From Subsidies to Contracts
Korea's proposed Carbon Neutral Industry Act would change the grammar of industrial decarbonization support. Until now, government assistance has taken the form of fixed-rate subsidies covering a share of equipment costs. The instruments this bill is designed to enable — Carbon Contracts for Difference (CCfD) and production tax credits — are closer to long-term, performance-linked contracts.
A CCfD covers the gap between the additional cost of switching to a low-carbon process and the market price of emission allowances, with the government making up the difference over an extended contract period. If abatement costs KRW 80,000 per tCO2e and allowances trade at KRW 15,000, the government pays the KRW 65,000 spread. When allowance prices rise, the fiscal burden automatically falls — and the company is insulated from carbon price volatility.
The model is already operating abroad. Germany ran its first Klimaschutzverträge auction in 2024, and the Netherlands' SDE++ scheme allocates support through competitive bidding based on cost per tonne abated. Korea's discussed roadmap runs large-scale equipment replacement support in 2026, followed by consideration of full CCfD adoption from 2027.
What 'Auction-Based' Support Really Means
The biggest change is the evaluation criterion itself.
In other words, winning support no longer depends on arguing that you need the equipment. It depends on proving what it costs you to cut one tonne. And most of that proof comes from baseline data.
Small and mid-sized manufacturers with carbon-intensive processes — boilers, drying ovens, melting furnaces, heat treatment lines — tend to show low abatement costs and are well positioned to compete. But without data, bidding is simply not possible. Even starting measurement today, a full 12-month dataset will not be complete until well into next year.
Large–SME Carbon Partnerships and Supply Chain Reduction
Alongside the auction track, the government is advancing partnership structures in which a large buyer funds supplier abatement and shares the resulting performance. The rationale is straightforward: a substantial share of a large company's footprint sits in Scope 3, and those emissions cannot be cut anywhere except inside supplier factories.
Suppliers joining such a partnership should settle two points in writing before signing.
Without an explicit attribution clause, suppliers can end up carrying the capital expenditure while holding no verifiable reduction record of their own.
One more variable to watch is the allowance price. Expanded paid allocation in the fourth K-ETS planning period (2026–2030) and the ongoing debate over linking allocation to the 2035 NDC floor both point upward. Under a CCfD, a higher allowance price reduces the government's payout — but it also shortens the payback period on the abatement investment itself.
Which Track Fits Your Company?
Track A — Auction-based equipment replacement and CCfD
Track B — Partnership and conventional equipment investment support
The two tracks are not mutually exclusive. Building the data infrastructure for Track B produces exactly the evidence base a Track A bid requires.
A Six-Month Preparation Plan
Talk to KITIM
Auction-based support and CCfD are designed to select companies that can prove numbers, not companies that write good applications. The Korea Institute of Technology Innovation Management (KITIM) supports the full process: building process-level baselines and MRV systems, selecting abatement technologies and designing bid pricing, and preparing applications and verification documentation. The window before these rules take effect is itself the competitive advantage — start by having your company assessed for the track that fits. Please use the consultation request form on the KITIM website to get in touch.