The 2015 Paris Agreement on Climate Change (“PA”) has prompted countries to develop ambitious de-carbonization policies to fulfill the PA’s goal of limiting temperature rise. One of the most popular ways to reduce GHG emissions is to develop and implement carbon pricing policy instruments, either state regulated like the carbon tax or market regulated like the Emission Trading Scheme (“ETS”). To help speed industries’ transition away from emissions-intensive production, Asian economies are increasingly exploring carbon pricing policies though, in particular, establishing nationwide ETS[1]. Recent positive developments include the soft launch of China nationwide ETS in December 2017[2] and South Korea reforms and approval of its ETS’s Phase 2 last July[3]. With both South Korea and China having a nationwide ETS, there is increasing pressure on Japan to enact a policy to impose a carbon market and unit price across its whole economy and not just in two cities as currently.
While the countries’ experiences with ETS will no doubt be helpful for potential linkages between them (e.g. China and Korea), their differences in ETS’s architectures and carbon unit price present significant challenges[4]. The two papers wrote by our colleagues Fabrice Mattei and Li Mi first walks through the design of China’s new nationwide ETS and contrasts it with the ones of Japan and South Korea. Even though China, Japan, and Korea have no near term plans to link their ETSs, we catalog and compare some of the most important three countries’ ETS technical features to highlight potentialities for linkage. Some barriers are particularly relevant in the Northeast Asian context, while others apply more generally[5].
Carbon markets’ impacts on IP
Similar complexity arises from the environmental policy question. Suppose that a small set of developed countries agree to establish a sustainably higher carbon price through a negotiated ETS system with emissions allocations. One outcome would be a greater incentive to develop environmental sound technologies that would likely be deployed only in the higher-priced region where the market returns support it. This would, push older technologies to regions outside the system, possibly raising global emissions overall and carbon leakage. Policymakers in the developing world or countries without ETS mechanisms may attempt to counter this situation with measures to encourage acquisition of newer technologies, perhaps resorting to limitations on exclusive IPRs.
We have gone into more detail about the schemes in China, Japan and South Korea in the additional articles below:
Is China taking the lead in the fight against Climate Change?
[1] BARAN DODA Barriers To Linking Carbon Markets In Northeast Asia, ASIA SOCIETY POLICY INSTITUTE CARBON MARKET COOPERATION IN NORTHEAST ASIA, June 2018. Joojin Kim Key Issues for the Korean Emissions Trading Scheme and their Implications for International Linkage Discussions in Northeast Asia, International Cooperation In East Asia To Address Climate Change, Harvard Project on Climate Agreements February 2018.
[2] Shaozhou Qi & Si Cheng (2018): China’s National Emissions Trading Scheme:
Integrating Cap, Coverage And Allocation, Climate Policy, Available At Https://Doi.Org/10.1080/14693062.2017.1415198
[3] South Korea’s Cabinet Approves ETS Allocation Plan, 2030 GHG Roadmap, Https://Carbon-Pulse.Com/55985/
[4] Yu LIU, Shenghao FENG, Songfeng CAI, Yaxiong ZHANG, Xiang ZHOU, Yanbin CHEN, Zhanming CHEN Carbon Emission Trading System Of China: A Linked Market Vs. Separated Markets, Earth Sci. 2013, 7(4): 465–479.
William. A. Pizer and Xiliang Zhang, China’s New National Carbon Market Nicholas Institute for Environmental Policy Solutions, January 2018.
[5] Toshi H. Arimura, The Potential of Carbon Market Linkage between Japan and China
Asia Society Policy Institute Carbon Market Cooperation in Northeast Asia, , June 2018.