Asia, home to nearly half of the world’s carbon emissions, is emerging as a driving force in the global carbon trading landscape. Despite covering only a fraction of the region’s total emissions, recent developments in countries like Indonesia, Japan, China, India, and others indicate a growing ambition to address climate change through robust carbon trading mechanisms. We will expand on the progress, challenges, and prospects of carbon trading in Asia, highlighting key initiatives by various nations.
Asia’s Momentum in Carbon Trading:
With an unparalleled pace of launching, planning, and developing new systems, Asia has earned the reputation of being the fastest moving region in the world in terms of carbon trading. Countries like Indonesia, Japan, China, and India are taking significant steps to establish their carbon trading exchanges or advance their existing schemes. By doing so, they aim to create effective frameworks that incentivize companies to decarbonize and ultimately contribute to achieving their climate goals.
The Current State of Asian Carbon Markets:
While Asian carbon markets have doubled in size since 2020, they currently cover a mere 14% of the region’s total emissions. The low carbon prices prevalent in these markets have failed to provide robust incentives for companies to actively decarbonize. Governments have cautiously targeted specific sectors, fearing a negative impact on economic growth. These measures, though necessary to ensure smooth system implementation, have limited the effectiveness of carbon trading in addressing the broader climate challenge.
Country Initiatives and Progress:
1. Australia:
Australia’s revised Safeguard Mechanism, implemented in July, sets a path for the country’s largest industrial polluters to achieve net-zero emissions by mid-century. This scheme encompasses over 200 facilities responsible for almost a third of the nation’s emissions.
2. China:
China, as the world’s biggest polluter, is expanding its national emissions trading scheme from power generation to other polluting sectors, aiming to cover 70% of total emissions by the end of the decade. This expansion is expected to take effect as early as next year, reflecting China’s commitment to combat climate change.
3. India:
India is moving towards the phased introduction of two mechanisms: a compliance market characterized by a cap-and-trade system for carbon-intensive sectors, and a voluntary market that is still in the design phase. The compliance market is projected to cover 15% of India’s emissions by 2030, primarily targeting sectors such as steel, aluminum, and cement.
4. Indonesia:
The recently launched Indonesia Carbon Exchange facilitates the trading of voluntary offsets and compliance allowances. With plans to roll out a compliance market in three phases by the end of the decade, Indonesia is also drafting crucial legislation for a long-awaited carbon tax.
5. Japan:
Japan’s voluntary carbon trading scheme, operated by the Tokyo Stock Exchange, offers participants the opportunity to trade verified emissions reduction plans known as J-Credits. This initiative aligns with Japan’s 10-year carbon pricing plan, which aims to establish a national compliance system.
Other Asian Nations:
Malaysia, New Zealand, Singapore, South Korea, and Taiwan are making strides in their own unique ways, including feasibility studies, the introduction of carbon fees, an expanded emissions trading system, and the implementation of carbon taxes. These diverse approaches contribute to the broader Asian landscape of carbon trading as the region continues to tackle emissions reduction.
Asia’s accelerating momentum in carbon trading holds promise for combatting climate change. While Asian carbon markets currently cover only a fraction of the region’s emissions, the strong commitment and active initiatives by countries like Indonesia, Japan, China, India, and others can reshape the landscape of carbon trading. As these markets mature and system understanding deepens, it is expected that prices will increase and incentives for businesses to decarbonize will strengthen. With collective efforts and effective policies, Asia can become a leading force in achieving global emissions reduction targets and mitigating the impact of climate change.
Market Capital Research 