Jong lk Yoo Director | Korea Research Institute on Climate enaS@NICAo ENVIRONMENT Korean ETS ~ History and governance Nov. 2012 : Enforced Act ‘Allocation and Trading of Greenhouse Gas Emission Permits’ Jan. 2014 : Established the 1:* Master Plan for the Korean Emissions Trading Scheme Sep. 2014 : Established the National Allocation Plan for the 1* Phase Sep. 2014: Legislated 6 codes of regulation for KETS implementation Jan, 2015 : Official launch of KETS Jan, 2017 : Established the 2»! Master Plan for KETS. Restructured the governance of KETS (Ministry of Environment(2015) ~ Ministry of Strategy and Finance(2016) ~ Ministry of Environment(2017) See Governing nity Competent Ministry of Trade, Industry Jf Ministry of Agricul “hatarity eto! and Rural A ea vsieeret ssc corey Gia brats * Combustor, Landi, Water/S@NICAo ENVIRONMENT Korean ETS — Overviews ~ Flexible mechanism: trading, banking, borrowing and offsets, = GHG covered: 6 Kyoto gases (CO,, CHs, NO, HFCs, PFCs, and SF,) - Allocation Method : mainly grandfathering (GF) but Benchmark (BM) for some sectors, BM for Aviation (domestic flight only) ~ Inclusion thresholds : Corporation ) 125,000tCO,eq or Site) 25,000tC0;eq = Sectors and entities covered: 26 sub-sectors with 600 entities(as of Feb.2017) “Only regulated companies + "Unlimited banking of * Intra-Phase_ * Surrender up to 10% of allocation, three government owned credits (noexpiry)- borrowing upto 10% except for adipic acids and HFC projects banks are allowed to trade restrictions on (20% for phase 1) of "Korea domestic CDM credits can be * Possibly open to the 3'° party banking to be credits for certain: converted to KETS credits ftom phase 3(2021~) introduced (TBD) compliance year + ffeets from foreign projects directly perfoimed by Korean companies to be allowed, from phase 2@lIca0 ENVIRONMENT Operational Plan by Phase a Allocation Offset projects * MV 2 Trading Market * Intl cooperation * and incentives, 100% Fee allocation Mainly GF based allocation exept for 3 sub sectors (grey clinker, ol refineries, aviation) Diversifing domestic and COM project methodologies Promoting offset projects by reducing entry requirement for small scale projets Setting up the MRV mechanism Expanding verification bodies/verifers| Designatingthe Korean Exchange (4RX)as an allowance exchange Implementing market stablization International cooperation with EU. China ane Japan Incentives fr emission reduction facies 97% Free, 3% Auctioned Wide application of benchmark Promoting domestic offset projects ~ ‘developing more projects by sector Promoting overseas offset projects — allowing offset cred from overseas projects for omplance Revising the emission report from for benchmark based allocation Updatingthe MV standards, Launching regular auctions Considering adopting market maker scheme Pursuing bilateral cooperation by developinglocal emission reduction projects Trvesting auction profits into ‘environmentally iendly projects Less than 90% Fee, more than 10% Auctioned Mainly benchmark based allocation Drawing up guidelines on overseas ‘reds in accordance with the Pars [Agreement negotiations Diversiving methodologies for overseas projects Capacity building for verifies Adopting intematonal MV standards ‘lowing thre party participation inthe trading market will be discussed (TBD) Consider ETS linkage Diversifying investment potatos|ICAO ENVIRONMENT ~*~ ae Part 1 How are the emissions units generated by your programme, mechanism or project? > Credits are KOC, KCU and KAU. KOCs are generated by offset program and...ICAO =ENVIRONMENT Offset Credit Conversion process Poo reg cement) Controlled Entities ee Carbon Credit aus ="AU (Korean Allowance Units) = KCU (Korean Credit Units) = KOC (Korea Offset Credit) = GHG reductions from an extemal project + bse credits are used For compliance SnS@NICAo ENVIRONMENT Korea Offset Program The project participant can sells Korean Offset Credit(KOC) to the ETS Compliance entities, which is issued through external projects, purchased KOC can be transferred to KCU or traded from the Carbon marketby Compliance entities. “External Project” means a project to reduce, sink, or remove GHG emissions using international/national standards outside of the boundaries of the mandatory compliance entities to Article 8 of the ETS regulation. @ Purpose of Korea Offset Program an i eving Efficiently Dissemination of Achieving efficiently GHG Sustainable growth by Emission Reduction Reduction targets promoting GHG reduction in Private Sector & Small and stabilization of Carbon industry Company MarketJICAO ENVIRONMENT ~~ i Linkage between KETS & KOP ie articip Proputsion of >>») KOC Issued by Gov. >>>) Transaction KOC the External projects Trading of we K-ETS »> 3 . KOP Trading o> Eom era byrcdtresoeutal (C4C¢ voit KKK Purchase KOC@lIca0 ENVIRONMENT Operating System of the KOP a En om. aren . us re : Approval®.Certincation “Caan 1 A eerie ieee tee Committee Control DOE. and verifier naray © a Vestcatonenttis « ‘ooe} Managementof Ecernal projects ‘Appeoral-Cetifcation w Greenhouse Gas Inventory and Research Center -Offset Registry— (http://ors git.g0.kr) External project & Methodology Approval: entiicato Foplication of External Pennell Verification of GHG Drojects Approval-Certfication toKeU reductions@lIca0 ENVIRONMENT Approved Methodologies > Nov .2017, Approvedl Methodologies are 34 (Gov.: 31, Participant : 3) CDM: 211 meths. were adopted + Same dassfiation of methodology with COM & No.ofmeths.:7 + instattn of owes ties 4 No. ofmeths.:5 & No.ofmeths.:6 4 No. ofmeths.:3 + Unused heat recovery and utllzation + Fossil Fuel > Fossil Fuel + RE power generation + Fossil rue > Wo Seer ‘ Unuseaheat recovery and ilation Sst eine ad reaaeres Heat fue > haf + Repower gonaation emt nusedeat recovery andulzalon) ten cers wie + RE power generation eves mo neem ipteareomcersre * Fossil Fuel > Wood Pellet Rural) |; BEOwe ge + Unused heat recovery and power cag varie Bae apne Fossil Fuel > Distict Heating + Solar system at generation ‘hehe eons sae + Rte istattion ta) * Geothermal system ad © No.ofmeths.:4 ® No. ofmeths.:1 © No.ofmeths.:3 + Cultivation of circulating water + Production and utilization of + Afforestation | Reforestation + Using wood products| © No. ofmeths.: 5 iat cin ig won howe “Miatermanagement dutgpaddy thermal energatlzing waste {BlocNGveice fol cultivation wood + Foresiry restoration Project + Sovagetenientpat Blown recon. Use str eease ezer as + By-product fertilizer use + Blomethane ty gas suppS@NICAo ENVIRONMENT Type of External Project on KOP Reduction Projects with Single Measure + General #3,000ten/annual excess + Smal sale 100~ 3,000to/annual reduction * Mir eae: Leshan 100t0n/annuareduion Dear + General: Morethan once in 2 years + Small scale and Microscale Maximum vallity period of Certification 2 Atleast once during vaiity period of certication Monitoring, + Fed (Maximum 10 year, no Extension) + Renewal (7 year+ two peri extension) ‘Smal scale or Mico sale Reduction projec bundted to one project (arous recucton measures canbe apped) + Srllscaeesthan15000%evaearection + fiaosale:tssthan50 Vanes Maximum vaity period of Certification 2% A leastonce curing val perbaot ‘entation + Fed (Maximum10 year, no Extension) + Renewal (7 year+two peri extersion) eaeulees Project tobe implemented in potcy by Gor, acl Gor, Publ Secor + Boplcation a snglereducion oroect + Progam prject> CPX fit) + General: Morethan once a year + Small scale and Extremely scale : Maximum valiity period of Certification ‘=. leastonce during valty pect cerication «Program projec) Within 28 years Key + Fixed (Maximum 10 year, No Extension + Renewall7 year+ two period extension)@lIca0 ENVIRONMENT External Project approval and certification rrr rrr —— —————_—_ ‘Validation Sector's Ministry Certification Review of GHG reduction ‘Sector's Ministry Ta TACT Nota ORMOAKORE er ay SE FE —— puseneeh AES en Contain riewompton searing Se — EGC RO Ministry of Environment ———————— ee ———————— —— AERATORS] secw’anatay ee eee easesJICAO ENVIRONMENT ~*~ ae Part 2 What are the features and benefits of the emissions units generated by your programme, mechanism or project, including the means to ensure their quality? > Korea Offset Program is very similar to UNFCCC - CDM which is the most popular offset program in worldwide...@lIca0 ENVIRONMENT Korea Offset Program vs. CDM ~ laws & standards Framework Act on Low FRAMEWORK ACT Act (1997) KYOTO Protocol UNFCCC ‘Acton the Allocation and Trading of ‘Greenliouse-Gas Emission Perm) Enforcement Decree of the Act on the Allocation ‘and Trading of GHG Emission Permits KYOTO Mechanism (ET. COM, JD [ENFORCEMENT REGULATIONS, Code for Regulations for Validation and Certification of Glossary of CDM terms External Projet RULES & STANDARDS CDM Project Cycle procedure for PA, POA. (Additionality, Debundting) CCDM Project Standard = (CDM Validation and Verification Standard (2001) Marrakesh Agreement (Additionatity, Debundling, Leakage, Common Practice, Investment analysis) fatinenercomerieaeorea. %@ | ICAO ENVIRONMEN Korea Offset Program vs. CDM — Methodologies ene i earn eni @ o o o | iemmeneaeesoee sich ° ° D. Reference and otherinformation ° =JICAO ENVIRONMENT Korea Offset Program vs. CDM ~ Baseline identification id ‘Scenarios that are mostlikely to occurwithin the project boundariesin the absence of the KOP project activity, Identification of alternative scenarios Explainidentified baseline process + Explainthe best available scenarioselection with logical and analytical background and description * Simplified, but application s very limite than COM + Baseline scenariosare in methodologies + Standard for KOP project (National law) = KOP project PDD Guideline Identification of Baseline : Guidance CDM Thescenarioforthe CDM projectactivity that reasonably represents the emissions by sources of GHGs that would occur in the absence ofthe CDM project activity ‘Step1 :Identificationof altemative scenarios ‘Step2: Barrier Analysis Step3: Investment Analysis ‘Step4 : Common Practice Analysis > with approval of CDM additionality Baseline consideration varies by the project scale (micro, small and largescale) CDM Tools = Combined tool to identity the baseline scenario and demonstrate additionality., etc.ICAO ENVIRONMENT Korea Offset Program vs. CDM ~ Additionality Loe + Theeffect ofthe projectactivtytoreduce anthropogenic. GHG emissions below the level that wouldhiave Panton ‘occurredin the absence ofthe project + Law- regulation/economic additionality = Under 60,000ton/yr : Legal = Over 60,000ton/yr : Legal + Economic Additionality + Step? : Law Regulation additionality 1a : Identification of alternative scenarios ~ 1 Lav regulation Analysis, ‘Step2: Economic additionality = 2a: Identification of Analysis method ~ 2b : Cost/Investment/Benchmarking Analysis ~ 2c: Financial indicator Analysis ~ 24 Sensitivity Analysis (Sesnee cor) Theeffectofthe CDM project actvityto reduce anthropogeric GHG emissions below the evel that would have ocaumedinthe absence ofthe CDM project Environmental additionality Economicadditionality Technical additionality ‘Step1 :Identificationof alternative scenarios Step2: Barrier Analysis Step3: Investment Analysis ‘Step4: Common Practice Analysis@licao ENviRONMEN Korea Offset Program vs. CDM ~ Monitoring Principals Apply international standards (UNFCCC CDM) and ISO standards Consistency, Reproducibility, Transparency, Accuracy, Conservativeness Standard for Validation and Certification of External Projects Article 26(Monitoring principles) 1. Monitoring methods shall comply with the registered project plan and the approved methodology. 2 Extermal projects shall be measured in a manner that minimizes uncertainty. 3, Emission Reduction of external Project shall be consistency, reproducibility, transparency and accuracy, 4. When estimating the data needed to estimate the amount of emission Reduction from extemal Projects the value shall be conservatively applied. 7 Regularmonitoring Monitoring principle Estimating ‘Apply approved Third-party methodologies Verification Entity and reporting (Weasurement) ee Soresa. @ |IcA0 NMEN Korea Offset Program vs. CDM ~ PDD Configuration comparison emer OO _— =a EMC senr ene reese Ce OMEN cee ng Cees oO oO mca ogee ene@licao ENviRONMEN earat [ou HRS | assessment [uf Bes | On-Site expert saavise Assessment meee amen Competent Authority by Sector (Operating Entity) Competent Authority by Sector (Operating Entity), Document Review Technical Expert's advise Document Review, On-Site Assessment + Completeness of Document check Litt + Accuracy of Data check List + Evidence + Field(On-Site) situation general requirements (Additionality) * Compliance of Monitoring PlanSivcso oe as Korea Offset Program vs. CDM — Monitoring Report Configuration ° A. Description of project ° o B. Implementation of project o 0 D. Dataand param 0 ° E, Calculation of SDG outcomes ° P do not necessary Local stakeholder inputs regal disputes So ao a ao a a@ lIca0 ENVIRONMENT aa Korea Offset Program vs. CDM ~ Verification nelle « Verification VE Roles © NIEHRD (government organization) © Training for 64 hours Test By DOE Regular On-Site Surveillance, COMEB © Technical Assessment & Internal Audit Morethan two people Technical Expert, Internal Audit Morethantwo people © NIER (government organization) R coMeR © Re-Accreditation (Every five years) Regular Surveillance (2 years) VE: Verification Entity|ICAO ENVIRONMENT aes Part 3 Where can potential buyers purchase the emissions units generated by your programme, mechanism or project? > Trading platform is KRX. But account shall be... Part 4 How does your programme, mechanism or project track the use of emissions units? > Every, each emission units are traceable through...S@NICAo ENVIRONMENT Eligible buyer & seller for KETS KAU : Compliance entities are eligible to buy and sell (until phase 2, 2018-2020) ~ Additionally only 3 Public Banks are allowed to open allowance trading accounts on the KETS. until Phase 2. (Korea Development Bank, Korea Exim Bank and the Industrial Bank of Korea) casa Phe inub crac ~ From phase 3, can the 3 party be participated? Not Determined Yet!!! KOC : Compliance entities, Project developer (project owner), Designated Financial Institution ~ To trade KOC as the 3 party, project participation is required = Designated Financial Institution shall be noticed by MoE (TBD) = KOC shall be transferred to KCU on the request by Compliance entities@lIca0 ENVIRONMENT Buyer and Seller must have an account with the reserve to hold Credits. Account virtual space opened in the name of the Minister of Environment and offset project participants in order to manage certified offset credits in the registry. Each account. identified with a unique ID number. Issuance Account issues certified credits from an offset profect. (1 independent account per project) Holding Account keeps the certified credits of a project participant. (1 independent account per project participant) records the cancellation of transferred credits from a Holding Account. (managed by the Ministry Cancellation Account | orgs the cane holds the transferred credits(KCU) owned/obtained by ETS Compliance entities. (1 independent Offset Credit Account | Sores re are Forest Deposit sets aside a certain portion of emission reductions from forest projects to prevent the loss of CO, Account in the forest sector. ‘manages the disposal of certified credits owned/obtained by ETS Compliance entities after their Disposal Account transfers to KCUS,S@NICAo ENVIRONMENT Transaction of Accounts KOC Issuance MoE > tong acount Projet —_| WKisve the Sioa poriteons ~4,"Koctotne® | paie faq ne.) Regieed 7 SMOG registre to Project Le toting Acount Holding Account ‘Application for Regletration KOC transfer, Transfer KOC from Holding Account of A tOKRX Cancellation ‘Account + KOPP: Holding Account Register KOC to Participants Z@e |ICAO ENVIRONMENT Transaction of Accounts KOC Transferto KCU Holding Account Offset Credit Account ‘Application for KOC toKCU Transfer KRX Issue KCU Transfer KOC to Disposal Account from Holding Account ‘of Compliance Entity To trade the KOC, the account should be required. The accountis only opento the Compliance Entity and Offset project participant. 1) Opento the 3" party (Code for Regulation required by MoE) 2) Participate Project (as the investor)@lIca0 ENVIRONMENT erial number assignment 3 @ © External Project Registration mark : Fixed value (“R"means “Registered") Registration year @ State of project operation: State code refer to ‘ISO 3166-1 alpha-2" @ Type of External Project Project register number © Type of Certified Extemal project Pees CON Eeticee) © state for account owner fe Type of project participant 0 2 @ ® Serial number ce DEE ECE aie © External Project Certification mark : Fixed value “Issued") @ Issued year ® Emission Reduction Period @ Number of Acceptance for external project (@, @, 6), @ of Project SN) Global carbon reduction scheme mark (Ex, CDM) ® Serial number Methodology SN BREEN © 121 @ Number © 2 ® _@ Methodology version (means@& |ICAO ENVIRONMENT Operate a transparent Registry system — Ensure ownership to emission reduction - Maintain a public registry of approved projects tase Ors 2 -. ~ Issue and track serialized credits generated by projects. efhs #82 seveayiad Public reports include; ~ Project Participants Name ~ Serial number for certified reductions ~ Project Name — Volumes of Emission reductions - Project Register number ~ Monitoring reports ~ Certification period — Verification reports - Monitoring period%@ |ICAO ENVIRONMENT ~ @lIca0 ENVIRONMENT Project Participants = Participants that could manage, implement & operate the project = Compliance & Target Management Scheme entities, public & private sectors GHG Reduction activity after 14, April 2010 Project (legislation decreed) ~ However, until the 1* phase, the project which was started before 14. April 2010, is possible for registration ion activities shall be outside the boundaries of Compliance entities ~ Outside the organization boundary (emission reporting entity) ~ Public Sectors could develop and implement the offset project Project mustsubjected to the Approval Methodologies = If not, new methodology should be prepared and get approval Under the Rule & Regulation of the External Project, = PDD > Validation > Deliberation > Monitoring > Verification KOC Issue + Voluntary GHG Reduction Activities, Reductions made by laws and regulations are not voluntary|ICAO ENVIRONMENT a Registered & Issued KOPs Overviews Eecaucem iene eies elaine CDM 211 | CDM 37 CER convert into KOC External Project 34 External Project 7 16,866,205 tCO,eq wCDM mKOP CDM wKOP 2015 2016 w2017