South Korea has approved the trading of greenhouse gas emissions allowances through securities firms for the first time from Monday, a move the government says will broaden participation and inject fresh liquidity into one of Asia’s most developed carbon markets.
The reform brings South Korea’s emissions trading scheme (ETS) – the world’s third-largest mandatory carbon market after the European Union and China – closer to the financialised model seen in Europe, where banks, funds and other institutional investors routinely buy and sell emissions contracts.
Under the change, companies covered by the scheme will be able to open brokerage accounts and trade allowances via securities firms’ platforms, similar to equity transactions. Until now, allowances could only be traded directly on the Korea Exchange.
The rule change follows a January amendment to the Act on the Allocation and Trading of Greenhouse Gas Emissions Allowances, which created a licensing regime for emissions-trading brokers and expanded the range of eligible participants.
Financial institutions including asset managers, banks, insurers and trust companies, as well as pension funds, will be allowed to trade through brokers.
The Ministry of Climate, Energy and Environment said the shift is expected to boost trading volumes and improve price discovery as institutional investors enter the market. Officials also said the new system could pave the way for an emissions futures market and related financial products.
“Brokered trading will help invigorate the emissions market and support South Korea’s greenhouse gas reduction goals,” said Oh Il-young, the ministry’s director-general for climate and energy policy, adding that the government would consider allowing retail investor participation after reviewing market conditions.
Seoul approved its 2035 national greenhouse gas reduction goal, pledging to cut emissions by 53 to 61 per cent from 2018 levels, tightening both the upper and lower bounds of earlier drafts but drawing sharp criticism from civic groups and industry over feasibility and ambition.
Under its new nationally determined contribution (NDC), South Korea aims to lower greenhouse gas emissions to between 348.9 million and 289.5 million tonnes of carbon dioxide equivalent by 2035, from 742.3 million tonnes in 2018. The government said the higher ceiling and higher floor compared with previous drafts reflected stronger intent to decarbonise.
Globally, carbon markets are expanding but remain uneven. The EU ETS is the most mature, supporting futures, options and participation from major financial institutions.
By contrast, China’s national ETS – the largest by emissions covered – restricts trading mainly to power firms, with limited room for financial players. Japan operates only local and voluntary schemes, while Singapore uses a carbon tax rather than an ETS, and most Southeast Asian markets remain in early development.
