* Postpones tax on vehicle carbon emission by 5 yrs to end-2020
* But carbon emission trading scheme on track to launch in 2015
* Initial price in trading scheme in line with expectations (Adds industry comment)
By Meeyoung Cho
SEOUL, Sept 2 (Reuters) - 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 U.S. 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, as it battles to cut greenhouse gas emissions in 2020 to 30 percent below business-as-usual levels.
South Korea is one of the world's top 10 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 on Tuesday 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 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 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 percent at the country's largest automaker Hyundai Motor Co.
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.
"We will continue to strengthen the competitiveness of South Korea's automobile industry by developing eco-friendly vehicles such as electric and hybrid cars, and actively investing in improving the fuel efficiency of internal combustion engines," said a spokesman for the Korea Automobile Manufacturers Association.
BUSINESS AS USUAL
Choi added that South Korea was looking in to measures to ease the impact on industry of the carbon permit trading scheme, 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 the country was considering easing required emission reduction rates. Another official at the environment ministry said exact rates would be finalised later this year.
Choi said Seoul planned to set an initial unit price for the scheme at 10,000 Korean won ($9.88) 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 on Monday at 6.42 euros ($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.
"Adequate measures need to be taken before implementation to minimize the burden on the global competitiveness of (South Korean) industry," it said in a statement. (1 US dollar = 1,012.6000 Korean won) (Additional reporting by Chris Lee in Seoul and Stian Reklev in Beijing; Editing by Joseph Radford)