The court sided with the Ministry of Environment in the legal dispute regarding carbon emission rights with the Korea Electric Power Corporation. The Korea Electric Power Corporation claimed that the Ministry's cancellation of approximately 633,000 tons of residual emission rights for 2021 to 2023 was unjust, but the court determined that the Ministry's actions were valid.
This case marks the first instance since the introduction of the emissions trading system in which a public enterprise lost a lawsuit against the government over the 'cancellation of emission rights.' The court emphasized the importance of operating the system in line with the spirit of the greenhouse gas emissions trading system, stating that public interest takes precedence over corporate property rights.
KEPCO had filed a total of three lawsuits against the Ministry of Environment regarding this matter. After losing successive lawsuits related to the cancellation of emissions rights for 2021 and 2022 in May, it voluntarily withdrew its lawsuit regarding the cancellation of emissions rights for 2023 last month.
◇ KEPCO claimed 'normal operation,' but the court ruled 'revocation possible despite reduced operation.'
According to the Ministry of Environment and the court on the 27th, the greenhouse gas emissions trading system is designed to utilize market mechanisms to achieve national greenhouse gas reduction targets. When the government allocates a certain amount of emission rights to businesses that emit greenhouse gases, corporations can emit greenhouse gases within that range.
Corporations must purchase emission rights from the exchange or pay a penalty surcharge if they exceed emissions, and if they emit less than their allocation, they can sell the remaining emission rights for economic gain. The Ministry of Environment aims to induce additional reduction efforts from corporations by revoking the residual emission rights when greenhouse gas emissions significantly decrease due to site closures or operational stoppages.
The legal dispute began when the Korea Electric Power Corporation filed a lawsuit requesting the cancellation of the Ministry's cancellation of its allocated emission rights. According to the Ministry, the greenhouse gas emissions from KEPCO's gas-insulated switchgear (GIS) have been reduced to less than half of the previous levels for three consecutive years. Accordingly, the Ministry notified the cancellation of 633,000 tons of emission rights allocated for 2021 to 2023.
The Ministry of Environment explained that based on the emissions trading law and its enforcement ordinance, 'if the greenhouse gas emissions decrease to 50% or less of the allocation due to facility shutdowns, suspensions, or closures, the residual emission rights can be revoked.'
In contrast, the Korea Electric Power Corporation argued, 'The facility has been operating normally; the only reason emissions decreased is the reduced operating rate.' It continued, 'The laws and enforcement ordinances do not state that 'reduced operation' is a reason for cancellation, and only the guidelines mention this,' adding that 'the laws and enforcement ordinances do not delegate the reasons for cancellation to the guidelines.'
They further argued, 'If emission rights are revoked simply because greenhouse gas emissions have decreased by more than 50%, some corporations might actually increase carbon emissions to avoid such a situation,' adding, 'This is contrary to the intent of the system.'
KEPCO also stated, 'Due to the nature of GIS, emissions may not be consistent year by year, and even if surplus emission rights arise, we cannot sell them and must carry them over,' claiming, 'However, by canceling these rights, the Ministry has put corporations at a disadvantage by making them purchase emission rights.'
◇ Emphasizing the purpose of the greenhouse gas trading system… 'Public interest takes precedence over property rights.'
In response, the Ministry of Environment stated that the cancellation of emission rights is legal. The Ministry explained, 'The enforcement ordinance stipulates that the Minister shall determine and announce the details, and the guidelines include 'reduced operating performance' as a reason for cancellation,' adding that 'there is no need to limit the interpretation solely to physical shutdown of facilities.'
The Ministry emphasized, 'The purpose of the emissions trading system is to induce corporations to voluntarily reduce greenhouse gas emissions,' adding, 'If surplus emission rights are not revoked in a timely manner, corporations will retain unnecessary emission rights, diluting the intent of the system.'
The court also accepted the Ministry's argument. The judges noted, 'If we limit the revocation of emissions rights to shutdown situations as KEPCO claims, it will be difficult to revoke emissions rights from corporations that reduce greenhouse gas emissions for other reasons, leading to equity issues among companies and operational confusion in the system.' They further stated, 'Revoking emissions rights for various reasons must align with the legislative intent of the system.'
They added, 'While KEPCO claims it suffered losses because it could not carry over emissions rights, this is merely a financial loss, and its value is small compared to the public interest of addressing climate change.'
The Ministry of Environment and KEPCO accept the court's outcome and are committed to operating the emissions trading system faithfully as before.
The Ministry stated, 'This ruling emphasizes that the emissions trading system is an effective means for reducing greenhouse gases and prioritizes public interest,' adding, 'To operate the emissions trading system normally, we will ensure that the procedures for revoking emission rights are conducted equitably.'
KEPCO stated, 'We respect the court's ruling and will actively prepare measures to reduce greenhouse gases to prevent future cancellations of allocations.'