Carbon Emissions Trading Scheme | Provision of Advisory on Trading in the Carbon Emissions Market

In relation to the carbon emissions trading scheme, this is a case in which the firm's attorneys comprehensively supported the entire process, from the review of the requirements for participating in the scheme, to the conclusion of allowance trading contracts, to the establishment of internal controls.

The carbon emissions trading scheme (Emissions Trading Scheme, ETS) is a system under which the government allocates a certain amount of allowances to business sites that emit large amounts of greenhouse gases and regulates each company to emit greenhouse gases only within that range.

A company that emits less than its allocated range can sell the surplus on the market to earn revenue, while a company for which reduction is difficult can purchase additional allowances to fulfill its obligation.

Through this structure, it is regarded as a representative market-based environmental regulation in that each business site can autonomously minimize its reduction costs while the nation as a whole can efficiently achieve its reduction targets.

The client company requested step-by-step support, ranging from an overall review of the allocation plan under the carbon emissions trading scheme to advisory on actual trading and contracts.

The attorney task force in charge presented the optimal means of securing allowances and, at the trading stage such as allowance sale and purchase contracts, also analyzed risk factors and carried out the review of the contract and the negotiation of the terms together with the client.

[Basic Procedures of the Carbon Emissions Trading Scheme]

1. Establishment of the national reduction target: The government establishes a national greenhouse gas reduction roadmap and sets annual targets.
2. Determination of the total amount and the allocation amount by industry: The allocation amount by sector is finalized according to the characteristics of the industry and the level of emissions.
3. Finalization of participating subjects: Companies and business sites that exceed a certain emissions threshold are incorporated into the scheme.
4. Allocation of allowances by company: The allowances of individual business sites are finalized through review by the joint working group and the Allocation Review Committee.
5. Trading stage: Allowances may be bought and sold on the Korea Exchange (KRX) or in the over-the-counter market.
6. Emissions reporting: Companies must prepare and submit an emissions statement in accordance with the MRV system.
7. Emissions certification: The submitted materials are finalized through review by the Certification Committee.
8. Application for carry-over and borrowing: A surplus may be carried over or sold, and a shortfall may be covered by borrowing or purchasing.
9. Final submission and sanctions: Allowances must be submitted equal to the certified amount of emissions, and if there is a shortfall, a penalty surcharge is imposed. The penalty surcharge is calculated within the range of KRW 100,000 per ton, up to three times the average trading price for the relevant year.

Under the carbon emissions trading scheme, if the wrongful acquisition of allowances, false reduction reporting, or the forgery of materials, among others, is detected, administrative sanctions and criminal punishment may be imposed at the same time.

Accordingly, the attorneys examined the risks that could arise in advance and designed a system that would enable the company to maintain compliant management.

• Advisory on compliance with statutes and notifications : monitoring of the latest amendments to the 「Act on the Allocation and Trading of Greenhouse Gas Emission Permits」, the related notifications, and the administrative orders applicable to each company, and the provision of practical training programs
• Establishment of an integrated management system : advisory on designing a company-wide allowance management system and on systematizing the allocation of responsibility by department
• ESG utilization strategy : support for means of using the capital markets, such as securing allowances and managing ESG ratings, issuing green bonds, attracting investment, and preparing sustainability management reports

From 2026, the Fourth planning period of the carbon emissions trading scheme begins, and the intensity of regulation is expected to increase.

International regulations such as the Carbon Border Adjustment Mechanism (CBAM) implemented by the EU are also expected to have a direct impact on corporate management, and therefore a strategic response that also takes into account the regulatory environment in the global market is necessary.