Reports & Research

Regional Cooperative Approaches on Carbon Markets in Asia

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Oct 5, 2016

Article 6 of the Paris Agreement “establishes a mechanism to contribute to the mitigation of greenhouse gas emissions (GHG) and support sustainable development” and the possible use of markets. The article gave new impetus to the development of cooperative approaches between carbon markets. The increasing international dynamics towards carbon pricing and carbon markets are particularly visible in Asia. The increase started before Paris but gained new momentum after the agreement.

About 40 countries worldwide already have established or planned to initiate the carbon emission trading system or carbon tax. China will start its national carbon market in 2017. Japan is pursuing a number of market-based approaches and, in 2010, initiated the Tokyo Cap-and-Trade Program. In January 2015, Korea’s carbon market also started.

From international milestones…

In September 2014, the idea of a Carbon Pricing Leadership Coalition formed from a groundswell of support for carbon pricing at the UN Climate Summit, where 74 countries and more than 1,000 companies expressed support for carbon pricing. The coalition officially launched at COP21 in Paris, with the goal to expand the use of effective carbon pricing policies that can maintain competitiveness, create jobs, encourage innovation, and deliver meaningful emissions reductions. Japan is one of the government partners of this coalition.

Back on May 26, I had the opportunity to take part in a “High-Level Roundtable on Carbon Market Cooperation in Northeast Asia.” That event was organised on the side-lines of the Carbon Expo in Cologne by the Asia Society Policy Institute under the leadership of former Australian Prime Minister Kevin Rudd. I discussed with colleagues future options for linking markets in China, Japan, and South Korea. On September 29, a report was launched in Washington D.C.

…to regional convergence

In the meantime, political and technical delegations from China have been visiting Korea for technical exchanges on emissions trading systems (ETS). Both countries face some similar issues; for example, power sector regulation does not allow pass through of carbon price.

More recently, on September 13, Tsinghua University organised the “1st Forum of Carbon Pricing Mechanism in China, Japan, and Korea” together with the Institute for Global Environmental Strategies from Japan and the Greenhouse Gas Inventory & Research Center of Korea under the guidance of the National Development and Reform Commission,China, the Ministry of the Environment,Japan, and the Ministry of Strategy and Finance,Korea. ICF experts participated in this forum. 

These times are indeed very exciting! My colleagues and I have been directly and actively supporting the regional carbon markets experience to shape up via both the European Union (EU)-China ETS project and the EU-Korea ETS project. Both are European Union funded projects led by ICF.

In addition, we are in close communication with Japanese entities and have contributed to additional technical exchanges with Taiwan where, after nine years of deliberation, the government of Taiwan finally passed “the Greenhouse Gas Reduction and Management Act” in mid-2015. The act sets a long-term target to reduce Taiwan’s GHG emissions to 50% below 2005 levels by 2050 as well as eventually establishing a cap-and-trade system. As another example of the regional dynamics, the Haixia Equity Exchange in Fujian as well as the Fujian’s local Government in  aim to promote potential cooperation on climate change measures and carbon trading with Taiwan. Such cooperation might pave the way for future integration of Taiwan in the China national ETS.  

Also with an eye on potential synergies with Guangdong province and Shenzhen, in particular, Hong Kong is taking the first exploratory steps towards carbon markets “answering” positively to an idea flagged by China‘s Special Climate Change envoy. Hong Kong Productivity Council (HKPC) has been commissioned by the Environment Bureau to study the feasibility of ETS. Fast forward, this answering might well evolve to future linking with China national ETS after 2020–2025 in a similar way that Norway and other non-EU member states become part of the EU ETS.  

Vietnam also has been taking firm steps towards use of carbon pricing to mitigate its GHG emissions and exploring sectoral approaches. The country has been particularly active in the context of the World Bank Partnership for Market Readiness. Indeed, as a “token of appreciation” of the country’s dynamism, the 15th Meeting of the Partnership Assembly (PA15) will be hosted by the government of Vietnam. The assembly is scheduled to take place on October 18–20, 2016, in Hanoi.

For the moment, the centre of gravity of Carbon Markets seems to be moving East before it gets global.