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Korea Emissions Trading Scheme (K-ETS)

Policy Overview

Launched in January 2015, South Korea’s Emissions Trading Scheme (K-ETS) aimed to reduce greenhouse gas (GHG) emissions cost-effectively, incentivize corporate technology development, and serve as a model of good practice internationally. It is currently in the Third Allocation Phase (2021-2025). The K-ETS is recognized as one of South Korea’s key instruments for achieving its national GHG reduction target of a 40% cut by 2030, compared to 2018 levels. However, the effectiveness of the scheme depends heavily on the strength of its design and implementation. The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report (AR6) suggested that “Emissions reductions could be increased with higher carbon prices and without free allocation of allowances”1. The IPCC2 also emphasized that carbon prices must reach at least USD 40–80 per tonne of CO₂ by 2020 and USD 50–100 by 2030, USD 733 by 2050 to be consistent with the Paris Agreement targets, provided a supportive policy environment is in place.

In December 2024, the South Korean government finalized the Fourth Basic Plan for the K-ETS. According to the Act on the Allocation and Trading of Greenhouse Gas Emission Permits, a plan to allocate total national GHG emission allowances for the Fourth Allocation Phase will be established in the first half of 2025. This allocation plan will cover: (1) the total volume of greenhouse gas emission allowances in line with national reduction targets; (2) annual allocation volumes for the Fourth Allocation Phase; (3) sector-specific allocation standards; (4) allowance amounts per sector; (5) the reserve volume and distribution criteria; (6) rules on carryover and borrowing; and (7) offset guidelines.


  • South Korea established its national GHG emissions reduction goal in 2009, aiming to reduce emissions by 30% by 2020 compared to business-as-usual (BAU) projections. However, according to International Energy Agency (IEA), South Korea ranked 7th in GHG emissions from fuel combustion in 2010 among more than 140 countries and regions – following China, the United States, India, Russia, Japan, and Germany. Its total emissions increased by approximately 10% compared to 2009, marking the fastest growth rate among OECD countries. In 2015, South Korea introduced the K-ETS, aiming to reduce emissions cost-effectively, incentivize corporate technological innovation, and establish itseslf as a model of best practices in the international community.
  • Over the 10 years of the K-ETS implementation, both the total number of emission allowances and the average annual pre-allocation have increased with each phase. The total cap was 1,686,549,412 Korea Allowance Units (KAU)3 in the First Allocation Phase (2015-2017), 1,796,133,000 KAU in the Second Allocation Phase (2018-2020), and 5,082,258,880 KAU in the Third Allocation Phase (2021-2025). The average annual pre-allocation rose from 532,575,916 KAU in the First Allocation Phase to 547,660,222 KAU in the Second, and 580,419,273 KAU per year in the Third.
  • In the First Allocation Phase, Benchmarking (BM)4 allocation method was used for three sectors: cement, oil refining and aviation, while Grandfathering (GF)5 allocation method was used for the remaining sectors. The BM method has been expanded to seven sectors (power generation, integrated energy, industrial complexes and waste were added) in the Second Allocation Phase, and twelve sectors (steel, petrochemicals, building, paper manufacturing and timber industry were added) in the Third Allocation Phase.
  • Regarding emission allowances, 100% of allowances were allocated for free across all sectors during the First Allocation Phase. In the Second Allocation Phase, 3% of allowances allocated to corporations were paid allowances, and the figure increased to 10% in the Third Allocation Phase. However, sectors meeting certain criteria – specifically, a trade intensity or production cost occurrence rate over 30% in the Second Allocation Phase, or a combined trade intensity x production cost occurrence rate over 0.2% in the Third Allocation Phase – continued to receive 100% free allowances. These sectors include oil refining, cement, basic chemical manufacturing, steel manufacturing, and electronic parts manufacturing.


IPCC guidance on an ambitious emissions trading scheme (ETS)

A more ambitious emissions trading scheme (ETS) would involve stronger measures to reduce carbon emissions in line with IPCC guidelines for achieving the 1.5°C target. The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report (AR6) suggested that “Emissions reductions could be increased with higher carbon prices and without free allocation of allowances”. The IPCC also emphasized that carbon prices must reach at least USD 40–80 per tonne of CO₂ by 2020 and USD 50–100 by 2030, USD 733 by 2050 to be consistent with the Paris Agreement targets, provided a supportive policy environment is in place.
Free allowances and the generous pre-allocated allowances, which permit industries to emit more GHGs, reduce the incentive for emission reductions and hinder the establishment of an effective carbon price. Similarly, increasing allowances through the inclusion of overseas offset credits and banking of surplus allowances undermines both the ambition to raise carbon prices and the overall effectiveness of the ETS.


Footnotes

1) IPCC Sixth Assessment Report (AR6), Climate Change 2022: Mitigation of Climate Change, p628

2) IPCC Sixth Assessment Report (AR6), Climate Change 2022: Mitigation of Climate Change, p463

3) Korean Allowance Unit (KAU: 1 KAU = 1 ton CO2-eq

4) Benchmarking (BM) allocation method: A method for allocating emission permits based on facility efficiency, using past activity data from each company, such as product production volume

5) Grandfathering (GF): A method for allocating emission permits at a level equivalent to or lower than each company’s historical GHG emissions

Evidence Profile

Key

◼ opposing ◼ not supporting ◼ mixed/unclear
◼ supporting ◼ strongly supporting

Policy Engagement Overview

The aggregated evidence of corporate and industry engagement with the Korea Emissions Trading Scheme (K-ETS) shows significant engagement from cross-sector associations and heavy industries, including the steel and petrochemical sectors, as well as the energy (oil & gas) sector since 2010. Among individual entities, the Korea Chamber of Commerce and Industry (KCCI), POSCO, the Federation of Korean Industry (FKI), and the Korea Iron and Steel Association (KOSA) have been actively engaging with the K-ETS, mostly taking negative positions on increasing the carbon price and effectiveness of the K-ETS.


Recent Policy Engagement Trends - since 2023

Since 2023, cross-sector associations have been the most active in engaging with the K-ETS, followed by the energy (oil & gas), steel and chemical sectors. Among individual entities, the Korea Chamber of Commerce and Industry (KCCI), the Federation of Korean Industries (FKI), the Korea International Trade Association (KITA), Lotte Chemical, POSCO and SK Innovation have been actively engaging with the K-ETS.

  • Large cross-sector industry associations have not supported the K-ETS. Both KCCI and KITA did not support the K-ETS, but advocated for an incentive- or growth-centered system rather than the regulation. FKI and KITA advocated for the exclusion of indirect emissions, expressing concerns around losing price competitiveness. Additionally, KCCI advocated for easing the carryover limit for emission allowances, relaxing the offset limit, and ‘rationalization’ of using reserves.

  • The energy (oil & gas) sector has shown unclear or ambiguous positions on the K-ETS in recent years. Hanwha Solutions, S-OIL and SK Geocentric (a subsidiary of SK innovation) called for the improvement of the K-ETS allocation system, but did not specify those improvements.

  • The steel sector has also not supported an ambitious K-ETS, while some actors called for the Korean government support for the K-ETS. The Korea Iron and Steel Association (KOSA) and POSCO did not support inclusion of indirect emissions in the K-ETS. KOSA also advocated for 100% free allocation for the steel sector, while POSCO advocated for removing the carryover limitation on emission allowances - contrary to the ambition to remove emissions surplus allowances to increase the carbon price and effectiveness of the scheme. Meanwhile, Hyundai Steel expressed its support for the K-ETS to achieve carbon neutrality and called for the government support.

  • The chemical sector generally did not support the K-ETS as well. Lotte Chemical suggested that the K-ETS results in increased energy prices and loss of competitiveness, calling for higher allocations for its sector. Kumho Petrochemical advocated for easing the carryover limit. LG Chem and Lotte Chemical called for the improvements of the K-ETS allocation system, but did not specify those improvements.


Long-term Policy Engagement Trends - 2010-2025

Since 2010, cross-sector associations have actively engaged with the K-ETS, followed by the steel, chemical and energy (oil & gas) sectors. These four sectors account for over 75% of the K-ETS engagement, while other sectors have shown only marginal engagement.


Pre-K-ETS: 2010-2014


First Allocation Phase; 2015-2017

  • During the First Allocation Phase of the K-ETS, large cross-sector industry associations continued not to support an ambitious K-ETS, mainly advocating for higher allocations. KCCI and FKI called for higher allocation, stating that allowances has been under-allocated. The Korea Business Council for Sustainable Development (KBCSD) and FKI did not support the inclusion of indirect emissions in the K-ETS.

  • The steel sector, represented by POSCO and KOSA called for support measures, such as free allocations and subsidies for the steel sector, emphasizing corporate competitiveness for the trade-exposed sector.

  • Similarly, the petrochemical sector has not supported an ambitious K-ETS. The Korea Chemical Industry Association (KCIA) and Lotte Chemical advocated for higher allocations in the market, expressing its concern around the limited number of allowances.


Second Allocation Phase; 2018-2020

  • During the Second Allocation Phase of the K-ETS, large cross-sector industry associations continued not to support the K-ETS, while calling for government financial support. KCCI and KBCSD advocated for emission allowances from offsets, and KEF advocated for allowing surplus allowances to be carried over in the K-ETS, contrary to the ambition to increase the carbon price and effectiveness of the scheme. Meanwhile, KEF, KCCI and KBCSD called for government financial support using revenue from the K-ETS paid allowances to support reduction technology development and reduction projects.

  • The steel sector has not supported an ambitious K-ETS as well. KOSA did not support K-ETS reforms to increase the carbon price and effectiveness of the scheme, expressing its concerns around international competitiveness, while suggesting the need for financial support using revenue from the K-ETS paid allowances. POSCO advocated for lower ambition of the K-ETS, including minimizing the government intervention in the market.


Third Allocation Phase: 2021-2025

  • During the Third Allocation Phase of the K-ETS, large cross-sector industry associations have advocated for specific measures to weaken the K-ETS. KCCI and the KITA did not support the K-ETS but advocated for an incentive- or growth-centered system rather than the regulation. KCCI, FKI, KITA and KEF also adovcated for the exclusion of indirect emissions, expressing concerns around losing price competitiveness. In addition, KCCI advocated for easing the carryover limit for allowances, easing the offset limit for allowances, and ‘rationalization’ of using the reserved emission permits.

  • Heavy industries, including the steel and automotive sectors, have not supported an ambitious K-ETS. The Korea Automobile & Mobility Association (KAMA), KOSA and POSCO did not support the inclusion of indirect emissions in the K-ETS. KAMA, KOSA and POSCO advocated for easing the carryover limit in the K-ETS. Additionally, KOSA advocated for 100% free allocation for the steel sector, easing limits for offset allowances, and utilizing the reserved emission permits.

  • The petrochemical sector had a mixed position on the K-ETS - not supporting an ambitious K-ETS while advocating for using revenue from the K-ETS paid allowances to reduce GHG emissions. The Korea Chemical Industry Association (KCIA), Lotte Chemical and LG Chem suggested utilizing the revenue from the K-ETS paid allowances for the GHG reduction projects, while advocating for expanding the use of allowances from overseas offset in Korea. Kumho Petrochemical advocated for easing the carryover limit.

  • Some South Korean corporations broadly supported the K-ETS, including Hanwha Corporation, Hyundai Steel and LG Electronics, but they have limited engagement with the K-ETS.

Evidence Profile

Key

◼ opposing ◼ not supporting ◼ mixed/unclear
◼ supporting ◼ strongly supporting

Live Lobbying Alerts

POSCO Research Institute (POSRI) appears to not support Korea Emissions Trading Scheme

29/07/2025

In a 5 June Industry Report from the POSCO Newsroom, the POSCO Research Institute (POSRI) appeared unsupportive of the Korea Emissions Trading Scheme (K-ETS), calling to maintain 100% free allowances for the steel industry while emphasizing the cost competitiveness of the steel industry and related industries. POSRI also stated that decarbonization policies should be approached from the perspective of securing new economic growth engines and industrial competitiveness rather than regulation.

Korea Battery Industry Association calls for effective electric vehicle production policy and emissions trading scheme to support the battery sector in South Korea

03/07/2025

During the 20 June Policy Direction Forum for Energy Transition, the Korea Battery Industry Association (KBIA) emphasized the urgent need for immediate and effective government support to strengthen South Korea’s battery sector, including the introduction of a mandatory electric vehicle production policy. In the Forum, KBIA also stated that existing demand-driving policies, such as the emissions trading scheme, lacked sufficient regulatory intensity to be effective, and called for stronger support measures to improve South Korea’s energy storage system (ESS) industry.

Korea Chamber of Commerce and Industry appears to support weaker Korea Emissions Trading System and GHG emissions targets

12/06/2025

In a 29 May press release, the Korea Chamber of Commerce and Industry (KCCI) appeared to support weaker GHG emissions targets, emphasizing difficulties such as reduced industrial competitiveness. In the same press release, KCCI appeared to not support regulation-centered Korea Emissions Trading System (K-ETS), but instead advocated for government support-centered system.

Korea International Trade Association advocates for increasing free emission allowances under the Korea Emissions Trading System

27/01/2023

On January 16th the Maeil Business Newspaper reported that the Vice Chairman of the Korea International Trade Association (KITA), Jung Man-ki, advocated for converting the allocation of paid emission permits to free emission permits under the Korea Emissions Trading System to “supplement the industrial competitiveness” of Korean exporting companies in response to the Inflation Reduction Act (IRA) of the US and the EU Carbon Border Adjustment Mechanism (CBAM).

Korea Iron and Steel Association unsupportive of ambitious reforms to the Korean Emissions Trading Scheme

22/12/2022

In the December 2022 Steel Paper of the Korea Iron and Steel Association (KOSA), KOSA did not support reform of the K-ETS, such as expanding paid allocations in the 4th trading phase (2026-2030), advocating for the Korean steel industry’s exemption from paid allocation expansion during the 4th trading phase.

Korea Chamber of Commerce and Industry advocates to weaken Korean Emissions Trading System

22/12/2022

At a December 16th ‘Industry and Environmental Policy Forum’ jointly hosted by the Korea Chamber of Commerce and Industry (KCCI) and South Korea’s Ministry of Environment, the KCCI successfully advocated for relaxations to the allocation of emissions permits under the Korean Emissions Trading System, including more scope for including overseas allowances and more free allocations for new companies.

Korea Petrochemical Industry Association supports the Korean Emissions Trading System

11/11/2022

At the November 3rd ‘Industry Conference on the EU Carbon Border Adjustment Mechanism (CBAM)’ hosted by the Ministry of Trade, Industry and Energy (MoTIE), the Korea Petrochemical Industry Association (KPIA) advocated for the Korean Emissions Trading System to be included in the EU CBAM, without a clear position on strengthening of carbon price within Korea.

KT Corporation calls for a more ambitious K-ETS

28/10/2022

In a 25th October Gwangju Dream op-ed article, the Honam Branch Director of KT Corporation, Ryu Pyeong, advocated for a more ambitious Korea Emissions Trading Scheme (K-ETS), arguing “a more stringent signal should be given to corporate customers.”

KAMA appears to oppose K-ETS reforms

05/08/2022

At the 27th Industrial Development Forum on the 2nd August, the Chairman of the Korea Automobile Manufacturers Association (KAMA), Jung Man-ki, opposed the Korea Emissions Trading Scheme (K-ETS) and suggested policy reform, such as ‘excluding indirect emission regulations’, ‘ease of additional allocation criteria’, and ease of carryover restrictions, and stating that “South Korea operates the world’s most highly regulated ETS.”

Federation of Korean Industries supports K-ETS reforms

14/07/2022

On the 12th July, E-Daily News Korea reported that the Federation of Korean Industries (FKI) supported reforming the Korea Emissions Trading Scheme (K-ETS) to link it to international voluntary carbon markets, running contrary to the policy’s objective to increase carbon prices and reduce emissions within Korea.

Federation of Korean Industries appears to oppose regulated carbon markets

23/06/2022

On 21st June, the Federation of Korean Industries (FKI) advocated for the Korea Emissions Trading Scheme (K-ETS) to adopt the use of international ‘voluntary carbon market’ credits, and suggested that the K-ETS should ‘turn away from the focus on the regulatory carbon market’.

Entities Engaged on Policy

The table below lists the entities found to be most engaged with the policy. InfluenceMap tracks over 400 companies and 200 industry associations globally. Each entity name links to its full InfluenceMap profile, where the evidence of its engagement can be found.

Influencemap Performance BandOrganizationPolicy PositionPolicy Engagement Intensity