The Korea Emissions Trading System and Electricity Market

Emissions trading systems have proven an effective tool for reducing emissions from the electricity sector. However, their impact depends on carbon market design, electricity market regulations, the structure of the electricity sector and additional policies. This report analyses the interactions between the Korea Emissions Trading System (K-ETS) and the Korean electricity market. The K-ETS has had a limited impact on the electricity sector in Phases 1 and 2 due to regulated wholesale and retail prices that did not reflect carbon costs of electricity generation. However, ongoing electricity market reforms have large potential to accelerate emissions reductions through the ETS and could set an example for countries considering introducing carbon pricing policies to advance decarbonisation in regulated electricity sectors.