A review of the operational results of the K-ETS (2015–2024)

Republic of Korea introduced the Korean Emissions Trading System (K-ETS) in 2015 as a market-based policy instrument to achieve national greenhouse gas (GHG) mitigation targets. Over the past decade, the system has undergone three implementation phases, gradually expanding its coverage, refining allocation methods, and strengthening market infrastructure. As of Phase 3 (2021–2025), the K-ETS covers approximately 73.5% of the country’s total GHG emissions, making it one of the most extensive national ETSs currently in operation.

This study provides a comprehensive review of the institutional development and operational performance of the K-ETS from 2015 to 2024. Drawing on official administrative and market data, the analysis examines key components of the system, including allowance allocation, emissions trading, compliance procedures, and flexibility mechanisms such as offset credits, banking, and borrowing. The results show that the gradual expansion of auctioned allowances and the wider application of benchmarking-based allocation have contributed to increased market participation and trading activity over time.

Trading volume in the K-ETS expanded significantly during the study period, rising from 5.7 million tons in 2015 to nearly 90 million tons in 2023. This growth reflects not only the expansion of system coverage but also institutional reforms such as the introduction of market makers, proprietary trading by financial institutions, and the development of brokerage-based trading mechanisms. At the same time, trading activity has remained highly sensitive to policy announcements, compliance deadlines, and external shocks, including the COVID-19 pandemic, highlighting the importance of predictable regulatory schedules and clear policy signals.

The analysis also identifies persistent challenges. In recent years, an oversupply of emission allowances has placed downward pressure on carbon prices, raising concerns about the system’s ability to deliver strong mitigation incentives. In response, the Korean government has announced a series of reforms for Phase 4 (starting in 2026), including the introduction of a Market Stability Reserve (K-MSR), tighter benchmarking standards, and an expansion of benchmarking-based allocation to cover more than 75% of emissions. These measures aim to strengthen price stability, enhance market credibility, and better align the emissions cap with Korea’s nationally determined contribution (NDC).

Overall, the findings suggest that the K-ETS has matured into a stable policy instrument supported by robust institutional infrastructure, including digitalized monitoring, reporting, and verification (MRV) systems and centralized emissions registries. The ten-year operational experience of the K-ETS offers valuable lessons for improving carbon market design, balancing flexibility with environmental integrity, and integrating emissions trading into broader industrial and climate policy frameworks.