Post-Kyoto Issues and Corporate Responses
The biggest issue is how to deal with expenses to be incurred by potential failure to have more countries listed as Annex I country and meet targets.
● In discussing post-kyoto framework, Annex I countries with assigned targets and non-annex countries with voluntary targets face increasingly fierce conflicts, which will be a major obstacle to reaching consensus.
● As a country is subject to annual penalty of 0.01 to 0.6% of GDP for failing to meet reduction targets, there should be persistent controversies, leading to deadlock in follow-up discussion.
- The UN framework Convention on Climate Change may witness its status seriously tarnished if any country refuses to pay the penalty.
Some sectors may be forced to pay 229% of their capital as emission penalty.
● According to our internal model, basic metal, electronic equipments, fabricated metal, publishing, petroleum product manufacturing, and medical/precision optical equipments are found to show the highest GHG emission index.
● Analysis on average emissions by industry in comparison of capital indicated that non-petroleum businesses with capital of KRW 10 billion or over and most of petroleum businesses are subject to GHG and energy consumption management regulations.
● When free allocation ratio goes down to 95%, 70%, and 50%, petroleum businesses with KRW 10 billion or over are expected to face soaring penalty of KRW 6.8 billion, 40.7 billion, and 67.9 billion respectively.
- A basic metal business with KRW 10 billion in capital will be required to pay penalty amounting to 229% of its capital.
Companies need to seek appropriate solutions including reducing GHG emissions, exploring green business opportunities, and acquiring "green credit".
● Those designated for GHG and energy consumption management should take actions suitable for their own conditions to minimize the expenses and facilitate their growth strategy.
● The most direct and recommendable option is to reduce GHG emissions with better technologies and improved processes, which can be implemented by any companies regardless of scale.
● However, as for large companies whose process efficiency has already reached the top level, leaving little room for further reduction, they may consider obtaining "green credit" by helping SMEs reducing their emissions.
● Green businesses such as solar power, wind power, and afforestation can be another option to be recognized as GHG reduction, but here it is recommended for companies to link the initiatives with their growth engine, given the need for massive investment.
● In case when a subsidiary has emitted more than the target, while the total emissions of the company as a whole are not large enough to apply GHG and energy consumption management regulation, the company may consider splitting or realigning the subsidiary to lower its emissions below the target.