Emissions Trading Systems in Northeast Asia Take Center Stage: Asia Society Policy Institute Report

Northeast Asia and the Next Generation of Carbon Market Cooperation

BANGKOK, December 14, 2017 – The carbon markets of China, Japan, and the Republic of Korea are leading a new wave of climate change mitigation efforts, according to a new Asia Society Policy Institute (ASPI) report.

Northeast Asia is emerging as the epicenter of global carbon market activity. China, Japan, and Korea, which account for over a quarter of global greenhouse gas emissions, are each expanding the use carbon markets to reduce their emissions footprints.

Dr. Jackson Ewing and Minyoung Shin contend in the report, Northeast Asia and the Next Generation of Carbon Market Cooperation, that the characteristics of these countries lend themselves to mutually beneficial market cooperation.

China’s pilot and soon-to-be-launched national emissions trading systems (ETS) have the potential to remake the sector regionally and globally, and substantially impact global climate response efforts. These policy instruments are geared not just toward lowering emissions but also for aiding the country’s transition to cleaner, more balanced growth.

Japan continues to grapple with its energy and climate policy future in the wake of the 2011 Fukushima nuclear crisis, which derailed its nuclear-driven, low-carbon outlook. It increasingly looks toward emissions trading tools at home and abroad to meet its climate change goals, and the more ambitious action it is expected to take moving forward.

Korea has codified international carbon market cooperation as a core strategy for meeting emissions reduction targets, and currently operates Asia’s first mandatory national ETS. With limited emissions reduction pathways at home, Korea is counting on international market mechanisms to reduce its emissions profile.

Calls are amplifying for these countries to develop their systems in concert, with an eye toward future market linkage. Such linkage could pay economic, environmental, and diplomatic dividends, but because of systemic differences in regional markets they will be difficult to realize.

The report argues that it is essential at this juncture to create linkage-ready markets, discuss future aspirations, and form a clear work plan for pursuing cooperation. It offers seven recommendations for doing so during the 2018-2020 period:

  1. Greater regional transparency and cooperation on monitoring, reporting, and verifying emissions reductions, both to build confidence and for future linkage possibilities;
  2. Moving carbon market cooperation up the agenda of the China-Japan-Korea Trilateral Summit as a means for galvanizing critical political discussions;
  3. Building the regional market linkage evidence base in Northeast Asia through targeted, cutting-edge research cooperation – some of which ASPI is currently developing;
  4. Greater regional collaboration on the major international carbon market mechanism, Article 6 of the Paris Agreement, as its rules are being constructed in years to come;
  5. Real-time market linkage simulations on regional trading platforms, an expansion of current ASPI simulation work with its partners at the Environmental Defense Fund;
  6. Piloting subnational market linkages across the region;
  7. Agreeing on a prospective date at which to begin official diplomatic discussions on selectively linking their carbon markets in China, Japan, and Korea – a goal that will help shape the foundation for cooperation while linkage is being built.

ASPI President Kevin Rudd writes in the report’s foreword that with the Trump administration seeking to “extract the United States from global climate commitments, at least at the national level, it is more important than ever for Northeast Asia to lead the next generation of climate change responses.” Northeast Asian systems, currently operating in “separate tracks…would better serve one another and global climate change mitigation by steadily converging.”

ASPI  is working to accelerate and deepen market convergence through its initiative, “Toward a Northeast Asia Carbon Market.” Since 2015, this initiative has regularly brought together experts and practitioners to develop and assess regional pathways to market linkage. This report seeks to extend a foundation for work that will continue for years to come.

Where successful, Rudd argues, this work will “enhance our global efforts to meet the climate challenge.”

About the Asia Society Policy Institute

With a problem-solving mandate, the Asia Society Policy Institute tackles major policy challenges confronting the Asia-Pacific in security, prosperity, sustainability, and the development of common norms and values for the region. The Institute builds on the mission of the Asia Society, which has sought for 60 years to explain the diversity of Asia to the United States and the complexity of the United States to Asia, and to be a bridge in problem-solving within the region and between Asia and the wider world.

Contact Information

Juan Machado