Free allocations for companies will be reduced starting next year
At least KRW 600 billion will be added
Soaring costs of certified emission reductions also becoming a burden

The domestic steel industry, which is already threatened by ultra-high tariffs from the USA and the European Union (EU) and the challenges of low-priced Chinese products, has faced an additional threat — the cost of certified emission reductions. As it is anticipated that additional costs of up to KRW 3 trillion would be incurred over the next five years for the two-largest steel companies alone, the industry is complaining, “We’ve been hit with a certified emissions-reduction bomb, not just a tariff bomb.”
According to the steel industry, the government’s allocation plan for the 4th Emissions Trading Scheme (K-ETS), scheduled to be implemented from 2026 to 2030, is expected to cost the nation’s two-largest steel companies, POSCO and Hyundai Steel, approximately KRW 600 billion annually, or a total of KRW 3 trillion over the next five years, in certified emission-reduction purchase costs.
Under the 4th Scheme, the total amount of certified emission reductions distributed by the government to all companies will be reduced to 450 million tons, from the annual average of 580 million tons under the 3rd plan (2021~2025). Consequently, free allocations for the steel industry will also be reduced significantly from 114 million tons under the 3rd plan to 89 million tons (industry estimates) under the 4th plan. Accordingly, companies will be compelled to purchase additional certified emission reductions on the market to fill up the deficiency, and certified emission-reduction rights prices are thus expected to rise rapidly.
According to the steel industry — if conservatively assuming that the current price of certified emission reductions of KRW 10,250 per ton (as of October 15), rises to KRW 30,000 per ton — the two-largest companies, POSCO and Hyundai Steel, alone will face a shortage of a total of 20 million tons of certified emission reductions. This will result in annual purchasing costs of approximately KRW 600 billion (industry estimates). Based on last year’s sluggish market, this is a massive amount that could consume up to 60% of the combined annual operating profit of these two companies (approximately KRW 1 trillion).
Korea’s Ministry of Climate, Energy, and Environment predicts that the cost of certified emission reductions will rise to KRW 40,000~61,000 by 2030, significantly increasing the burden on companies. Furthermore, there are growing concerns about rising electricity rates.
There are a lot of concerns that the cost burden on power-generation companies (KEPCO subsidiaries and private power generation companies like POSCO Energy and SK E&S), directly impacted by the certified emission reductions trading system, will be fully passed on to steelmakers through their industrial electricity rates. Unlike the steel industry, where pre-allocation is free, paid allocations for power-generation companies will increase 50% by 2030 under the 4th plan.
The Federation of Korean Industries estimates that an additional burden of approximately KRW 309.4 billion will be incurred by the steel industry as electricity rates are expected to rise by KRW 9.41 per kWh if the price of certified emission reductions is KRW 30,000 per ton. Combining the cost of certified emission reductions and the increased electricity rates, the steel industry’s burden could increase to as much as KRW 900 billion annually (KRW 600 billion in certified emission reductions + KRW 300 billion in electricity costs).

 
 
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