The government said on the 27th that it will enact a law this year to create a "Korean-style voluntary carbon market." A voluntary carbon market is where corporations voluntarily transaction their greenhouse gas reduction results (carbon credits). Although the government has operated an emissions trading scheme since 2015, it has focused on large corporations, drawing criticism that participation by small and midsize businesses and startups should be encouraged. There has also been the limitation that, under the emissions trading scheme, corporations' carbon reduction efforts are not properly evaluated, resulting in low transaction prices.
Carbon credit transactions are also a global trend. According to Morgan Stanley Capital International (MSCI), a financial data analytics firm, the size of the global voluntary carbon market is expected to expand from $1.4 billion (about 2 trillion won) in 2024 to as much as $35 billion (about 52 trillion won) by 2030. The United States is currently the largest market, and Japan, the United Kingdom, and Singapore are also expanding their transaction volumes.
It is said that the role of institutions that evaluate carbon reduction results is important to vitalize the voluntary carbon market. This is because credits can be transacted at fair value only when it is properly assessed whether corporations hold reduction results that match the country's economic situation and technological level. The presence of greenwashing (the act of inflating a corporation's technology to make it appear environmentally friendly when it is not) must also be screened.
However, it is said that there is no domestic institution with the capacity for the government to entrust evaluations to. An official at the Ministry of Planning and Budget said, "There are domestic evaluation institutions, but their track records are still insufficient, making collaboration (with the government) difficult," and added, "In the short term, we plan to work with overseas evaluation institutions and in the mid to long term foster domestic evaluation institutions."
Looking at overseas cases, there is comment that fostering domestic evaluation institutions can determine the expansion of market size. Japan's domestic institutions evaluate corporations' reduction results based on standards tailored to Japan's industrial structure, resulting in a steady expansion of transaction volume among large and small and midsize corporations. In contrast, Singapore, which relies 100% on overseas institutions, conducts transactions centered on a few large corporations, and the high certification fees and complex procedures of overseas evaluation institutions are reported to be entry barriers for small and midsize and mid-tier corporations.
◇ Japan, domestic institutions evaluate... standards tailored to industrial structure
Japan opened its voluntary carbon market in 2023, and as of last year the market size was tallied at $490 million (about 720 billion won). In a recent report, global market research firm GII said, "Japan's voluntary carbon market will grow 27% on average annually to reach nine times its current level by 2034 (about $4,298.31 million, 6.34 trillion won)."
Japan's domestic institutions, such as the Japan Quality Assurance Organization (JQA), certify and evaluate carbon credits. JQA is said to apply more relaxed evaluation standards to domestic corporations than overseas evaluation institutions. For example, among internationally accepted evaluation standards is "additionality." It evaluates whether a corporation's carbon reduction efforts were undertaken purely for environmental protection. If a corporation's carbon reduction led to compliance with legal obligations or resulted in increased profits, it does not receive a favorable evaluation.
Overseas evaluation institutions are said to be increasingly strict in judging this additionality. In contrast, JQA is reported to certify credits even when a corporation's carbon reduction results have partially contributed to company profits. Like Korea, Japan has a high share of manufacturing. This reflects industry concerns that even if manufacturers reduce carbon through process efficiency and other measures, their carbon reduction efforts could be undervalued on the grounds that corporate profits improved.
◇ Singapore relies on overseas institutions... "access for small and midsize businesses is low"
Like Japan, Singapore opened its voluntary carbon market in 2023, but it is said to have a relatively small transaction scale and side effects in which a few large corporations monopolize transactions. According to the exchange's own analysis, the carbon credit transaction size was $15 million (about 22 billion won) last year. Also, 40% of last year's annual transaction volume was concentrated in the first quarter, and transactions were conducted by "a few large energy corporations."
One of the causes of this situation is cited as a structure in which small and midsize businesses and startups find it difficult to have their carbon reduction results evaluated. Singapore relies on overseas institutions for carbon credit certification and evaluation, which is expensive and time-consuming. In a report, KPMG Singapore, a global accounting and consulting group, said, "Startups and small and midsize businesses require significant expense to complete verification and confirm actual revenue (credit sales revenue), and the process takes more than three years."
It is also pointed out as a problem that the evaluation standards of overseas evaluation institutions differ from one another. In a recent report, the Energy Research Institute at Nanyang Technological University said, "Because each institution's evaluation method is different, it is difficult to compare grades directly, so investors must cross-check the results of multiple institutions."