South Korea has succumbed to pressure from car manufacturers and said it will postpone introduction of a vehicle carbon emission tax by 2020.
Explaining the decision to slow down the climate change battling efforts, South Korea’s finance minister Choi Kyung-hwan said the so-called smog tax, which has already been postponed by more than two years, would place too much of a burden on industry if it was launched at the same time as the carbon trading scheme.
"The tax was expected to have strong side effects on domestic industries and consumers (at this time)," Choi said, citing a study by state-run research institutes.
The delay in the tax had been widely expected, with people familiar with the matter saying the levy could slash domestic sales of South Korea’s largest automaker Hyundai by up to 10 per cent.
Choi said the nation would press on with plans to expand subsidies on purchases of environmentally-friendly vehicles such as electric cars.
The government will also strengthen average vehicle emission and fuel efficiency standards to similar levels as Europe and Japan through 2020, he said.
Car makers welcomed the delay in the tax, while pledging to work hard to reduce greenhouse gas emissions from their industry.
South Korea is one of the ten worst polluters in the world, and its carbon emission policy is crucial for global efforts to avert the climate change.
The country has come up with an ambitious emission reduction plan, aiming to cut the greenhouse gas emissions by 30 per cent by 2020.
The core of this plan is a carbon permit trading scheme allowing companies to buy extra carbon credits in case they need to produce more emission than the limits allow.
However, the fear of the possible impact of the measures on the country’s industry has prompted South Korea’s government to ease the scheme.
Choi said the required emission reduction rates could be softened compared to those previously planned.
Seoul considers setting an initial unit price for the scheme at 10,000 Korean won (£5.98) per tonne of carbon emissions, from which prices will fluctuate once trading begins. That would be roughly in line with expectations, with European Union permits closing on Monday at € 6.42 ($8.42).
He noted the government would also review business-as-usual (BAU) levels between 2015 and 2020, as part of BAU projections for the years from 2020.
The Korea Chamber of Commerce & Industry said that it understood the need for the trading scheme, but cautioned that the programme would have to be introduced carefully.