NCAER - NATIONAL DATA INNOVATION CENTRE
Carbon pricing has emerged as a key policy instrument for reducing greenhouse gas (GHG) emissions, with carbon taxes and emissions trading as the main tools. As of June 2024, 89 national and subnational jurisdictions globally have implemented carbon pricing, covering 24% of global GHG emissions. Asian countries in particular are increasingly using emissions trading systems (ETSs) to meet their climate goals. This paper provides a comprehensive review of all national and subnational ETSs in the Asia and Pacific region—namely, in Australia, the People’s Republic of China (PRC), Indonesia, Japan, Kazakhstan, the Republic of Korea (ROK), and New Zealand. We also examine the European Union ETS (EU ETS) as a reference point since it is the oldest ETS for GHGs and the largest by value of trading. Each ETS presents unique characteristics but they share common challenges, such as limited sectoral coverage, weak price signals, and issues related to monitoring and enforcement.
An important contribution of the paper is an assessment framework to evaluate ETSs in the four countries where adequate data is available for such analysis—namely, the PRC, Kazakhstan, the ROK, and New Zealand. The framework comprises eight criteria for evaluating an ETS—contribution to GHG mitigation; cost-effectiveness of mitigation; predictability; robustness; accountability and transparency; administrative cost-effectiveness; fairness; and compatibility with national circumstances and other GHG mitigation policies. These eight criteria are further elaborated into 28 specific indicators against which the paper evaluates the ETSs. Based on this analysis, we recommend policy measures such as clarifying the long-term objectives of ETSs; tightening emissions caps; enhancing administrative capacity for better monitoring, reporting, and verification; and complementary policies to mitigate the distributional impacts of carbon pricing. While ETSs in Asia and the Pacific remain a work in progress, they offer important lessons for countries in the region that are considering or starting to implement emissions trading.