Long-term stability of the Korean emission trading system in comparison to international emission trading systems
허규만
Heo, Kyuman
This study aimed to assess the co-movement of the price of emission allowances in the Korea Emissions Trading System (K-ETS) and those in the European Union Emissions Trading System (EU-ETS), the New Zealand Emissions Trading System (NZ-ETS), and the Hubei Emissions Trading System in China. The study was based on the premise that if K-ETS is an efficient market, the prices of spot emission allowances traded in K-ETS should exhibit similar movements over the long term as those in other ETSs, excluding transaction costs. To test this hypothesis, the study utilized the Johansen cointegration test and the Engle-Granger two-step method to analyze the four markets. The results indicated that K-ETS failed to establish a long-term stable relationship with EU-ETS, NZ-ETS, and Hubei ETS. This was partly attributed to the differences between participant behavior in K-ETS and the other ETSs during the COVID-19 pandemic, where Korean participants were more sensitive to institutional factors of K-ETS than to economic or fiscal forecasts, while other ETS trade participants tend to buy and sell emissions based on their economic outlooks. Meanwhile, a long-term stable relationship was established between EU-ETS and Hubei ETS. Given these findings, the study recommends that, to improve the price stability of K-ETS, efforts should be made to increase the number of participants in K-ETS through promotion of ETS integration or connection with Southeast Asian countries. Additionally, caution should be exercised when introducing a derivative system based on spot emission rights to avoid the "Wag the Dog" phenomenon. Furthermore, legislation should be introduced to increase the ratio of paid allocation to allocated auction profits to support low-carbon reduction technologies for small and medium-sized companies.
1403-06.pdf
