16 Aug 2025 Is Asia becoming the new carbon market leader?

Posted at 18:14h in Climate change, Emission Trading Scheme, ESG by

Asia contributes over 50% of global CO₂ emissions, according to the International Energy Agency’s (IEA) CO₂ Emissions in 2023 report, with China responsible for around 28%, as reported by East Asia Forum (2025). According to the IEA report, Global CO₂ emissions in 2023 totaled approximately 37.4 Gt, placing Asia’s output at nearly 18.7 Gt.

India has overtaken the EU as the third-largest global emitter of greenhouse gases (GHGs) as of 2022, based on figures from the Global Carbon Project and EDGAR 2023. The top five global emitters, in order, are now: China, United States, India, the EU, and Russia.

This shift is significant: India’s continued reliance on coal-fired power, rising industrial output, and population growth have driven a rapid increase in GHG emissions. According to EDGAR, India’s emissions reached approximately 2.9 Gt CO₂ in 2023, compared to the EU’s 2.7 Gt CO₂. This change reflects the increasing centrality of emerging economies in global emissions trends.

Based on IEA & EDGAR 2023 data, top 10 Asian emitters are:

  1. China – 11,700 Mt CO₂
  2. India – 2,900 Mt CO₂
  3. Japan – 1,020 Mt CO₂
  4. Indonesia – 650 Mt CO₂
  5. Iran – 720 Mt CO₂
  6. South Korea – 660 Mt CO₂
  7. Saudi Arabia – 610 Mt CO₂
  8. Vietnam – 380 Mt CO₂
  9. Thailand – 340 Mt CO₂
  10. Pakistan – 250 Mt CO₂

Fig. 1 – Top 10 CO2 emitters in Asia – Source: IEA & EDGAR 2023 data

 

This composition highlights Asia’s central role in the global climate trajectory, emphasizing the importance of scalable carbon pricing mechanisms within the region.

Carbon Market Developments in Asia (2024–2025)

In 2024–2025, several Asian countries accelerated carbon market reforms as part of their broader climate governance agendas:

  • China: As of March 2025, the Ministry of Ecology and Environment announced ETS expansion to include steel, cement, and aluminum. With prices ranging between ¥70–80/tCO₂ (≈ €8.70–10.00; US$9.60–11.00), the market remains relatively low-cost but is maturing rapidly. Draft rules now include penalties for non-compliance and discuss auctioning mechanisms.

Sources: https://www.reuters.com/sustainability/china-expand-carbon-trading-market-steel-cement-aluminium-2025-03-26/

https://www.reuters.com/world/china/china-solicits-public-feedback-guidelines-steel-sector-greenhouse-gas-emissions-2024-12-06/

  • Vietnam: Launched its pilot ETS in June 2025, covering 50% of national emissions. A trading platform is expected by 2026 via the Ho Chi Minh Stock Exchange. The ETS is shaped in part by the EU CBAM[1], which influences Vietnam’s approach to carbon pricing for exported goods. Specifically, the EU CBAM set to impose financial penalties on carbon-intensive imports starting in 2026, has motivated Vietnam to establish transparent emissions tracking and pricing systems to safeguard its exports of cement, steel, and electricity.

Sources: https://www.reuters.com/sustainability/climate-energy/vietnam-launches-first-phase-emissions-trading-scheme-2025-06-11/

  • Japan: Through its Green Transformation (GX) League, Japan began voluntary trading in 2023 and is transitioning to a mandatory ETS by 2026. It features a proposed carbon price corridor of ¥2,000–13,000/tCO₂(≈ €12.4–81.0; US$13.8–89.7), promoting predictable pricing and market confidence. The wide range reflects pricing floors for early certainty and ceilings to avoid shocks. The Ministry of Economy, Trade and Industry of Japan (METI) has stated these are proposed values, not current market prices.

Sources: https://www.meti.go.jp/english/press/2024/0327_003.html

  • South Korea: Operating since 2015, the K-ETS covers 684 companies. Prices average ₩42,000/tCO₂ (≈ €28;US$31). According to the recent policy reforms, the government plans to increase auctioning and has held early-stage discussions with the EU regarding CBAM alignment. These discussions have focused on how South Korea’s ETS could demonstrate comparability with the EU ETS in terms of coverage, pricing transparency, and emissions monitoring. Specifically, the EU has outlined expectations for trading partners to adopt robust MRV (Monitoring, Reporting, and Verification) systems and gradually reduce the share of free allowances, two areas South Korea is already addressing.

Sources: https://icapcarbonaction.com/es/ets_system/47

https://icapcarbonaction.com/system/files/ets_pdfs/icap-etsmap-factsheet-47.pdf 

  • India: The Carbon Credit Trading Scheme (CCTS) is in development, with a national market launch expected by 2026. It initially targets power, steel, and cement sectors. Estimated prices are projected at INR 500–800/tCO₂ (≈ €6–9; US$7–10).

Sources: https://ieefa.org/resources/march-2030-clearing-bottlenecks
https://ieefa.org/sites/default/files/2023-07/IEEFA%20-%20Comments%20to%20Ministry%20of%20Power%20on%20the%20draft%20Carbon%20Credit%20Trading%20Scheme%20%28CCTS%29.pdf

  • Singapore: Singapore maintains Asia’s only carbon tax, currently S$25/tCO₂e (≈ €17), with plans to rise to S$45 by 2026 and up to S$80 by 2030. Emitters may offset up to 5% of liabilities using high-integrity international carbon credits (ICCs).

Sources: https://www.nea.gov.sg/media/news/news/index/singapore-publishes-eligibility-list-for-international-carbon-credits-under-the-carbon-tax-regime
https://www.nea.gov.sg/docs/default-source/default-document-library/icc-guidance-document—surrendering-of-icc-for-payment-of-carbon-tax-under-cpa-final-_.pdf

ETS and Carbon Tax Design Comparison

The table below compares ETS structures, sectoral coverage, and carbon prices across regions, including updated values and currency conversions.

Fig. 2 – World ETS and carbon prices – Source: SVI analysis of IEA, World Bank Carbon Pricing Dashboard, Carbon Pulse, national ETS registries data

 

From the comparison above, it is clear that the EU ETS remains the most established and advanced carbon pricing system globally, having launched in 2005 and progressively expanded in coverage, auctioning share, and regulatory rigor. It continues to serve as the benchmark for other jurisdictions. While the UK ETS initially struggled post-Brexit, recent re-linkage discussions with the EU have renewed market confidence. In Asia, a notable trend is the shift from voluntary to compliance-based systems (as seen in Japan and Singapore), and an increasing use of carbon pricing instruments to align with EU CBAM requirements. Despite some schemes still being in early or pilot stages, the region is clearly converging on global standards, with rising prices, broader sectoral coverage, and growing use of auctioning. This reflects a broader pivot from fragmented efforts to coordinated, rules-based carbon market development.

UK ETS Context

  • According to Institute for Energy Economics and Financial Analysis (2024), the UK lost £29 billion in revenuedue to low carbon prices post-Brexit, averaging £38/t.
  • However, as Reuters reported in May 2025, prices rebounded to £60/t following talks to re-link with the EU ETS, showing the market’s response to integration.

 

Article 6.2 of the Paris Agreement[2] and Bilateral Carbon Credit Trading

Asia is not only developing domestic carbon pricing systems, but is also actively engaging in international carbon markets, particularly through the cooperative mechanisms enabled under Article 6.2 of the Paris Agreement. These mechanisms are becoming a key feature of Asia’s climate diplomacy and carbon finance strategy, allowing countries to both access climate finance and position themselves in emerging international offset markets.

Several countries in the region are already demonstrating leadership in this area:

  • Singapore has signed bilateral carbon trading agreements under Article 6.2 with Vietnam, Ghana, PNG, Bhutan, and Peru, positioning itself as a regional carbon credit hub.
  • Japan’s Joint Crediting Mechanism (JCM) is advancing, with the first ITMO transfer from Indonesia completed in early 2025.
  • Vietnam is piloting Article 6.2-aligned projects across energy and land-use sectors, aligning with its ETS timeline.

These arrangements reflect a shift toward high-integrity offset markets and bolster Asia’s growing influence in global carbon finance.

 

Outlook: Diverging Trends and Strategic Alignments

While the EU backtracks on some climate targets and the US remains fragmented on climate policy at the State level, Asia’s carbon architecture is expanding. As Politico (2024) reports, several EU’s Green Deal pillars have been delayed. In the US, while some states continue operating subnational systems like California’s cap-and-trade and RGGI, federal climate action has largely stalled. Under the current administration, national-level policy implementation, including IRA climate provisions, has slowed, and recent tariffs on clean energy imports have added further uncertainty. In the meantime, although several Asian countries have delayed their net-zero timelines (e.g., China: 2060, India: 2070), the mechanisms they are putting in place now, such as credible ETS frameworks, regional credit registries, and bilateral offset pipelines, are foundational for long-term transformation.

 

Notes:

[1] The EU Carbon Border Adjustment Mechanism (CBAM) is a trade-linked climate policy that places a carbon price on certain imports, such as steel, cement, aluminium, electricity, and fertilizers, when they originate from countries without equivalent carbon pricing systems. Its objective is twofold: to prevent carbon leakage (relocation of production to lower-regulation regions) and to ensure a level playing field for EU industries subject to the EU Emissions Trading System (ETS). CBAM entered a transitional phase in 2023, requiring emissions reporting without financial obligations. From 2026, importers will begin purchasing CBAM certificates that reflect the carbon intensity of their goods. This mechanism has major global implications, as it pushes exporting countries, including many in Asia, to develop their own carbon pricing frameworks or risk reduced trade competitiveness.

[2] The Paris Agreement, adopted in 2015, is an international climate treaty under the UNFCCC framework aiming to limit global warming to well below 2°C, with efforts toward 1.5°C. Article 6.2 of the Agreement enables voluntary cooperation between countries through the transfer of emissions reductions, known as Internationally Transferred Mitigation Outcomes (ITMOs). These transfers can be used toward countries’ nationally determined contributions (NDCs), provided they follow strict rules on environmental integrity, transparency, and “corresponding adjustments” to prevent double counting. This mechanism facilitates international carbon credit trading and is increasingly used in bilateral agreements between climate-active countries.

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