H. Yoo
Research expert covering South Korea
Carbon pricing in South Korea - Statistics & Facts
Carbon pricing has become a key pillar in South Korea’s plans toward carbon neutrality by 2050. Launched in 2015, South Korea’s Emission Trading Scheme (K-ETS) is a national carbon pricing market mechanism to incentivize carbon reduction and was the first of its kind in East Asia. Since then, greenhouse gas emissions have decreased overall. However, the country is not expected to meet its Paris Agreement targets on its current track. While the challenge looms large, the efforts of the K-ETS alongside progressive corporate action hold hope for improvement in the future.
South Korea’s Emission Trading Scheme
The K-ETS has three types of permits: the Korean Allowance Unit Allocation Rights (KAU), Korean Offset Credit External Business Certifications (KOC), and Korean Credit Unit Offset Credits (KCU). While one KAU permit is equivalent to one metric ton of carbon emissions allowance, KCU and KOC are permits converted from the reduction of greenhouse gases and certifications acknowledging reductions in emissions outside the business site, respectively. In 2023, the year-end price of one KAU stood at around 9,000 South Korean won. This was significantly lower than in 2019, when the price was nearly 40,000 won, and far lower than what experts have calculated would be needed for South Korea to reach carbon neutrality by 2050. While there are doubts about whether the scheme is an effective deterrent against emissions, the active adoption of the scheme by companies has shown some willingness in the private sector. Indeed, the number of certified entities under the emissions trading scheme has seen a near continuous increase since 2015, and the transaction value of these permits in 2022 stood at over 750 billion won.Internal carbon pricing for South Korean companies
Following the government’s lead, larger companies such as LG Chem and SK Innovation have implemented additional internal carbon pricing to prepare for low-carbon practices and to manage future risks. Such corporate initiatives will likely be an inevitable necessity for any enterprise in the future as more governments around the world implement similar carbon pricing strategies. One such example is the European Union's Carbon Border Adjustment Scheme, set to be fully implemented in 2026. The Korean steel and aluminum industries, with their high export volume to Europe and greenhouse gas emissions, are expected to be hit particularly hard. Despite fears of slowed growth, it stands in the best interest of companies to adjust quickly as such emissions-related measures become more commonplace in the coming years.
