The Cost of CBAM Compliance: Why EU Pressure on Korea’s ETS Could Backfire 

The Republic of Korea’s Emissions Trading System (K-ETS), launched in 2015, has evolved into a cornerstone of national climate policy—now covering 79% of the country’s greenhouse gas (GHG) emissions.i Nearly a decade on, the system’s ability to drive GHG reductions is no longer just a domestic issue. The European Union’s Carbon Border Adjustment Mechanism (CBAM), set to take effect in January 2026, links access to the EU market to demonstrable carbon pricing at home.ii If Korean exports do not reflect a comparable carbon cost, they will face a financial penalty at the EU border. Yet this external pressure also risks backfiring. Raising carbon prices at home through the K-ETS may be necessary, but it runs headfirst into political reality: higher prices could quickly translate into electricity bill hikes—an outcome that’s triggers significant domestic opposition. Korean policymakers thus face a difficult calculus: raise carbon prices too aggressively and risk domestic backlash; do too little and risk losing industrial competitiveness in global markets. This policy brief maps how Korea can navigate the narrow path between international expectations and domestic costs. In conclusion, it draws broader lessons on the implications of the EU’s CBAM policy, as indicated by Korea’s experience.  

Read the policy brief here

Key Issues

• Korea’s Emissions Trading System (K-ETS) covers 79% of national emissions, but carbon prices remain low (€6–7/ton) compared to the EU ETS (€60–80/ton). This gap exposes Korean exporters to the EU’s Carbon Border Adjustment Mechanism (CBAM) starting in 2026.
• Strengthening Korea’s carbon price signal is necessary but risks politically sensitive electricity price hikes and public pushback.
• To balance global pressure and domestic costs, Korea should tighten the K-ETS by reducing free allowances, introducing a carbon price floor, reforming industrial electricity tariffs, and recycling revenues to support decarbonization. This requires better inter-ministerial coordination and EU engagement on CBAM.
• More broadly, for the EU’s CBAM to be effective and fair, it should be accompanied by credible technical support and/or compensation to help countries manage the economic fallout of higher carbon prices across the economy.