South Korea's Emissions Trading Scheme (K-ETS) accounts for about 73% of national greenhouse gas (GHG) emissions, which is a representative policy targeting the national GHG reductions. However, despite the implementation of the K-ETS, GHG emissions h...
South Korea's Emissions Trading Scheme (K-ETS) accounts for about 73% of national greenhouse gas (GHG) emissions, which is a representative policy targeting the national GHG reductions. However, despite the implementation of the K-ETS, GHG emissions has been continuously increasing, trading in the emissions market has been sluggish, and questions have been raised about the effectiveness of the scheme in that it fails to provide appropriate price signals for participants. This study aims to analyze price determinants in K-ETS and suggest policy implications. Our results show that the factors affecting the price of K-ETS are mainly government intervention related variables. While variables related to the market fundamentals did not have significant impacts on allowance prices, the government interventions including the abrupt carryover restriction in May 2019 and the price floors in April and June 2021 had significant effects on allowance prices. It suggests that firms recognize K-ETS as a form of environmental regulation rather than a market. In implementing the national GHG reductions target, which is expected to be further strengthened in the future, it is important to establish a long-term specific plan to utilize the revenue from auctions for allowances. It will be necessary to alleviate the burden on the industry by investing in green technology, and to support declining industries in the process of achieving the GHG emissions target. It is also necessary to take firms with relatively small emissions into account, which make up the majority of K-ETS. This is because it is difficult for firms with small emissions to realize economies of scale in responding to the environmental policy, and the transaction costs under K-ETS may be large.