
Oversight of GHG emissionsHow are GHG emissions monitored, reported and verified?
Monitoring, reporting and verifications of GHG emissions in Korea are intertwined with the GHG emission allowances scheme. A business entity eligible for allocation shall prepare a report on the amount of GHG emissions produced by it during a compliance year in a measurable, reportable and verifiable manner and submit the report to the competent authority within three months from the end of the compliance year (article 24 of the GHG Allocation Act). Upon receipt of the report and the competent authority must evaluate the validity of the details in the report and certify the actual amount of GHG emissions produced by such a business (article 25). The Emissions Certification Committee has been established to deliberate on and adjust technical matters regarding the evaluation of validity and the certification of amounts of actual GHG emissions (article 26).
GHG emission allowances (or similar emission instruments)
RegimeIs there a GHG emission allowance regime (or similar regime) in your country? How does it operate?
See question 8.
RegistrationAre there any GHG emission allowance registries in your country? How are they administered?
Korea has established the Emissions Trading Registry and the Offset Registry to operate and manage GHG reduction registration, and a national cap-and-trade system was introduced in January 2015.
Obtaining, possessing and using GHG emission allowancesWhat are the requirements for obtaining GHG emission allowances? How are allowances held, cancelled, surrendered and transferred? Can rights in favour of third parties (eg, a pledge) be created on allowances?
To obtain GHG emission allowances, a business entity eligible for allocation shall prepare an application for allocation of emission permits. The application should state the total number of emission permits applied for in the commitment period, the number of emission permits applied for in each compliance year, and the amount of greenhouse gas emissions during the three years immediately preceding the year in which the applicant was designated as a business entity eligible for allocation. The application should be filed with the competent authority no later than four months prior to the beginning of each commitment period (article 12 of the GHG Allocation Act). Here, the commitment period means from 2015 to 2017, from 2017 to 2019, and from 2020 every five years thereafter. Any objections with regard to the allocation must be made within 30 days (article 38).
The criteria for allocation are prescribed in detail in regulations under the Act, such as by article 12(2) of the Enforcement Decree of the same Act and the Guidelines on the Allocation, Adjustment and Cancellation of GHG Emission Permits (Public Notice of the MOE No. 2018-126).
The competent authority may, ex officio or upon receipt of an application, allocate additional emission permits or adjust the number of emission permits to be allocated for each compliance year, if the total emission allowances increase following a revision to an allocation plan or establishment or expansion of facilities, or in case of a change in the range of products, a revision to the business plan, or other cause or event during a commitment period necessitates additional allocation of emission permits (article 16 of the same Act).
An allocation of emissions permits may be revoked in part or in its entirety under the following circumstances: where total emission allowances decrease following a revision to an allocation plan; where a business entity eligible for allocation closes all of its facilities; or where it is discovered that a person obtained allocation of emission permits by fraud or other illegal means (article 17).
Trading of emissions permits must be reported to the competent authority, which will then be registered to the Emission Trading Registry (article 21(1), (2)). As for the trading of emission derivatives, the provisions of the Financial Investment Services and Capital Markets Act shall be applicable (article 28 of the Enforcement Decree of the same Act).
Trading of GHG emission allowances (or similar emission instruments)
Emission allowances tradingWhat GHG emission trading systems or schemes are applied in your country?
A person intending to trade emission permits must register his or her account in the GHG emissions permits registry and participate in the transactions (article 20 of the GHG Allocation Act). Emission permits may be traded by the unit of GHG converted into tons of comparable CO2e (article 19). To promote the setting of a fair price of emission permits, fair trade of emission permits and the stability and efficiency of trading emission permits, Korea Exchange (KRX) is designated as the emission permits exchange (article 22). Both exchange and off-exchange transactions are possible.
The transfer of emissions permits following a transaction shall take effect as at the time the details of the transaction of the emissions permits are reported and registered (article 21(3)).
Trading agreementsAre any standard agreements on GHG emissions trading used in your country? If so, describe their main features and provisions.
No, other than exchange transactions and applicable operation rules on such exchanges, standard agreements for off-exchange transactions do not exist in Korea.
Sectoral regulation
Energy sectorGive details of (non-renewable) energy production and consumption in your country. Describe any regulations on GHG emissions. Describe any obligations on the state and private persons for minimising energy consumption and improving energy efficiency. Describe the main features of any scheme for registration of energy savings and for trade of related accounting units or credits.
Korea has no oil resources and is highly dependent on external energy sources, with net imports accounting for 87 per cent of its total primary energy supply. The energy mix is carbon-intensive: fossil fuels accounted for 82 per cent of total primary energy supply. In 2013, manufacturing and energy industries accounted for the most GHG emissions, followed by transport, industrial processes, agriculture and waste management.
As previously mentioned, energy production and consumption are taken into consideration under Korea’s Greenhouse Gas Target Management System. For instance, businesses that are subject to the Greenhouse Gas Target Management System consist of diverse sources of GHG emissions including, without limitation, energy, industries (petrochemicals, cement, steel, non-ferrous metals, semiconductors, electronics, automobiles, etc), wastes and buildings.
Other sectorsDescribe, in general terms, any regulation on GHG emissions in connection with other sectors.
See question 17.
Renewable energy and carbon capture
Renewable energy consumption, policy and general regulationGive details of the production and consumption of renewable energy in your country. What is the policy on renewable energy? Describe any obligations on the state and private parties for renewable energy production or use. Describe the main provisions of any scheme for registration of renewable energy production and use and for trade of related accounting units or credits.
Since 2012, the Korean government has implemented the Renewable Portfolio Standard (RPS) scheme pursuant to the Renewable Energy Act, converting from the previous feed-in-tariffs (FIT) regime. Additionally, the government required companies with generation capability of 500MW or more to generate a certain minimum percentage of gross power from renewable energy sources. Currently, 21 large power companies in Korea are subject to this obligation. The current renewable generation quota obligations are set out as follows. However, the Moon Jae-in administration is in the process of revising the ratio and it is expected that the ratios will be adjusted to a higher level.
Annual supply rates | ||||||||||||
Year | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
Ratio (%) | 2.0 | 2.5 | 3.0 | 3.0 | 3.5 | 4.0 | 5.0 | 6.0 | 7.0 | 8.0 | 9.0 | 10.0 |
Failure to meet the obligatory generation quota may result in administrative fines of an amount equivalent to 1.5 times the average trading price of renewable energy certificates (RECs).
Under the Renewable Energy Act, a REC is defined as a ‘certificate authenticating the fact of supply by using new or renewable energy facilities’. A REC is based on each megawatt hour (MWh) of electricity generated from a renewable energy resource. RECs are issued by the New and Renewable Energy Centre and are tradable in Korea. RECs are typically sold to one of 21 large power generation companies that are obligated to generate a certain percentage of their generation output from a renewable energy source.
Renewable energy is monitored by the Korea Electric Power Corporation (KEPCO), which verifies the amount of renewable energy generated. If a company produces renewable energy, in addition to RECs, the company can also get a certified emission reduction (CER) credit for greenhouse gas emissions by registering with the United Nations as a clean development mechanism (CDM) project. The renewable energy is integrated into KEPCO’s electricity grid network because the electricity generated from the renewable source can be sold only through Korea Power Exchange (KPX). In this regard, the Korean renewable energy producers earn revenue by selling electricity to KEPCO through KPX plus additional income by trading RECs with the 21 large power generation companies.
As of August 2019, renewable energy companies typically generated revenue of approximately 85,000 Korean won per MWh, and 58,000 Korean won per 1 unit of REC. Subject to the fulfilment of certain requirements, such entities may also obtain GHG emission permits by generating renewable energy.
Wind energyDescribe, in general terms, any regulation of wind energy.
To engage in the renewable energy business in Korea, the developer must secure ownership or lease rights of the land on which the power plant will be located, and obtain necessary licences from the local government where the land is located. For large-scale power generation projects (over 100,000kW), an environmental impact assessment must be carried out and approved by the MOE.
The time frame for obtaining approval for the development of a utility-scale renewable energy project often depends on the type of renewable source. For example, for onshore wind, the approval process normally takes about four years from filing the application with the government, whereas for solar power the approval may be granted within a year. In the case of a large-scale project, it may take longer than usual to obtain the approval, since it requires an environmental impact assessment.
In Korea, there are special protocols for intermittent energy sources such as wind and solar. When an energy storage system (ESS) is linked to supplement the intermittent energy, additional REC weighting is given in the range of 4.0-5.0 units depending on the type of renewable energy source. The highest weighting (5.0 units) is given to solar farms linked with an ESS.
The current REC weighting was decided by the MOTIE in 2018, taking into consideration the impacts on the environment; technology development and industrial revitalisation; power generation cost; resource potential; effects on reduction of greenhouse gas emission; effects on power supply stability; and level of acceptance of local residents (article 18-9 of the Enforcement Decree of the Renewable Energy Act).
According to the adjustments made in 2018, the Korean government maintained the REC weighting of 1.0 for onshore wind power, but the REC weightings for offshore wind power were increased depending on its distance from the shore to attract more investment. For offshore wind power within 5km from the shore, the REC weighting was increased from 1.5 to 2.0; for 5 to 10km from 2.0 to 2.5; for 10 to 15km from 2.0 to 3.0; and for 15km or further from 2.0 to 3.5.
The Korean government also seeks to secure the commercialisation of ESSs and source technologies to reduce ESS prices by 50 per cent of the current price by 2020.
Solar energyDescribe, in general terms, any regulation of solar energy.
As of 2014, the REC weighting given to solar energy ranges from 0.7 to 1.5. For other general regulations, see question 20. However, in 2018, the REC weighting for solar power plants installed in forests was lowered from 0.7~1.2 to 0.7 for all cases, resulting in poor profitability of solar power and inviting opposition from solar power generators.
Hydropower, geothermal, wave and tidal energyDescribe, in general terms, any regulation of hydropower, geothermal, wave or tidal energy.
As of 2018, the REC weighting given to hydropower is 1.0; for geothermal, wave and tidal it is between 1.0 and 2.5. For other general regulations, see question 20.
Waste-to-energyDescribe, in general terms, any regulation of production of energy based on waste.
As of 2018, the REC weighting given to waste-to-energy has been lowered to 0.25, considering its effects on environmental pollution and residential acceptability. For other general regulations, see question 20.
Biofuels and biomassDescribe, in general terms, any regulation of biofuel for transport uses and any regulation of biomass for generation of heat and power.
Under the Renewable Energy Act, Korea has implemented the Renewable Fuel Standard (RFS), which is a government policy to blend new and renewable energy fuels into transport fuels (article 23-2). Persons subject to the RFS are petroleum refinery businesses and petroleum export-import businesses. In the case of transport fuels, biodiesel (BD) is mixed into diesel oil for automobiles. The mandatory blending ratios for each implementation year are as follows:
Year | 2015 | 2016 | 2017 | 2018 | 2019 | From 2020 |
Mandatory blending ratio (%) | BD 2.5 | BD 2.5 | BD 2.5 | BD 3.0 | BD 3.0 | BD 3.0 |
RECs are issued for power generated using biodiesel or biomass. In 2018, because of environmental concerns, the Korean government decided to discontinue giving REC weighting to woodchip biomass that is blended into coal power generation, and lowered the REC weightings for other usages of biofuels and biomass from 0.5-1.0 to 0.25-0.5). For other general regulations, see question 20.
Carbon capture and storageDescribe, in general terms, any policy on and regulation of carbon capture and storage.
In August 2016, the Korean government announced carbon resources technology including carbon capture and storage (CCS) as one of Korea’s nine National Strategic Projects. Until 2020, the Korean government has decided to invest 47.5 billion won in total to support technological developments that are expected to contribute to reductions of GHG. Currently, CCS technology is not commercially available in Korea. If CCS technology is commercialised, the project may be approved as a CDM project for its GHG reductions subjecting such a project to the issuance of CER credits or it can be used to capture and store GHG from the atmosphere by the companies themselves for the reduction of GHG emissions.
Climate matters in transactions
Climate matters in M&A transactionsWhat are the main climate matters and regulations to consider in M&A transactions and other transactions?
During due diligence investigations, the buyer must verify (i) whether the seller is subject to the Greenhouse Gas Target Management System (and is obliged) to limit its emissions of GHG and (ii) whether it is a mandatory supplier under the RPS, and if so, (iii) whether the seller has duly complied with these climate-related regulations.
Update and trends
Emerging trendsAre there any emerging trends or hot topics that may affect climate regulation in your country in the foreseeable future?
Emerging trends27 Are there any emerging trends or hot topics that may affect climate regulation in your country in the foreseeable future?Under the national cap-and-trade system of Korea, CDM projects implemented aboard may be certified by the Korean government as external projects under the GHG Allocation Act. Once certified, the CERs from such CDM projects can be converted into Korean Offset Credits (KOCs), which can either be traded in the Korean market or be converted to Korean Credit Units (KCUs) to be used to offset the GHG emissions. Owing to the anticipated transition from the CDM under the Kyoto Protocol to the Sustainable Development Mechanism (SDM) introduced under the Paris Agreement, many domestic corporations are paying close attention to its potential implications on the conversion of CERs to KOCs by the Korean government.
