contents go

KDI - Korea Development Institute

KDI - Korea Development Institute

SITEMAP

Popular Search Terms

HOT ISSUE

Economic Bulletin Economic Bulletin, October 2024

In July, services production and facilities investment increased, while industrial production, retail sales, and construction investment decreased.

September 30, 2024
KDI News What‘s Up Newsletter Vol.13

The 13th issue of the KDI What's Up newsletter is now available!

September 12, 2024
Other Research KOR KDI Review of the North Korean Economy, September 2024

The September issue features eight articles on recent trends and future challenges in North Korean economic research.

September 30, 2024
News 2024 KSP Dissemination Conference

Celebrating the 20th anniversary of Knowledge Sharing Program (KSP), "2024 KSP Dissemination Conference: 20th Anniversary of Knowledge Sharing Program(KSP)" was held on Friday, September 6, 2024.

September 12, 2024
News 2024 Global Economy & Financial Stability Conference

Korea Development Institute (KDI) and The Ministry of Economy and Finance hosted the "2024 Global Economy & Financial Stability Conference" on September 3rd and 4th at the Plaza Hotel in Seoul.

September 11, 2024
Economic Outlook KDI ECONOMIC OUTLOOK | UPDATE 2024.08

The Korean economy is forecast to expand by 2.5% in 2024, a downward revision from the previous projection (2.6%), as export growth accelerates while recovery in private consumption and equipment investment lags.

August 08, 2024
News Participation in Korea-LAC Forum and Meeting with Brazilian Vice President

On July 25, Cho Dong-chul, President of KDI, attended the “2024 Korea-LAC Trade & Innovation Forum” in Rio de Janeiro, Brazil.

August 20, 2024
KDI News [Call for Papers] KDI JEP: Population, Aging, and the Economy

The KDI Journal of Economic Policy is now inviting submissions for an international conference on “Population, Aging, and the Economy”.

August 20, 2024
KDI FOCUS Impact of Policy Incentives on Adoption of Electric Vehicles in South Korea

South Korea’s strategies for deploying battery electric vehicles (BEVs) primarily include providing purchase subsidies and expanding charging infrastructure.

July 03, 2024
BACK
HOME
BACK

KDI FOCUS

Analysis on critical pending issues of the Korean economy
to enhance public understanding of the economy and provide useful policy alternatives

Search results : 128

12345678910
HOT ISSUE
Join our Newsletter

World's Leading Think Tank, Korea Development Institute

Security code

We reject unauthorized collection of email addresses posted on our website by using email address collecting programs or other technical devices. To access the email address, please type in the characters exactly as they appear in the box below.

captcha
KDI Staff Information

Please enter the security code to prevent unauthorized information collection.

KDI Staff Information

Please check the contact information.

OK
KDI Staff Information

Please check the contact information.

OK

Summary

KDI FOCUS Impact of Policy Incentives on Adoption of Electric Vehicles in South Korea
South Korea’s strategies for deploying battery electric vehicles (BEVs) primarily include providing purchase subsidies and expanding charging infrastructure. An empirical analysis of new vehicle registrations from 2019 to 2022 shows that investing in charging facilities is more costeffective than offering purchase incentives for increasing BEV adoption. To achieve a higher share of BEVs, a stronger policy focus on improving the charging network is necessary to stimulate overall demand for BEVs. - Achieving the target of ‘deploying 4.5 million BEVs and FCEVs by 2030s’ requires a substantial increase in the number of these vehicles, necessitating a comprehensive review of effective policy strategies. - While Korea has witnessed a consistent increase in the cumulative number of BEVs (and PHEVs), it still lags behind the global average. - Recent data indicates a deceleration in the growth rate of new BEV registrations. - Korea’s government policy support to promote the adoption of BEVs and FCEVs primarily comprises purchase subsidies and charging infrastructure installation. Fiscal spending for these measures has increased dramatically, with the related budget accounting for 25.3% of the Ministry of Environment’s total budget in 2023. - Analysis reveals that a 10% increase in the cumulative number of chargers correlates with a 12.4% rise in new registrations, while a 10% price reduction due to subsidies results in a 15.8% increase in new registrations. - Also, private vehicles exhibit lower elasticity in response to changes in the number of chargers and in price compared to their government and business counterparts. - Subsidy-induced adoption accounted for about 27.4% of the 240,000 BEVs eligible for purchase subsidies in 2019~22. - Analysis suggests that promoting BEV adoption through the expansion of charging infrastructure would be more cost-effective than offering purchase subsidies. Additionally, the direct social benefits derived from BEV subsidies generally fail to outweigh their costs, indicating current subsidy levels may be excessive. - Future BEV deployment policies should prioritize reinforcing charging infrastructure over providing purchase subsidies. In particular, deploying enough fastchargers at key travel hubs is essential to improve convenience and facilitate long-distance travel.

Summary

KDI FOCUS Impact of Policy Incentives on Adoption of Electric Vehicles in South Korea
South Korea’s strategies for deploying battery electric vehicles (BEVs) primarily include providing purchase subsidies and expanding charging infrastructure. An empirical analysis of new vehicle registrations from 2019 to 2022 shows that investing in charging facilities is more costeffective than offering purchase incentives for increasing BEV adoption. To achieve a higher share of BEVs, a stronger policy focus on improving the charging network is necessary to stimulate overall demand for BEVs.

- Achieving the target of ‘deploying 4.5 million BEVs and FCEVs by 2030s’ requires a substantial increase in the number of these vehicles, necessitating a comprehensive review of effective policy strategies.

- While Korea has witnessed a consistent increase in the cumulative number of BEVs (and PHEVs), it still lags behind the global average.

- Recent data indicates a deceleration in the growth rate of new BEV registrations.

- Korea’s government policy support to promote the adoption of BEVs and FCEVs primarily comprises purchase subsidies and charging infrastructure installation. Fiscal spending for these measures has increased dramatically, with the related budget accounting for 25.3% of the Ministry of Environment’s total budget in 2023.

- Analysis reveals that a 10% increase in the cumulative number of chargers correlates with a 12.4% rise in new registrations, while a 10% price reduction due to subsidies results in a 15.8% increase in new registrations.

- Also, private vehicles exhibit lower elasticity in response to changes in the number of chargers and in price compared to their government and business counterparts.

- Subsidy-induced adoption accounted for about 27.4% of the 240,000 BEVs eligible for purchase subsidies in 2019~22.

- Analysis suggests that promoting BEV adoption through the expansion of charging infrastructure would be more cost-effective than offering purchase subsidies. Additionally, the direct social benefits derived from BEV subsidies generally fail to outweigh their costs, indicating current subsidy levels may be excessive.

- Future BEV deployment policies should prioritize reinforcing charging infrastructure over providing purchase subsidies. In particular, deploying enough fastchargers at key travel hubs is essential to improve convenience and facilitate long-distance travel.

Summary

KDI FOCUS Women’s Career Interruptions and the Declining Fertility Rate in South Korea
In South Korea, more women are postponing or forgoing childbirth due to concerns about career interruption. Their conscious decision to refrain from motherhood is estimated to be responsible for about 40% of the decrease in the fertility rate. In the face of the world’s lowest fertility rate, Korea needs to overhaul its policies to better support work-life balance, enabling parents to maintain their careers while raising children.

- Traditional economic theory explains the decline in fertility rates as a result of the increase in women’s opportunity costs.

- Since the 2000s, a positive correlation between women’s labor force participation rates, income, and fertility rates has been commonly observed in high-income countries, which appears to be closely associated with the extent to which women (mothers) can balance work and family life.

- South Korea’s low fertility rate may have stemmed from the disproportionate burden of childcare on women, combined with the persistent difficulty in balancing work and family life, leading women to postpone or forgo childbirth.

- If the presence of children significantly affects women’s probability of career interruption, the number of women who forgo childbirth while maintaining their careers due to these concerns may increase.

- If young women choose to have children, their probability of career interruption increases by about 14%p, leading to a higher likelihood of experiencing a substantial level of economic loss throughout their lifetime.

- Since the mid-2010s, Korea’s total fertility rate has rapidly decreased, as the gap in career interruptions based on parenthood status has widened.

- Recently (2013~19), the gender employment gap has narrowed. Still, this converging trend has been limited to the young without children, ironically increasing the women’s opportunity costs for choosing to give birth. This increased child penalty is estimated to account for about 40% of the overall decline in the fertility rate.

- Policies aimed at preventing career interruptions for women with children are expected to contribute to raising the fertility rate by reducing the number of women who delay or forgo childbirth.

- Policies that mitigate career interruptions for women with children can increase labor supply and prevent the erosion of irrecoverable human capital, thereby not only helping to raise the fertility rate but also promoting macroeconomic growth.

Summary

KDI FOCUS South Korea Needs More Big Company Jobs
South Korea stands out among OECD countries for its lowest proportion of jobs in large enterprises. Good jobs, often synonymous with employment opportunities in large enterprises, are in short supply. This shortage prompts various societal issues: the overheating of college admission competition, a decline in social mobility, decreased birth rates, stagnating employment rates for women, and increased concentration in the capital area. There is a pressing need to identify and address policy barriers to company scale-up.

- Despite the stronger employment preference among young adults in large enterprises, the majority of available job opportunities are actually in smaller businesses.

- Larger establishments tend to offer higher wages and better working conditions.

- The marked wage gap between graduates of top and bottom universities intensifies competition for admission to top-ranking schools.

- The scarcity of good jobs results in both low utilization of maternity protection programs and female underemployment.

- Even at the city and province levels, larger establishments are observed to have higher labor productivity.

- Identifying and addressing policy barriers that impede company scaleup through targeted policy improvements is a necessary course of action.

Summary

KDI FOCUS Korea’s National Pension: Structural Reform Measures
South Korea has been under acute pressure to sustain its National Pension Plan without the risk of fund depletion. Given the looming fiscal threat, this study proposes the introduction of a new pension, a fully-funded system designed to ensure intergenerational equity. This reform aims to guarantee that future generations can receive pension benefits equivalent to the contributions paid and investment returns, without the fear of resource exhaustion. For contributions made prior to the reform, the benefits promised under the existing plan should be honored, while addressing the resultant financial shortfalls of the old pension through separate management and strategic utilization of the general budget to bridge these gaps. This study stresses the urgency of immediate action since the prompt implementation will substantially reduce fiscal stress.

- Under the current scheme, South Korea’s National Pension Fund is projected to be depleted by 2054. As a result, subsequent increases in contribution rates will be prohibitively high for future generations.

- Amid rapid shifts in demographic structure, it is essential to undertake structural reforms and adjust pension parameters to enhance intergenerational equity.

- This study proposes pension reform measures that can keep the expected return rate around one, while approaching this target rate is challenging in Korea, particularly due to the sharp decline in the total fertility rate.

- Provided that the current operation is maintained, increasing the contribution rate from 9% to 18% is likely to result in the reserve fund's complete depletion by around 2080.

- To avoid imposing undue burdens on future generations, adopting a fully-funded “New Pension” system with an expected return rate one is essential.

- With a 15.5% contribution rate, a fully-funded new pension plan will sustain the current average benefit levels for those born in 2006 and later.

- The parallel operation of the old and new pension plans means that the expected return rate gradually declines for each successive birth year, converging to one for those born in 2006 and later.

- To support the adoption of the New Pension, it is necessary to consider measures that ensure the general budget covers the unfunded liabilities of the old pension, estimated at approximately 609 trillion won (26.9% of GDP).

- Since providing general finances early and swiftly minimizes the nominal fiscal burden, it is advisable to initiate fiscal injection before the old pension fund is depleted.

- Delaying the reform of the fully-funded new pension plan by five years is expected to result in an additional 260 trillion won in unfunded liabilities that will need to be covered by the general budget.

- Even though the expected return rate of public pensions is similar to that of private pensions, the necessity of public pensions for social stability is wellrecognized, and worth considering is the fact that Korea’s NPF has recorded somewhat higher returns than private ones.

- With high uncertainties like dramatic demographic changes, bolstering the financial stability of the new pension system requires transitioning from the Defined Benefit (DB) model to the Defined Contribution (DC) model.

- Unlike individual account systems, applying a DCtype pension to age cohorts enables the integration of an income redistribution function.

- In a new DC pension system, it is possible to adjust the income replacement rate through modifications to the contribution rate.

Summary

KDI FOCUS OECD Average Annual Hours Worked: Comparative Analysis and Implications
The OECD statistics on annual hours worked per person are often cited as evidence for Korea’s long working hours, but this in fact tends to be the result of the nation’s high proportion of self-employed workers and low proportion of part-time workers. When this distinct employment composition is taken into account, the difference between Korea’s hours worked and those of other OECD countries turns out to be much less significant compared to previous estimates. However, Korea’s hours worked do remain relatively longer even after such an adjustment. Therefore, it is important to figure out and thereby address underlying institutional factors of unproductive long working hours. Furthermore, flexible and choice-based working arrangements should be promoted for improving labor market efficiency.

- Since the proportion of self-employed and parttime workers differs from country to country, inappropriate to make direct comparisons of the average hours worked per person across different countries without considering such factors.

- Korea’s annual hours worked per worker are rapidly declining, primarily due to improvements in productivity resulting from economic growth and institutional efforts to reform long working practices.

- Annual hours worked per person tend to increase when the proportion of self-employed individuals among total employment rises, and decrease when the proportion of part-time workers increases.

- Compared to other countries, Korea shows longer annual hours worked per person due to a higher proportion of self-employed and a lower proportion of part-time workers. Controlling for these differences in employment composition, the gap in annual hours worked between Korea and other OECD countries falls by approximately 31%.

- However, even when accounting for the impact of the proportion of selfemployed and part-time workers, Korea remains among the nations with extended hours worked.

- Approximately 33% of the reduction in Korea’s annual hours worked per worker during 2010-2021 is attributable to the decrease in the proportion of self-employed workers and the increase in the proportion of part-time workers.

- Comprehensive and concerted policy efforts are necessary to facilitate a more inclusive labor market that accommodates diverse workforce groups, endorsing flexible working hours options and choice-based working arrangements.

Summary

KDI FOCUS Reshoring: A Study on Firm Characteristics and Influencing Factors
Among multinational manufacturers, firms engaged in reshoring are typically smaller, laborintensive, less productive, and less experienced in overseas production. Moreover, despite receiving sizable government subsidies, the domestic investments by reshorers yield smaller employment impacts compared to similar-sized domesticonly counterparts. Therefore, incentivizing domestic investment for all firms, irrespective of their repatriation, would be more effective in meeting objectives such as stabilizing supply chains, maintaining domestic manufacturing competitiveness, and boosting employment. The solution to the challenges posed by the excessive globalization of production lies in localizing production activities rather than the firms themselves.

- Reshoring, defined as the process of multinational firms bringing their previously offshored production facilities back to their home country, is attracing increasing attention in policy circles.


- Given the lack of proper evaluation in the implementation of existing reshoring policies, this study aims to assess their effectiveness by identifying the key attributes of reshoring firms and exploring the factors that influence their decisions to repatriate.

- Korea determines whether to provide policy support based on selection criteria that embody the lexical definition of reshoring.

- Major economies including the US prioritize overall investment promotion in capacity building for strategic industries, rather than formal requirements like whether a firm is “u-turning” its operations.

- This study categorizes multinational manufacturing companies into four groups by investment type, among which are offshoring and reshoring. Reshoring is defined as investing exclusively domestically while either withdrawing or suspending overseas investments.

- In this study, reshoring hinges on whether multinational manufacturers shift their strategy of overseas expansion to domestic investment, and this concept aligns with reshoring as practiced in major countries.

- Under the definition used in this study, about 24% of the multinational manufacturing firms in Korea have undertaken investment activities that qualify as reshoring.

- The pertinent question is to identify these reshorers and assess their contributions to the Korean economy following their reshoring activities.

- Around 40% of reshorers chose to engage in reshoring again in a few years, while nearly 30% transitioned to suspend or reduce investments, prompting concerns about their mid-to-longterm competitiveness.

- Reshorers in Korea are typically characterized by their smaller size, laborintensive nature, lower productivity, and limited experience in overseas production. Consequently, their likelihood of expanding investments abroad is low, which in turn suggests a diminished potential for contributions to the economy.

- As a result of reshoring, participating companies have seen an average annual employment growth of approximately 2.3%. However, their ratio of net employment to net investment is 1.17 persons per billion won, which is lower compared to expanders (1.32) and domestic-only firms (2.48).

- An analysis of internal factors influencing the four investment choices of multinational manufacturers shows that firm characteristics depicted in Figure 1 (size, productivity, labor intensity, etc.) are indeed important.

- Labor costs, both domestic and overseas, are the most relevant external factor in investment-type decisions by multinational manufacturers, emphasizing that high domestic labor costs are a fundamental barrier to reshoring.

- It is advisable to achieve the objectives of the U-turn support policy, such as stabilizing supply chains, maintaining competitiveness in manufacturing, and employment promotion, through strengthening incentives for domestic investment, independent of whether foreign production facilities are brought back home (reshoring). If the problem is the excessive globalization of production, the solution should focus on localizing production rather than localizing firms.

Summary

KDI FOCUS Assessing Old-Age Poverty with Income and Assets: Generational Insights and Policy Directions
Korea’s old-age poverty rate, based solely on income, ranks among the highest in the OECD. While the rate drops slightly when assets are considered, it remains persistently high. There are marked disparities in poverty rates across different elderly birth cohorts, with older groups facing higher rates. A greater share of the low-income, low-asset segment also marks the observed inequality. To effectively address poverty among the elderly, policy efforts should prioritize support for the oldest members of this vulnerable low-income, low-asset segment. Concurrently, financial assistance for seniors in the low-income, high-asset group should be scaled back. A practical move toward this direction would be revising the eligibility criteria for the Basic Pension to include asset-inclusive pensionable earnings.

- Korea’s old-age poverty rate was 43.4% in 2018, the highest among OECD countries (average 13.1%).

- The old-age poverty rate varies markedly across the five elderly generations, with those born in the 1940s or earlier having the highest rates.

- The recent decrease in the old-age poverty rate and the disparities seen across age cohorts can likely be attributed to the growing proportion of individuals born in the 1950s who tend to be less impoverished.

- Given the nascent state of public transfers in Korea, asset accumulation is the likely channel of retirement planning, meaning income alone does not provide a complete picture of old-age poverty.

- When incorporating both income and assets into the analysis, the old-age poverty rate determined by asset incomization is markedly lower than that derived from income alone but remains elevated.

- Korea’s old-age poverty rate, evaluated using both income and assets, still ranks among the highest in the world.

- When incorporating assets into the analysis, the share of the low-income, low-asset varies significantly across generations, particularly among those born in the 1940s and earlier.

- The difference in levels of old-age poverty across generations can be attributed to the intergenerational income disparity caused by rapid economic growth and the differing maturity levels of retirement security systems for each generation.

- To provide targeted assistance for the most vulnerable, the Basic Pension should be based on asset-adjusted pensionable earnings, reducing the support for seniors in the low-income, high-asset category.

Summary

KDI FOCUS Strategies for Refining the Jeonse Deposit Return Guarantee System
Jeonse, a housing lease model unique to Korea, has long served as a cornerstone of housing security for many families. However, recent significant fluctuations in housing prices have highlighted concerns such as underwater jeonse and reverse jeonse, amplifying calls for reform. A crucial step in addressing these challenges and ensuring the stability of the jeonse system is to expand the scope of the Guarantee for a Return of Jeonse Deposit. In pursuit of this, it is important to accurately reflect risks in return guarantees and to consolidate jeonse guarantees under the unified framework of the Guarantee for a Return of Jeonse Deposit.

- As a uniquely Korean housing rental system, jeonse has enhanced housing stability for ordinary families, but recent fluctuations in the housing market have exposed the risk of tenants not getting their deposits back.

- Approximately 8 million general households in Korea reside in properties owned by others under lease contracts. Of all jeonse and wolse transactions, jeonse takes up nearly half, underscoring its sustained significance for the foreseeable future.

- Jeonse prices started to decline in the latter half of 2022, a trend expected to persist through 2024, accompanied by increasing concerns about reverse jeonse.

- While the jeonse-to-price ratio based on the publicly disclosed value decreases as the property value increases, multi-household units consistently show higher ratios than apartments, implying that the former households are at a greater risk of not recovering jeonse deposits.

- The deposit return guarantee system ensures that if leaseholders fail to meet their return obligations, a guarantor agency will refund the deposit. Presently, guarantees from public guarantor agencies amount to around 170 trillion won.

- Due to a marked rise in guarantee-related incidents from 2022 onwards, the application requirements for the refund guarantee were tightened in May 2023.

- Low-priced houses are mostly excluded from the deposit refund guarantee due to stricter eligibility requirements.

- Regrettably, the jeonse deposit return guarantee system does not adequately shield vulnerable tenants from the risk of not retrieving their deposits, as the guarantee fee rate does not accurately reflect the actual risks involved.

- The Guarantee for a Refund of Jeonse Deposit (HUG) has a lower guarantee fee rate compared to other products, especially against the actual incidence rate of guarantee defaults. Hence, guarantee fee rates should be recalibrated to accurately represent risks, taking into account the actual default rates.

- Since recalibration of guarantee fee rates might increase the rates for lower-priced houses, short-term remedies targeting vulnerable households are necessary.

- As the Guarantee for Jeonse Deposit Loan can drive up jeonse prices by expanding jeonse loans, mitigation is necessary by mandating the purchase of deposit refund guarantees during jeonse loan acquisition process.

- A hybrid guarantee system that utilizes escrow not only ensures the protection of the tenant’s deposit but also allows for the application of LTV regulations, typically exclusive to home mortgages, across all housing types.

- In addressing the inherent weaknesses of the jeonse model, all related guarantee products should be consolidated within one unified framework while adjusting and differentiating guarantee fee rates.

- It is essential to expand the scope and availability of market price data for jeonse properties and strengthen the duties and responsibilities of realtors.

Summary

KDI FOCUS Designing Social Protections for Platform Workers
In the expanding landscape of the platform economy, the rapid rise in the number of platform workers underscores a critical issue: the need for social protection for those not covered by conventional labor laws. Recognizing the transformative impact and significant societal value of the platform economy, it becomes essential to rethink the legal classification of platform workers, moving beyond the traditional "employee" versus "business owner" dichotomy. This paper argues that while platform workers might exhibit similar work patterns, the protection they receive should be proportionate to the labor monopsony power exerted by the platforms they associate with. A harmonized approach that aligns labor and competition policies is crucial to address these challenges.

- Today, platform labor is experiencing a swift expansion both in scope and magnitude.

- While the growth of platform workers presents numerous benefits, recent developments have spotlighted a few notable concerns.

- The discourse surrounding social protection for platform workers has been active, primarily revolving around the question of acknowledging their status as workers.

- The approach needs to be about reconciling the characteristics of the platform economy with genuinely effective protection for its workers.

- By focusing on the labor monopsony inherent to platforms, we can objectively assess the necessity of social protection for platform workers, incorporating discussions on both labor and fair trade policies.

- In this paper, ICT software developer platforms and delivery app platforms are investigated as representative examples of web-based freelance platforms and locally-based labor provision platforms, respectively.

- While the labor supply elasticity offers an empirical estimate of monopsony power, the platform economy necessitates a broader examination of additional factors.

- As for in-house contracts in the ICT developer platform, an empirical analysis shows that its labor monopsony power is on par with that of the typical labor market.

- In the delivery app market, it is imperative to examine the competitive dynamics among platforms from the standpoints of delivery app providers and consumers. Of particular interest is understanding the reasons and frequency of individuals using multiple apps at the same time (multihoming), along with the ease of switching between platforms.

- From the consumer perspective, the entry of newer players and heightened competition among delivery apps have increased multi-homing and reduced market dominance.

- Delivery app riders generally view themselves as wage workers. While they enjoy considerable flexibility in tasks and working hours, they are also subject to significant ex-post oversight through performance evaluations.

- To ensure the effective protection of platform workers while allowing platform-driven innovation, policies must be both flexible and unified under the goal of curbing platforms' monopsony power over labor demand and preventing potential abuses.

Summary

KDI FOCUS Approaches to Enhance the Market Functionality of the K-ETS
South Korea has set ambitious greenhouse gas (GHG) emission reduction targets. However, the country currently confronts a decline in the price of emission permits. This downward trend could obstruct the successful realization of GHG objectives through market mechanisms. The current emissions trading scheme (ETS) restricts banking of excess emission allowances, which has been identified as the main reason of the ongoing price decline. Consequently, this restriction hinders the adequate reflection of updated targets within the emissions trading market. To address this issue and avert potential shocks from a substantial reduction in emission allowance supply during Phase IV, it is necessary to relax the banking restrictions. At the same time, to proactively manage potential price escalations resulting from eased restrictions on permit banking, supplementary measures are required. These measures could include the introduction of explicit market stability mechanisms utilizing allowance reserves and the expansion of allowance supply channels.

- South Korea has ambitious GHG reduction targets, but the demand and prices for emission permits are lagging, both displaying a decline.

- The pricing mechanism of the K-ETS is currently underperforming, consequently compromising market efficiency.

- In its current framework, the K-ETS imposes restrictions on the banking of unused emission permit in order to stimulate the trading market.

- The banking restrictions impede the price function and overall efficiency of the scheme.

- To brace for potential reductions in allowance supply in the future, it is crucial to relax the banking restrictions.

- Relaxing the banking restrictions could result in a short-term surge in demand and prices for emission permits. Therefore, alongside a gradual relaxation of banking restrictions, complementary measures should be implemented.

- By implementing an explicit market stabilization scheme utilizing reserves, emissions prices can be stabilized and market efficiency can be enhanced.

- As for the price tiers in the market stabilization scheme, they should ideally consist of two straightforward tiers with a considerable disparity between them.

- Eligibility for participation in emissions auctions, currently confined to entities subject to auctioned allocation, must be expanded to secure a consistent supply of emission permits.

- Given the long-term nature of decisions to reduce GHG emissions, it’s crucial to improve the predictability of the emissions trading market.