A Korean Market Stability Reserve (K-MSR) for industrial decarbonisation
Proposes a Korean Market Stability Reserve: an auction floor price starting at KRW 40,000 in 2026, rising 7% annually in real terms, with unsold allowances permanently cancelled.
Korea's ETS tightens the emissions cap in line with national targets, but market prices reflect the cheapest abatement options first — so the carbon price needed for large-scale plant conversion in steel and petrochemicals may form too late. Under the 4th allocation plan, the expected allowance price of about KRW 67,000 in 2040 falls short of the KRW 90,000–120,000 range required for industrial transition.
Proposal: a Korean Market Stability Reserve (K-MSR)
This report proposes an auction floor price starting at KRW 40,000 in 2026, rising 7% annually in real terms, with allowances left unsold at that price permanently cancelled.
- With the K-MSR in place, the projected price path exceeds KRW 90,000 by 2038 and reaches about KRW 103,000 by 2040
- The 40,000/7% path is designed to limit early auction shocks while crossing the KRW 90,000 decarbonisation price signal by 2038
Conditions for adoption
The government should first codify the multi-year carbon pricing schedule and the cancellation procedure in legislation, then regularly review unsold volumes and actual cancellations, the gap between auction and secondary-market prices, and firms' capital investment plans.
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