A Strategy to Integrated Emission Trading System for Greenhouse Gas with that of Air Pollutants

To introduce an emissions trading system for GHG that currently have no reduction requirements, the following should be considered as priorities: eliciting the participation of the industrial sector and linking GHG emission trading systems to the emissions trading system (implemented from July 2007) that has become part of national policy with the enactment of the Special Act. Two directions can serve as viable alternatives in that regard. One is a baseline-and-credit method based on incentive auctioning. This has the advantage of inducing participation through economic incentives without a reductions commitment. The downside of this method is that it requires vast investments, as well as the fact that reaching an agreement between participants and the government to decide an objective baseline is difficult. On the other hand, the cap-and-trade method set forth in the Special Act is attractive in that it can be integrated with the air pollutant emissions trading system, but it would be difficult to elicit the participation of the industrial sector in the absence of GHG emission reduction requirements. In the current situation, it would be preferable for the government to induce the participation of the industrial sector by devising a wide variety of incentives because taking part in the emissions trading system bfore reducing GHG emissions offers large incentives through learning by doing. The timing of GHG reduction commitments and emissions trading system implementation may be uncertain but their implementation will be unavoidable. Thus the government needs to facilitate preparations for emissions trading of GHG in the future and continuously review its operation in integration with the air pollutant emissions trading system to maximize adaptation and learning by doing effect in the industrial sector.