As domestic carbon credit prices surge, major buyers such as power generators are expected to face a heavier expense burden. Due to the Middle East crisis, generators have increased coal-fired power, which has relatively lower fuel costs, driving up demand for carbon credits. On top of that, the government's stronger decarbonization rules are shrinking the supply of carbon credits, pushing prices even higher.
Experts say the increase in power generators' carbon credit purchase expense will lead to higher power generation costs and could, in the long term, become a factor driving up electricity rates.
According to the Korea Exchange (KRX) emissions market information platform on the 5th, the domestic carbon credit (KAU for 2025 delivery) price was 25,650 won per ton (t) as of the 4th. That is about 2.5 times higher than at the start of the year, when it was around 10,300 won per t.
A carbon credit is the right to emit a certain amount of greenhouse gases over a set period. The government sets total emission caps by corporation and allocates credits. Corporations with surplus credits can sell them for money to those short of credits, while corporations lacking credits can buy and use surplus credits from others.
Typically, corporations calculate their greenhouse gas emissions for the year from January to December and submit a statement to the government by March of the following year. The government reviews this and notifies each corporation around late May of any shortfalls or surpluses. Based on the government's results, corporations make additional purchases by late August if they have shortfalls.
When carbon credit prices rise, the expense burden increases for corporations that emit large amounts of greenhouse gases. For this reason, higher credit prices serve as an incentive to cut carbon emissions.
The recent jump in carbon credit prices stems from concerns that future carbon credit supply could fall short. The government set the total emissions allowance for carbon credits in the 4th planning period (2026–2030) at about 2,537.3 million t. That is about a 17% decrease from the previous planning period. In 2030, the government aims to reduce the total to 360 million t.
This year, in particular, the volume of carbon credits that generators must purchase is expected to surge. Since the Middle East crisis, oil and liquefied natural gas (LNG) supplies have become unstable, and as an emergency response, coal-fired generation has been increased. Coal-fired power emits more greenhouse gases than other major generation sources, so when output rises, demand for carbon credits increases.
It is known that the five generation companies bought about 40% of all carbon credits traded in the market to date. A representative at one generator said, "Since the Middle East crisis this year, all five generation companies have increased coal-fired output, so the amount of carbon credits we need to purchase has grown."
With tighter rules on cutting greenhouse gases, many expect carbon credit prices to rise further. Park Hyun-shin, Head of Team at ECOEYE, a carbon credit specialist corporation, said, "Through the 3rd planning period, the carbon credit market was in a slump, but starting in the 4th planning period, stronger greenhouse gas reduction targets are pushing prices up," adding, "As the allocation to corporations shrinks, it is hard to expect anything but higher credit prices."
Currently, the expense generators bear for purchasing carbon credits is reflected in the "climate and environment charge" item of Korea Electric Power Corporation's electricity bills. The current compliance expense for credits is about 1.1 won per kilowatt-hour (kWh), which is not yet a heavy burden, but with credit prices continuing to climb, some analyses say that if compliance expenses grow, they could become a factor in higher electricity rates over the long term.
Yoo Jong-min, a professor in the Department of Economics at Hongik University, said, "In about five years, the compliance expense for credits borne by generators is expected to rise to 10 won per kWh," adding, "Corporations will bear the expense from carbon emissions first, and this will inevitably be reflected in consumer prices." Yoo said, "Because cutting greenhouse gases is a global trend, society as a whole will end up shouldering the expense."