Insights

Era of Carbon Regulation 2.0: We Must Respond with Data, Not General Ledgers

ㅣ Karl Yang, Founder & Executive Director of KoSIF ㅣ

The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) is sharpening its blade of "regulatory refinement" ahead of the official imposition of costs in 2026.

The core of the impact assessment and legislative package disclosed by the European Commission in the second half of 2025 is that it is no longer enough to simply claim that carbon emissions have been reduced. Instead, the EU will now scrutinize whether those reductions are "actual" and "verifiable" down to the specific hour and location. This completely disrupts the conventional grammar of carbon accounting, which has previously relied on annual matching or ledger-based offsets.

The policy goal of CBAM is to apply the same carbon pricing used within the EU to non-EU companies, thereby preventing what is known as "Carbon Leakage." However, as regulations tighten, companies' evasion strategies have become increasingly sophisticated. A prime example of this is "Resource Shuffling."

Instead of decarbonizing their entire production process, companies use paperwork to allocate existing clean electricity—such as hydropower or nuclear energy—exclusively to goods bound for EU export. Meanwhile, they use high-carbon electricity to manufacture products destined for other markets. In this scenario, the company's exported goods appear "low-carbon" on paper, but the total global carbon emissions do not decrease at all. The reason the EU plans to significantly tighten electricity accounting standards in the policy package released at the end of 2025 is to completely block this type of "ledger-based laundering."

This is where the concept of "24/7 Carbon-Free Energy (CFE)" comes into play. Moving away from the traditional "annual matching" approach—where a company purchases enough renewable energy to equal the total amount it consumed over a year—24/7 CFE asks whether carbon-free energy sources were actually operating at the exact time (temporal correlation) and at the exact location (geographical correlation) the electricity was consumed.

The EU has already set a precedent by mandating Hourly Matching starting in 2030 through its Renewable Fuels of Non-Biological Origin (RFNBO) regulations. Now, this logic is expanding to the calculation of electricity consumption for CBAM target items, such as steel and aluminum.

As regulations begin to demand that companies "prove the time and location," granular certificate standards like "EnergyTag" are already emerging in the market as essential infrastructure for regulatory compliance. This is also why electricity markets in the United States and Europe are swiftly commercializing the trading of Timestamped Energy Attribute Certificates (Timestamped EAC).

The problem lies with South Korea. Korean companies are currently facing two massive barriers. The first is the risk of a double burden caused by a "mismatch in accounting frameworks." South Korea currently operates its Emissions Trading Scheme (K-ETS) based on national average emission factors. If our domestic system fails to support the "hourly/procurement-based" calculation method required by the EU, Korean companies could find themselves in a situation where they pay carbon costs domestically but fail to have those achievements recognized in the EU market, forcing them to pay carbon taxes yet again.

The second barrier is the "data gap." While large conglomerates can invest vast sums of money to build hourly monitoring systems, small and medium-sized enterprises (SMEs) located further down the supply chain find it difficult to properly manage even real-time electricity usage data. In the era of carbon regulation, an "unverifiable reduction" translates directly into a "cost" and means "exporting is impossible."

Carbon competitiveness has now moved beyond a game of "quantity"—simply securing large amounts of renewable energy—to a game of "architecture," focusing on how that energy is verified and connected. We do not have much time left.

First, the government and power authorities must establish a "data infrastructure" based on Advanced Metering Infrastructure (AMI) data, enabling real-time communication between issuing organizations and private companies. Furthermore, the K-ETS guidelines must be reorganized to align with global standards, laying the legal foundation to ensure that the value of carbon-free energy procured by companies is fully recognized. Moving forward, Korea must proactively design a "geographical correlation" model that reflects the reality of domestic transmission constraints while remaining internationally acceptable.

24/7 Carbon-Free Energy is no longer a discourse for the distant future or an ESG campaign reserved for a few leading companies. The era of "verifiable electricity" by the hour and by the region has arrived. If we fail to ride this massive wave of refinement, our industrial competitiveness will remain as nothing more than numbers on a ledger. Carbon regulation is no longer asking "how much," but "how."