Emissions trading system, as set out in Article 17 of the Kyoto Protocol, allows business entities eligible for allocation that have emission units to spare - emissions permitted them but not "used" - to sell this excess capacity to business entities eligible for allocation that are over their targets. 

Businesses with high GHG mitigation potential can reduce more and sell excess emission reductions over their government-allocated allowances to the market, sites with lower abatement potential can buy credits instead of making direct reductions, resulting in cost savings. 

Each business can decide to reduce GHG emissions or purchase credits based on its own mitigation potential to comply with its numbers of emission permits allocated, allowing for flexibility and increasing cost-effectiveness at the national level. 

Related laws

• FRAMEWORK ACT ON CARBON NEUTRALITY AND GREEN GROWTH FOR COPING WITH CLIMATE CRISIS Article 25 (Greenhouse Gas Emissions Trading System) 
• ACT ON THE ALLOCATION AND TRADING OF GREENHOUSE-GAS EMISSION PERMITS
• ENFORCEMENT DECREE OF THE ACT ON THE ALLOCATION AND TRADING OF GREENHOUSE GAS EMISSION PERMITS 
• Guidance on reporting and certifying emissions from GHG emissions trading schemes 
• Guidance on allocation and cancellation of GHG credits 
• Validation Guidance for GHG Emissions Trading Scheme Operations 

Propulsion system

Once the master plan and allocation plan of the emissions trading system are established, the business entities eligible for allocation are designated and emission allowances are allocated. Before the start of each commitment period, the business entities eligible for allocation apply for credits from the government, and the government allocates the total number of credits for the commitment period to the allocated entities. 

The commitment period consists of a compliance year, a one-year period for allocating credits to GHG emitters and managing their performance. At the end of each compliance year, the business entities eligible for allocation must submit to the government an amount of GHG credits corresponding to its GHG emissions, which is called an 'emission statement'. This is the 'emissions statement' that shows the GHG emissions of the allocated entity. Once the company submits the statement with a verification report, which is verified by a verification Institution, the government rechecks the company's emissions and finally certifies the emissions and notifies the company. 

Business entities eligible for allocation that emit more GHGs than they have credits must trade credits, borrow credits for future years, or otherwise secure and submit credits equal to their eventual emissions. 

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