The Global Green Growth Institute (GGGI), the Institute for Energy Economics and Financial Analysis (IEEFA) and the Southeast Asia Energy Transition Partnership (UNOPS-ETP) have jointly developed this policy paper with the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The paper draws on reviews of China, Japan, the Republic of Korea, Indonesia, Thailand, the Philippines and Vietnam, and it studies the history of carbon policy development and the likely future market development based on current policy trajectories.
The paper sets out shared solutions for East and Southeast Asian economies and offers policies suited to the region’s political economy, including higher carbon prices and flexible cap design. In addition, it analyses the effects of the European Union (EU) Carbon Border Adjustment Mechanism (CBAM) and explores how governments can build demand for high-integrity carbon credits. Country findings were tested through workshops and consultations with government officials, regulators, exchange and registry operators, utilities, industry, financial institutions, developers and researchers. Responses and feedback were used to shape final recommendations and ground them in the national context. Further, research and recommendations were shaped by the review of GGGI’s carbon finance experts and the Expert Working Group (EWG) – an international group of leading experts on carbon markets and economics convened by GGGI to share best practice from across the globe. EWG members attended consultation workshops and provided direct review of the policy paper chapters. Finally, findings and recommendations were shaped by dialogues amongst high-level policymakers, industry leaders and sector practitioners at the World Economic Forum Decarbonization and Circularity for Industrial Growth and Competitiveness Dialogue, the 2026 Asia Carbon Pricing Forum and the 16th Asia-Pacific Carbon Markets Roundtable, which were supported by GGGI. The policy paper’s findings will inform the Diagnostic and Roadmap reports in 2027.
Emissions trading system design and implementation
Carbon prices, emissions coverage and institutional capacity influence how emissions trading systems (ETS) function. In several of the analyzed Asian systems, low prices, generous free allocation and allowance oversupply create constraints. These experiences provide a basis for examining how allocation rules, cap design, market participation and governance affect implementation. In addition, the implications for investment and power-sector decarbonization are also considered, recognizing that outcomes depend on market conditions and complementary policies.
Insights from the experiences of China, Japan and Republic of Korea
Southeast Asian economies face distinct implementation challenges as they establish compliance mechanisms. Early regional experience illustrates the difficulties of developing trading liquidity, transparent pricing and robust governance arrangements after launch. Across the region, measurement, reporting and verification (MRV), institutional coordination and credible compliance systems remain critical areas of market development.
The experience of China, Japan and the Republic of Korea (CJK) can inform the choice of emission trading system features, while taking account of the differences in economic structures, regulatory capacity and policy priorities.