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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

The Carbon Market and Related Business Models

The Carbon Market and Related Business Models

KIM Hyon-Jin

Feb. 15, 2008

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ABSTRACT

Carbon emissions markets have emerged as an innovative solution to the issue of global warming. These markets function by allotting a quota of emissions rights to business entities, who may then acquire more rights should they require them, or sell them to another party should they have a surplus.

The initial emergence of these markets was driven by a number of factors, including changes in the regulatory environment, the EU Emissions Trading Scheme, and Clean Development Mechanism Projects. Carbon markets offer opportunities for business looking to reduce environmental compliance costs, as well as those seeking profit via exchange. They also offer a variety of options to Korean businesses are early adopters of carbon trading. Business models in the carbon market can be summed up as 1) cost-reduction 2) profit-creation and 3) service-providing.

As a heavy energy consumer, Korea urgently needs to come up with pre-emptive measures to comply with its greenhouse gas reduction obligations. Korea’s greenhouse gas emissions grew at an annual average rate of 4.7% from 1990 to 2004, the highest level among OECD countries, and Korea is the world’s fourth-largest country participating in Clean Development Mechanisms.

The size of Korea’s carbon market is estimated at $100 million (2005-2006 cumulative totals). Rapid development of the carbon markets has made it imperative for Korean businesses to enter this industry sooner rather than later. Stiffening competition for CDM projects in particular is reducing the number of promising projects. Early introduction of an emission rights market in Korea could help the entire country gain experience in advance.

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