On 11 November 2025, South Korea approved the National Emission Allowance Allocation Plan for Phase 4 of its Emissions Trading System (K-ETS), covering the period 2026–2030. The decision sets the total greenhouse gas emissions cap, introduces a quantity-based Market Stability Reserve (K-MSR) and increases the share of auctioned allowances.
The total cap for the period is set at 2.5373 billion tonnes CO2e. A new linear reduction factor will apply and is differentiated between the power generation sector and non-power generation sectors, marking a shift from the previous proportional roadmap method. The allocation plan also includes sectoral reduction targets. The electricity, transport, buildings and waste sectors are all set to reduce emissions by more than 50% by 2035 relative to 2018 levels, with the electricity sector targeting a 69–75% cut. The other sectors have lower reduction targets. The Ministry of Climate, Energy and Environment plans to allocate allowances to individual companies by the end of 2025.
Allocation rules are streamlined into two broad sectoral categories: power generation and non-power generation. The auctioning share for the power generation sector will be gradually raised to 50% by 2030. Sectors at risk of carbon leakage, such as steel, non-ferrous metals, petrochemicals, cement, and semiconductors, will continue to receive 100% free allocation. These sectors account for around 95% of industrial emissions. Other non-power sectors will face a 15% auctioning rate. Benchmarking-based allocation will be expanded to include semiconductors, displays and non-ferrous metals, and to cover fuel use across all industries. The benchmarking coefficient will gradually be tightened, moving from the weighted average of the top 37% of performers to the top 20%.
Excluding the K-MSR and new entrants’ reserve, roughly 11% of total allowances will be auctioned. Additional revenues from increased auctioning are earmarked to support business decarbonization. The quantity-based K-MSR forms part of the overall cap and will be further defined in the first half of 2026 following public consultation. The Ministry will also address overallocation identified during Phase 3, after an error in underlying energy statistics was discovered and corrected in 2024.
In parallel with the Allocation Plan, the government announced the K-GX Promotion Strategy, which aims to transition Korea from a carbon-based economy to a leading green, decarbonized economy. A pan-governmental K-GX Taskforce, led by the Ministry of Climate, Energy and Environment, will refine the strategy and identify sector-specific actions.
