Carbon prices in South Korea (pictured) could reach the penalty level of $90 (£59) per tonne of CO2 – making it the highest in the world.
The forecast from analysts at Bloomberg New Energy Finance (BNEF) comes as the nation is set to launch a scheme in 2015 that will cap around 70% of its greenhouse gas emissions.
The researchers say the predicted high prices – which exceeds any other emissions trading system (ETS) – reflects the nation’s ambitious reduction targets, the relatively high cost of cutting emissions in the country and restrictions on the use of offset credits from abroad.
Richard Chatterton, Lead Analyst for carbon markets at BNEF said: “If the Government implements the scheme without any changes, it will have major implications for Korean companies. A carbon price will lead to higher power prices and impose additional costs on industrial firms. The Government is mitigating the impact for covered entities by handing out most allowances for free but costs could still rise quickly.”
The report forecasts that if South Korea sticks to its national target of cutting emissions to 30% below business-as-usual (BAU) levels by 2020, emissions reductions through the planned ETS would have to reach 836 million tonnes between 2015 and 2020.
The South Korean Government has yet to finalise the design of the ETS and BNEF says it will need to carefully consider the options. It suggests the Government should ease the reduction target, allow greater use of international offset credits before 2020 and link its programme with other carbon markets to provide a wider range of lower cost emissions reduction options.