South Korea has delayed a proposed tax on vehicle carbon emissions by over five years to the end of 2020, amid pressure from domestic and US car makers who fear the levy would curb sales.
But the country confirmed it would push ahead with plans to begin what will be the world's second-biggest carbon emissions trading scheme from the start of 2015.
It is battling to cut greenhouse gas emissions in 2020 to 30% below business-as-usual levels.
South Korea is one of the world's top ten carbon producers, so any steps it takes to curb emissions are key to global efforts to combat greenhouse gases in the environment.
Finance minister Choi Kyung-hwan said in a meeting with other ministers today that the so-called smog tax, which has already been postponed by more than two years, would place too much of a burden on industry in the country 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)," Mr Choi told the meeting, 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 by up to 10% at the country's largest automaker Hyundai Motor Co.
Mr Choi said the country would press on with plans to expand subsidies on purchases of environmentally-friendly vehicles such as electric and hybrid cars.
The government will also strengthen average vehicle emission and fuel efficiency standards to similar levels as Europe and Japan through 2020, he said.
Mr Choi added that South Korea was looking in to measures to ease the impact of the carbon permit trading scheme on industry, the centrepiece of its efforts to curb greenhouse gas emissions.
Under such cap-and-trade programmes, companies or countries face a limit on carbon emissions. If they need to exceed their quota, they can buy allowances from others.
He said it was considering easing required emission reduction rates. Another official at the environment ministry said exact rates would be finalised later this year.
Mr Choi said Seoul plans to set an initial unit price for the scheme at 10,000 Korean won (€7.53) per tonne of carbon emissions, from which prices will fluctuate once trading begins.
That was roughly in line with expectations, with European Union permits closing yesterday at €6.42.
He noted the government also plans to review business-as-usual (BAU) levels between 2015 and 2020, as part of BAU projections for the years from 2020.