Lawsuits likely to continue over carbon emissions caps

The Korean government’s policy to restrict carbon dioxide emissions faces major legal challenges from local companies concerned with its possible impact on their cost competitiveness.

Since the government began to implement the CO2 cap system in mid-January, 17 companies have filed administrative lawsuits against the Ministry of Environment, demanding to be relieved of their obligations.

In addition, a group of firms from the petrochemicals industry reportedly plans to file a class action suit over the government policy.

The ministry selected 525 firms as the initial target of the cap. Their aggregate quota is set at 1.598 billion tons over the next three years, and involves 84 firms in the petrochemicals sector.

According to market insiders, the Korean Petrochemical Industry Association is fine-tuning the class action lawsuit with its members, including LG Chem, Lotte Chemical and Hanwha Chemical.

The Environment Ministry, which has the dual task of placating local businesses and pushing for coordination with the international community, is set to take stern countermeasures against the industry backlash.

Environment Minister Yoon Seong-kyu was quoted by a news provider as saying that “the business sector has no choice but to bolster its fundamentals if it seeks to put up with global pressure.”

Yoon has made it clear that the government would not acknowledge the petitions as they “go against the global standards,” according to the media interview.

Petrochemical companies are expressing discontent over the “buy and sell” scheme for CO2 emissions rights, which was set up at the main bourse Korea Exchange. “When any company purchases 1 ton of emission rights for 10,000 won on the trading market, it will have a burden of 260 billion won ($236 million) for three years,” said a business lobby executive.

Since the market kicked off on Jan. 12, a business that emits less than the cap is entitled to sell the excess amount on the Korea Exchange, while a higher emitter is allowed to buy the rights.

The trading performance has been sluggish so far. Over the past month, deals were carried out only on four trading sessions, and there has been no trading between Jan. 19 and Feb. 10.

South Korea, one of the world’s top 15 greenhouse gas emitters, announced in 2009 that it would reduce its emissions by 30 percent by 2020.

By Kim Yon-se (kys@heraldcorp.com)