March 2010

GHG Emissions in South Korea GHG emissions reached 620 MtCO2e, and the energy (84.7%) and industrial process (9.8%) sectors covered 94.5% of the gross emissions. The emissions from fuel combustion shared 49.4% in industry, 19.6% in transport, 16.9% in building, 11.0% in home, respectively. (Calculations based on the indirect emissions including electricity use)

01

National GHG Reduction Targets in 2020 In parallel with implementing target management plan to heavy emission industries, it is desired to promote the voluntary reduction projects by the small and medium enterprises (SMEs) dispersed throughout all sectors. Mid-term National GHG Reduction Image by 2020

02

What is KCER Program? Korea Certified Emission Reduction (KCER) Program Project-based reduction registration mechanism Benchmarked from UN CDM, ISO 14064 & 14065 GHG reduction registry program operated by KEMCO and MKE* Verified reduction credits (KCER) are approved by the Government. * MKE: Ministry of Knowledge Economy

Voluntary participation of private & public sectors Government can purchase KCER if the stakeholders want to transfer it. Candidate Projects for the Registration More than 500 tCO2e of annual reduction and project start date within one year → → Projects Projects for for rational rational energy energy utilization utilization (energy (energy efficiency, efficiency, fuel fuel switching) switching) → → Projects Projects for for renewable renewable energy energy development development → → Other Other GHG GHG reduction reduction projects projects (approved (approved by by the the Government) Government) 03

Considerations for GHG Reduction Registry Applicable to UN FCCC Mechanism IPCC Recommendations Standards and Procedures according to the Marrakesh Accords - Necessary conditions for CDM (Project Base Activity)

Interconnection Collaboration on International GHG Markets VER Markets (Voluntary Emission Reduction) Carbon Exchange Program - CCX, VCS, CAR, etc.

Issuance of GHG Credits Government Standpoint

Industry Standpoint

Low Cost Efficacy of Validation & Verification

Minimizing Business Risks

Technical Feasibility and Realization of Actual GHG Reduction

Convenience of Implementation

Credits Quality and Reliability

Maintenance of Data Confidentiality

Linkage between Policies

Low Cost

What makes KCER Program special? To create high quality of GHG reduction credits with 5-year crediting periods

Requirements for project registration Additionality * recent 3-year baseline, simple repairing and cleaning measures are not valid Technical validations * explain technological differentiation, viable quantitative assessments Clear proof on the property rights Social and environmental consideration

GHG Emissions

BAU emissions

Additional Efforts

MRV

Emission by project

time

Rigid requirements but, we have incentives for the registered project Government supports project development costs. * PDD completion including methodology development: 1,800 ~ 4,500 USD per project * Verification cost for SME participants: 2,700 USD per annum 04

Legislative Backgrounds (Dec 2003) Proclaimed legal provisions in the Rational Energy Utilization Act and the Implementing Ordinance (Registration and Management of GHG Emission Reductions Results) (July 2005) Opened Korea GHG Reduction Registry Center in KEMCO (Oct 2005) MKE Notification #2005-88 : “Regulation on Registration and Management of GHG Emission Reduction Projects” published (Feb 2007) MKE Notification #2007-27 : “Regulation on designation and management of the validation and verification body for GHG emission reductions” published (Dec 2008) MKE Notification #2008-361: “Governmental purchase and transaction guidelines for the GHG reduction credits” published (Oct 2009) MKE Notification #2009-248 : “Regulation on Registration and Management of GHG Emission Reduction Projects” revised 05

KCER Program Frameworks Ministry of Knowledge Economy (MKE)

Accreditation Committee Approval of registration and certification projects

Designated Authority Request GHG reduction certification

GHG Verification Body PDD validation & monitoring report verification

Designation of verification body

Korea GHG Reduction Registry Center (KEMCO) Submit application & monitoring reports

Support management for carbon credits

Registration Applicant (Project Proponent)

GHG Consulting Firms (if necessary)

Consult project development and PDD make-up

7 verification bodies have been designated, and qualified verifiers have been appointed up to 237 experts including the industry employees since 2006. * Approved Verification Body: Korean Foundation for Quality(KFQ), Korea Standard Association(KSA), Korea Gas Safety Corporation(KSG), Lloyd(LRQA), DNV Korea, SGS Korea, GHG Verification Center 06

Validation & Verification Procedure Project plan can be registered through the validation process and the reductions can be monitored by the verification body. Verified credits can be issued annually during 5 years after the registration of PDD with approval of the Accreditation Committee. Process of KCER projects PDD • Project Proponent

Validation

Registration

• Designated Validation Body

•KEMCO •PDD • Validation Report

Monitoring Report • Project Participant

Verification

Approval on Reduction & Issuing KCER

• Designated Validation Body

Process of CDM projects PDD • Project Proponent

Approval Methodology

Confirmation Validation

• CDM Meth Panel • CDM DOE • Government • Baseline Approval after • Monitoring Validation

Registration

Monitoring Reports

• Project • CDM EB Participant • PDD • Validation Reports • Gov’t Verification

Verification / Issuing CER Authentication • CDM DOE

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KCER vs CDM KCER Objective

To promote voluntary efforts for GHG emission reductions

CDM To promote GHG reduction of developing countries and contribution of alleviating the Annex I countries’ reduction cost

Ministry of Knowledge Economy Korea Energy Management Corporation

UNFCCC CDM Executive Board

Applicable Scope

Domestic

World-wide (Annex I ↔ Non-Annex I international project)

Project Size

Annual reductions of 500 tCO2e or above

Organization

Validation/ Verification Crediting Period Project Start Date Credits Use

Annual reductions of 60,000 tCO2e or above (Below that is considered “Small Scale”)

Validation : Approved Body(1) Verification : Approved Body(2)

Validation : DOE(1) Verification : DOE(2)

5 years (1 time renewal possible)

Option 1: 10 years (renewal impossible) Option 2: 7 years (2 times renewal)

Project within 1 year by the date of registration application

Project started as of 01.01.2000 (project registered until the end of 2006)

Government purchase or banking (preparing market trading)

International market trading

Progress of KCER Program KCER program has been developed as an early action measures to respond GHG reduction in Korean industry along with Kyoto Protocol effectuation since 2005. Reduction credits have been accumulated to 5.6 million tons of CO2e (5.6 million KCERs) as of Dec. 2009 that has passed through MRV processes and approved by the Accreditation Committee. * KCER : Accredited standard unit for project-level reduction (1 KCER = 1 tCO2e)

To provide rewards for the mitigation actions and create motivations for voluntary carbon market, Government has purchased reduction credits since 2007. (Purchasing price: about 5 USD/KCER) * For a demonstration, some corporations also purchased KCERs for their carbon neutral purpose. (1,200 KCERs, 18 participants)

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Statistics of KCER Program Validated Registrations 2005

2006

2007

2008

2009

Sum

Applied Projects

28

60

169

60

79

396

Registered Projects

-

41

62

86

66

255

Expected Reductions (kilo tCO2e/year)

-

1,021

1,037

1,263

1,269

4,590

Verified Certifications 2007

2008

2009

Sum

Certified Projects

38

88

161

287

KCERs (kilo tCO2e)

941

1,927

2,720

5,588

Government Purchase of the KCERs 2007

2008

2009

Sum

Purchased Projects

37

82

141

260

Purchased KCERs

940,602

1,576,968

2,229,080

4,746,650

Unit Price (KRW/KCER)

4,982

4,677

4,863

4,825

Budgets (billion KRW)

4.69

7.37

10.84

22.9

Registered Projects by Sector (As of Dec. 2009)

Registered Projects by Sector

Registered Projects by GHG

(Expected annual reductions)

(Developed 255 projects)

Reference Methodology and Best Practices Developing referenced methodologies on the projects to promote the registration from the companies 5 methodologies are recommended into the public by analyzing the registered projects. •

Reference methodology covered 78% of the registered 255 projects.

Methodology

Applied Projects

① Waste energy recovery to thermal reusing

148

② Fuel switching from fossil to low-carbonized

28

③ Grid interconnection of renewable electric power

9

④ Power saving apparatus (inverter, fluid coupling)

14

⑤ Retrofitting end-use equipment

1

Best Practices CHP using waste heat in steelworks (Gwang-yang Steel, 241 kilo tCO2) High-efficient gas turbine (West In-cheon Generation, 144 kilo tCO2) Steam boiler fuel switching (B-C oil→LNG) (GS-Caltex, 143 kilo tCO2) Fuel change in boiler and furnace (B-C oil→LNG) (SK, 115 kilo tCO2) Small hydro using cooling water (Samcheonpo Thermal, 14 kilo tCO2) 6MW wind power in Han-gyung (Southern Je-ju Plant, 11 kilo tCO2) ASD in Ultra-super-critical generation (Dang-jin Thermal, 92 kilo tCO2) High-voltage inverter in boiler blower (Ho-nam Thermal, 8 kilo tCO2) Retrofitting turbo-chiller (Han-wha Petrochemical, 4 kilo tCO2) 09

Positioning of KCER Program Based on the experiences from the project-level program operation, promoting the interaction with organization-level reduction programs and the compliance markets * KCER program acts as complements to target management or emission trading scheme which are prescribed in the tentative ordinance of Basic Act for Low Carbon Green Growth. Leading domestic voluntary carbon markets focusing on the small- and mediumscale sites including building and transport sectors GHG Reduction Potentials

KCER Program

Target Management or Emission Trading Scheme

(Project-level Reduction)

(Organization-level Reduction)

KCER

Voluntary Market

Compliance Market

Credits

Offset Providing Market (Including early actions) 10

Further Considerations Major Topics to Concern ① Feasibility review on developing exchangeable registry scheme with international voluntary carbon standards

Transferring institutional experiences to the developing countries which are interested in the GHG reduction registry scheme mainly focusing on energy efficiency

② Providing carbon offsets to the compliance market which is covered with heavy emission companies by developing cooperative reduction scheme with SMEs

③ Developing Governmental Subsidy Program for SMEs to support the adoption of GHG reduction technologies

④ Applying Carbon Footprint Labeling Scheme to the products from the company enrolled to the KCER program

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KEMCO Overview History

 1980 Establishment of KEMCO by the Rational Energy Utilization Act  2003 Foundation of the New & Renewable Energy Center (affiliated)  2005 Opening of the Korea GHG Reduction Registry Office and the CDM Certification Office designated by the United Nations

Organizations 4 Headquarters, 1 Renewable Center, 8 Regional Offices (Staff : 420 persons) Budgets(2010) 1,038 million USD (Operating budget $58 million, subsidy and loans $ 980 million) Major Activities Energy Efficiency and Saving

• Implementing Sectoral EE Programs (VA, ESCO, Soft Loan, etc.) • Market Transformation for Energy Efficiency (Labeling and Certificates) • Public Relations, Educations and Campaigns • Deployment of 1 million Green Homes

New and Renewable • Certification of New & Renewable Energy Systems Energy • Financial Supports (Subsidy, Loan), Public Obligation, RPA, FIT, etc.

Climate Change Response

• End-Use Energy & GHG Statistics • Registration and Certification of Voluntary GHG Reductions (KCER*) • Certification for CDM Projects * KCER : Korea Certified Emission Reduction

Contacts: Korea GHG Reduction Registry Office http://kcer.kemco.or.kr ☎ +82-31-260-4840~4845 Fax +82-31-260-4847