From this year, the European Union (EU) will commence the full implementation of the Carbon Border Adjustment Mechanism (CBAM), which, until last year, had operated on a pilot basis. The CBAM is a regime that levies charges on goods exported into the EU from jurisdictions where carbon emission regulation is comparatively lax, calculated according to the quantity of carbon emitted in the course of producing the relevant goods.
Under the CBAM, the method for recovering carbon-related costs associated with imports is to require importers to procure emission allowances equivalent to those that EU-based operators must obtain under the EU Emissions Trading System (ETS). Notwithstanding this framework, the market price of EU allowances has behaved in 2026 in a manner that diverges from prevailing expectations. As of Jan. 15, 2026, the price per ton of carbon dioxide allowances was €92, the highest level since August 2023, but by Feb. 25, 2026, it had fallen to €72 per ton, a reduction of approximately 20 percent.
This depreciation is principally attributable to increased uncertainty surrounding contemplated relaxations of the ETS being considered by the European Commission. The proposed relaxations include, among other things, extensions of the period during which free allocation of allowances is available, measures likely to exert downward pressure on allowance prices and postponement of the timetable for expanding the ETS' coverage.
For an export-oriented economy such as Korea, whose export profile emphasizes emissions-intensive sectors, how should these contradictory developments be interpreted? It is necessary to view the policy shifts not solely through the singular lens of responses to climate crisis but also from the vantage point of national industrial development. Although the EU's actions to operationalize the CBAM and to contemplate measures that would lower ETS prices may appear inconsistent when evaluated strictly on climate policy grounds, they are reconcilable insofar as both sets of measures serve the objective of protecting and nurturing domestic industry.
Furthermore, we should prioritize assessment of medium-term trajectories over transient fluctuations. For example, a Reuters survey of analysts released in late January — at a time when ETS prices were in decline — forecast that allowance prices would become more volatile due to linkage with gas prices, yet expected average prices to rise to €93 per ton in 2026 and to €107 per ton in 2027. This outlook can be interpreted as reflecting market anticipation that emissions reduction efforts will be strengthened and the volume of free allocations to industry will be reduced, thereby producing an upward trend in prices over the medium term.
It is important to note that securing relevant technologies is needed to satisfy both climate objectives and domestic industrial development. Put differently, by developing innovative technologies that enable climate mitigation at lower cost, the country can concurrently cultivate competitive domestic industries. This principle became apparent in the global allocation of climate technology investment in 2025, where attention to advanced sectors such as artificial intelligence coincided with heightened investor interest in technologies that supply stable low-carbon energy — notably energy storage systems, nuclear power and power infrastructure.
Investors have tended to favor technologies capable of delivering revenue in the short term — a so-called green discount market — rather than speculative future technologies that command a green premium. Additionally, the market has opened opportunities for firms possessing credible technologies able to meet robust energy demand on time, which underscores a shift whereby climate technology markets are increasingly guided by economic fundamentals as well as by policy.
In this context, the Korean government's decision to expand tax incentives for climate technologies is both timely and strategically significant. In January, the Ministry of Economy and Finance published a revision to the Enforcement Decree implementing the 2025 tax reform, positioning enhanced support for future-strategic industries as a central measure for promoting an economic "great leap forward" and substantially broadening the categories of national strategic technologies and new growth as well as foundational technologies that qualify for research and development (R&D) tax credits, with a pronounced emphasis on climate-related technologies. Specifically, within the classification of national strategic technologies, the Enforcement Decree newly established or expanded detailed subcategories in future core fields, such as semiconductor technologies for improved energy efficiency, transport and propulsion technologies for environmentally friendly advanced vessels, and technologies for clean hydrogen production. Further, to facilitate the transition of incumbent sectors such as steel and petrochemicals, the decree widely instituted and enlarged carbon-neutral sub-technologies within the new-growth and foundational-technology categories.
For companies confronting unprecedented mandatory emissions reductions, the prospect of substantial technology investments brings into focus the utility of tax incentives at the investment decision stage or, where applicable, the possibility of filing amended claims in respect of past investments. This dual consideration makes it feasible to pursue technology securement and cost reduction simultaneously. Because the applicable R&D tax credit rate is materially higher than ordinary tax credits, eligibility is contingent upon demonstrable technical conformity to defined standards and objective substantiation, such as systematic monitoring and management of project progress. Nevertheless, in an environment of expanding public support for relevant technologies, firms that adopt a rigorous strategy — assessing technical requirements and tax-benefit potential from the exploratory and planning phases onward — will increase the likelihood of minimizing investment costs while preoccupying market opportunities.
If policies aimed at nurturing critical technologies are well aligned with market demand for lower-cost climate technology investments, Korea can, notwithstanding external volatility, seize a leading position in the global climate technology market. For this reason, the extension and expansion of tax incentives for climate technologies is especially welcome.
Kim Sung-woo, head of Environment & Energy Research Institute of Kim & Chang, is a member of the National Climate Fund management committee.