Pursuant to the amendment to the Government Organization Act, the new administration established the Ministry of Climate, Energy and Environment (the “MCEE”) as a new government agency on October 1, 2025. This reorganization holds significant meaning as an institutional turning point that moves beyond a simple change in administrative structure, enabling a single ministry to manage national tasks (i.e., climate crisis response, energy transition and environmental preservation) in a consistent manner.
Climate, energy and environment-related matters were previously handled by the former Ministry of Trade, Industry and Energy (the “MOTIE”) as well as the Ministry of Environment (the “MOE”), and each agency had pursued relevant policies rather independently, thereby raising concerns regarding the lack of comprehensiveness and consistency in their policy implementation. The launch of the MCEE is significant in that it overcomes such structural difficulties and establishes a systematic foundation that designs as well as pursues national strategic goals within a single framework. In particular, as it involves complex interests and requires consistency in diverse laws and systems to achieve carbon neutrality goals, expand renewable energy and establish a circular economy, the need for a specialized administrative organization dedicated to these tasks had been consistently raised. We understand that this reorganization is an effort to materialize a legal and institutional improvement that will enable climate, energy and environment policies to be implemented in a more streamlined manner.
The administration has been promptly implementing administrative steps, such as a reform of the internal administrative structure and relocation of offices within the Sejong Government Complex to ensure that the newly established ministry can swiftly establish its functions and become stabilized. The newly launched MCEE will integrally manage climate, energy and environment policies, and accordingly, is expected to bring about significant changes to the business environment. More specific details are detailed below:
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Climate and Environment
In the domain of climate and environment policy, the MCEE will (i) heighten the national greenhouse gas mitigation targets and reform the Emissions Trading System (the “ETS”), (ii) reinforce climate as well as energy functions and expand climate change adaptation capacities, and (iii) strengthen environmental management and the circular economy.
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Heightening Greenhouse Gas Mitigation Targets and Reforming ETS
The MCEE is expected to impose a higher level of mitigation obligations across all sectors, including power generation, industry, transport, buildings, etc., in the process of setting the 2035 Nationally Determined Contribution (“2035 NDC”). This is perceived as a strong policy signal to decarbonize the domestic industrial structure, as each sector will be expected to make more demanding mitigation efforts than in the past. Linked with such trends, a structural reform of the Korea Emissions Trading System (the “K-ETS”) is inevitable. Moreover, further discussions are expected to take place on the (i) expansion of the paid allocation ratio for emission allowances, (ii) broadening of the base for market participants, (iii) introduction of financial products, as well as (iv) opening of a futures market. These discussions will be realized through institutional improvements and various statutory plans, notably the 2035 NDC and the Phase 4 National Emission Permit Allocation Plan.
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Reinforcing Climate as Well as Energy Functions and Expanding Climate Change Adaptation Capacities
By unifying the authority to coordinate climate, energy and environment policies, the MCEE may see some departments from the former MOE reorganized around functions centered on decarbonization, such as support for green transition, green industries as well as green technology and climate response. This can be understood as the government’s active effort to support the industrial and technological foundation required for decarbonization. At the same time, an emphasis is expected to be placed not only on greenhouse gas mitigation, but also on climate change adaptation in the process of pursuing climate policies. To this end, full-scale measures are expected to be pursued. These include the enhancement of climate resilience of national infrastructure (e.g., dams, rivers, railways and ports), upgrading climate change monitoring and forecasting systems, and providing customized support for climate-vulnerable industries as well as groups.
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Strengthening Environmental Management and Circular Economy
A clearer policy direction will also be indicated in domains of traditional environmental management. The main focus is expected to be on (i) restoring the aquatic ecosystem through the phased opening and re-naturalization of the “Four Major River” weirs, (ii) improving air quality through ultra-fine dust concentration regulations, and (iii) upgrading the chemical substance safety management and accident prevention system. Furthermore, with the promotion of establishing a circular economy system, including the creation of a full-cycle de-plasticization roadmap and the enhancement of resource recycling rates, environmental regulation is expected to act as an engine driving the growth of new industries and markets.
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Accelerating Transition to Renewable Energy and Establishing Sustainability
The MCEE will likely pursue a balanced approach that simultaneously considers sustainability factors, such as environmental protection and public acceptance, while moving toward the phased retirement of coal-fired power plants and a significant expansion of renewable energy generation. For offshore wind power, the strategy involves creating large-scale wind farm complexes along the southwest coast through a public-led bidding process. It will also likely accelerate the construction of the West Coast High-Voltage Direct Current (“HVDC”) transmission system to directly supply clean electricity to industrial complexes in the Seoul Metropolitan Area.
It is expected that models for coexistence with local residents, such as the Sunshine Pension and Wind Pension, will be institutionalized when pursuing renewable energy projects. Measures will be implemented to boost local acceptance and business predictability: (i) incentives for resident-participatory renewable energy projects will be expanded, (ii) the system for sharing power generation profits will be made mandatory, and (iii) government-level standardization of profit-sharing guidelines will be pursued. Simultaneously, the environmental management system for energy projects across their entire lifecycle is expected to be systematized. This includes (i) strengthening environmental reviews from the initial site selection phase, (ii) mandating site restoration after the project’s conclusion, and (iii) enhancing the Extended Producer Responsibility (“EPR”) system for solar panel waste.
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Promoting Energy Superhighway and Distribution of Energy
The MCEE is expected to focus on the Energy Superhighway and the vitalization of distributed energy as key policies, while simultaneously pursuing power grid expansion and electricity market structural reform. The primary objective is the nationwide construction of an Energy Superhighway to connect renewable energy generation sources with demand centers. This vital project is projected to alleviate power grid saturation issues and institutionally promote the use of distributed energy. To effectively manage these tasks, the MCEE is considering the creation and implementation of new internal organizations, such as a Director-General for Power Grid Policy, to specialize in this work. Discussions are focusing on critical components, such as the (i) expansion of HVDC transmission networks, (ii) alleviation of grid congestion, and (iii) stable integration of large-scale renewable energy power.
It is also anticipated that the MCEE will enhance the efficiency and stability of the power grid through the expansion of Energy Storage Systems (“ESS”) and the introduction of artificial intelligence (“AI”) and information and communications technology (“ICT”)-based smart grids. This approach goes beyond a mere expansion of grid infrastructure and is expected to spark fundamental innovations, potentially leading to: (i) structural innovation in the operation of the electricity market, (ii) the expansion of distributed power sources, and (iii) the establishment of a consumer-participatory market model.
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Securing Stable Funding for Energy Transition Through Integrated Fiscal Management
The transfer of the Climate Response Fund from the Ministry of Economy and Finance has been confirmed. If the contemplated transfer of the Energy and Resources Special Account also occurs, the operation of the Climate Response Fund, the Energy and Resources Special Account, and the Special Accounts for Environmental Improvement can occur in an integrated manner. This is expected to enable efficient fund allocation in the process of energy transition, which requires massive financial resources, prevent redundant investment and create synergy among climate, energy and environment policies.
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As climate, energy and environment policies are to be pursued by a single ministry, a comprehensive overhaul will be implemented to ensure the coherence (or alignment) of related laws and systems. This is likely to affect laws such as the Electric Utility Act, the Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy, and the Hydrogen Economy Promotion and Hydrogen Safety Management Act as well as major statutory plans such as the Basic Plan on Electricity Supply and Demand and the Long-Term Transmission and Substation Facilities Plan.
Furthermore, the reorganization of licensing authority may lead to application of new approval systems and new environmental standards in connection with, for example, Environmental Impact Assessment (“EIA”), securing public acceptance and grid construction, potentially causing procedural confusion in the short term. Therefore, businesses need to proactively review the risks associated with upcoming institutional reforms and changes in licensing procedures.
As environmental standards will be weighed more heavily in energy policies, which have historically centered on supply stability and economic efficiency, the key challenge for the MCEE will be to set the priority as well as to maintain consistency in these three criteria in the execution of future policies and projects, as such challenges can directly influence companies’ participation in renewable energy projects and investment decisions. Furthermore, it is also cited as a pressing challenge to pursue environmental protection as well as regulatory duties in a balanced and harmonious way with the task of fostering the energy industry.
Particularly, in the energy sector, further discussion is expected on the expansion of public-led bidding for large-scale renewable energy development, such as offshore wind, participation of corporate consortium, as well as the introduction of resident-participation models, creation of Renewable Electricity 100% (“RE100”) industrial complexes, and reformation of the Power Purchase Agreement (“PPA”) system. From the corporate perspective, this will be a new business opportunity and a chance to comprehensively review energy procurement strategies. In addition, securing consistency with international norms such as the RE100 and EU’s Carbon Border Adjustment Mechanism (“CBAM”) can have a significant impact on domestic companies’ external credibility and investment activities.
Changes following the launch of the MCEE will occur in phases. This year, organizational restructuring-including the transfer of organization, personnel and laws/regulations-will take place, and from next year, full-scale policy establishment and execution are expected to begin in earnest. Businesses will need to follow these changes, proactively manage regulatory risks and actively seize new business opportunities that will emerge during the process of expanding renewable energy and achieving carbon neutrality.
[Korean Version]
