Comparison of China, Japan , and Korean ETS
And Northeast Asian Carbon Market In the Future2017.8.29

Jeong-in Kim (Chung-Ang University)
Prof. Dept of Econ. & Head, Econ. of Climate Change

Unauthorized copying is prohibited without the author’s permission

1

Table of Contents
1. Status of World Carbon Emissions and Carbon Price
2. Trend of Foreign ETS
3. Status and Problems of China’s ETS
4. Status and Problems of Korea’s ETS

5. Status and Problems of Japan’s ETS
6. Action Plans Establishing NE Asian Carbon Market2

1. Status of World Carbon Emissions and Carbon Price China 8.6 Gt(15%), U.S.A. 6,2 Gt(4%), EU 3.2 Gt(60%) India 2 Gt (15%)
 Russia 1.7 Gt(21%), Japan 1.2 Gt (6%) , (%) CO2 emissions covered by ETS and CO2 prices in %Carbon emission level by region, 2014

Source; IEA, “World Energy Outlook,” 2015

Level and its Share of CO2 Emissions from Fuel Combustion by Each Country(Unit：1 million tons of CO2)

Year
1990

1995

2000

World

20,974

21,841

23,756OECD
1 China
2 U.S.A.
3 India

11,14011,665

2,278

4Share(%)

20092010

2011

2012

27,49428,96630,482

31,34531,73451

100.0

12,61513,005

11,992

12,491

12,326

12,146

9

38.3

3,058

3,350

5,444

6,839

7,295

8,000

8,251

262

26.0

4,869

5,139

5,698

5,774

5,182

5,427

5,288

5,074

4

16.0

580

772

978

1,191

1,675

1,749

1,829

1,954

237

6.2

Russia

2,179

1,559

1,497

1,512

1,478

1,580

1,653

1,659

-24

5.2

5 Japan
6 Germany
7 Korea

1,057

1,137

1,171

1,208

1,085

1,134

1,183

1,223

16

3.9

950

868

825

800

730

770

742

755

-20

2.4

233

349

406

461506

558

585

587

153

1.98 Canada

428

461

529

549

520

531

537

534

25

1.79179

251

315

422

515

508

526

532

198

1.7

151

193

236

299

379

415

430

459

204

1.4

RegionIranSaudi

10 Arabia

2005

GrowthRate(Comparedwith ’90,%)※ Ocean & aviation bunkering is included in the “World” category※ Source：CO2 Emissions from Fuel Combustion(IEA, 2014), National GHG Inventory Report (2014)4 World CO2 emission has increased 50% over the past 25 years
 Average of 1.2% has increased during 2010s
 2.3% has increased annually 2000-14, and especially the most in coal power sector
 World; 4 times, China; 6 times, Japan; 2.5 times, India; 4 times more during the 19802014 compared to the 1950-1979 level5Comparing Carbon Price, 2016.5

Source; Ecofys, “State and Trends of Carbon Pricing,” 2016.5

6

2. Trend of Foreign ETS

Source : Greenhouse Gas Inventory and Research Center, 2015

Trend of ETS in Major Countries
 New Zealand (National Level), U.S.A. (Sum of 9 Eastern-States), Japan (Tokyo, Saitama) Switzerland, Kazakhstan (National Level), U.S.A. (California), China(Guangdong, Hubei,Beijing, Shanghai, Shenzhen, Tianjin, Chongqing) have adopted ETS during 2013∼14,and China is expected to expand it nationally in 2017 (but, limited to some industrialsector)
 11 ET Markets have been newly established in 5 different countries like Canada(Quebec)
 7 Countries (Russia, Turkey, Ukraine, Brazil, Chile, Mexico, Thailand) are pushing ahead
ETS in a national level
 Japan is under the consideration of expanding ETS in certain regions to a national level China(Hangzhou), Canada(British Columbia, Manitoba, Ontario), Brazil(Rio de Janeiro,San Paulo), are reviewing the adoption of ETS in a local governmental level• ETS: Making a rapid growth globally•

11 years after the first ETS was launched in EU,•

Share of ETS-adopted countries in the Global GDP held 40% in 2015•

And hold 48% in 2016

Source : ICAP, 2014

3. Status and Problems of China’s ETS
Initial Year

Guangdong

Hubei

Shanghai

Tianjin

Chongqing

Beijing

Shenzhen

2013

2014

2013

2013

2013

2013

2013

CarbonIntensity(17%)

CarbonIntensity(19%)

CarbonIntensity(19%)

CarbonIntensity(17%)

CarbonIntensity(18%)

CarbonIntensity(21%)

IndustrialSector

Industrial
Industrial
Sector,Sector,Transportation,
6 Industrial
Development,Building,
Sectors*
PublicOther Service
Buildings
Industries

Reduction Carbon
Intensity
Target(19.5%)Development,
Developme
Heating,
nt, Public
Manufacturing,
Building,
Transportation,
Industrial
PublicSectorBuilding

Sector ofApplication

Industrial
Sector,Development

Target ofApplication

Development andMore than 20,000t
Heavy Industrial
CO2e Annually
SectorMore than
20,000tCO2e
Annually(Industrial Sector)

More thanMore than 20,000t More than 10,000t More than 10,000t
20,000tCO2e
CO2e AnnuallyCO2e AnnuallyCO2e Annually
Annually

TargetedCompanies(ExpectedNumber)

800

107

197

100

N/A

600635

Offset

CCERs

CCERs
Forestry Carbon
Offset Credits

CCERs

CCERs

CCERs
Forestry Carbon
Offset Credits

CCERs

CCERs

* Electrolytic aluminum, ferroalloy, calcium carbide, caustic soda, cement and steel

Source : Bloomberg New Energy Finance , ““China emissions trading: facts and figures“ 2013.0110

Price Fluctuations Trend in China’s ETS (3013.6.1 – 2016.3.31)

Source: ICIS, “Carbon Market Almanac, 2016; Global Developments & outlook,“ 2016.5/www.tanpaifang.com/

-Beijing, Shanghai, Shenzhen, and Guangzhou, exclusive of Tianjin, havecompleted their commitment;
Beijing 543 corporations participating in the ETS, 128 more than last year,including 6 cement corporations;- Commitment rate of 2014 - 97%, Commitment rate of 2016, 100%.
Guangzhou 1 out of 184 participating corporations in 2014 did not commit, butreached 100% of commitment before the deadline; commitment rate ofcorporations in 2014 98.9%, allocated commitment rate 99.97%.
Shenzhen 636 corporations participated in 2015, 2 corporations have failed;- Commitment rate 99.7%; 4 out of 645 corporations failed last year.
Tianjin postponed the commitment period in 2014; 111 out of 112 corporations
have committed- Commitment rate 99.1%. Commitment rate became 96.5% as 110 out of 114
corporations have been committed;
Hubei postponed commitment period by 1 month; 112 out of 138 corporations
have fulfilled in July 10,- Corporate commitment rate 81.16%.
Chongqing committed during the merged period of 2013 and 2014 and thestatistical data are being derived.

Categories of CCER (China Carbon Emission Reduction)

Status of China’s ETS (During 2015.7.16- 2016.4.30)
NameAmount(10ThousandTons)
15.7.16

Amount(10ThousandTons)
16.4.30

Value(100 MillionYuan)
15.7.16

Price(16.4.30)
Yuan/Ton

CCER Amount(10 Thousand Tons)
15.7.16

Hubei

1619

2565

4

17.3

96.7

Beijing

527

263

2.36

21.53

190

Shenzhen

414

542

2.05

38.65

142

Shanghai

415

395

1.27

4.25

241

Guangzhou

600

561

1.49

15.01

91

Tianjin

203

108

0.36

23.5

125

Chongqing2430

0.0631

10N/A

Sum

3802

11.60




885.7

Sichuan added emission exchange. It is not an exchange pilot city
Eco-friendly energy castle; providing 1/5 of China’s eco-friendly energy ofhydropower, natural gas, wind power, and solar power Non-fossil fuel consumption is 30% of the total primary energy consumption
 Designated as a new carbon exchange since it has high potential for carbon
resource development
Source: 21 World Economy Report, 2015, http://www.tanpaifang.com/

Prospect of China’s Integrated ETS Carbon emission is expected to amount 3 billion – 4 billion tons after
national carbon exchanges are integrated
 The volume of the spot market is expected to become 1.2~30 billion
Yuan, and 60~400 billion Yuan if futures market is included The volume of nationwide carbon trading market after 2020 will be 1
trillion Yuan
 Approximately 2000 corporations are currently involved in 7 ETS, and20~30 thousand corporations are expected to participate after theintegration.
 2016 Nationwide ETS participants: (6+2)
 Expected 7 major industries; incase in case of nationwide integration
 Traditional corporations: electricity, oil, steel, cement, paper andchemical industry
 New corporations: civil aviation and renewable energy automobile Excessive cement (reduction prioritized corporations) cementproduction of China in 2014: 2.48 billion tons, approximately 3500
corporations.

Financial Means of China’s Carbon Trading Mechanism(1) Carbon Fund：• China CDM Fund：Established in Sept, 2010, enhancing the ability to combat climate change and supporting industries• China Green Carbon Fund：Established in 2007，special fund for financing afforestation projects(2) Carbon Bank：• Carbon financing task by commercial banks• Increase in green, low-carbon loans and the innovation ofgreen financial offerings.
• EPS compliance (EPS; Earning Per Share) ; the larger thebetter- EPS= Net income/ Number of Shares(3) Insurance, Securities• In the stage of initiation. Beijing Environmental Exchange and VPVP perform joint development of “China Low Carbon Index” in 2010
• Interconnection among insurance, securities, and low carbon finance isyet loose, but it is highly likely to develop in the future
Source, “WEI Zhi Hong(Tsing Hua University), “Status of China’s ETS,” 2014.3.5

(4) Carbon Spot Trading• Pilot region is preparing for the ways of pilot implementation.
• No national level system for market management andsupervision(5) Carbon Futures• Operating 23 commodity futures. However, only one financial futures(stock index futures)• <Futures Trading Management Ordinance> prohibits OTC futures transaction• Carbon futures, as a new financial product, is easy to trade and has numerous traders.
• Currently on its initial research stage
After running carbon allowance market in the pilot region, weare anticipating research and development of carbon futures products through carbon spot trading market.
Source, “WEI Zhi Hong (Tsing Hua University), “Status of China’s ETS,” 2014.3.5

Problems of China’s ETS
 Problems associated with the pilot market;(1) Lacks of gradual participation of small to mid size corporations(2) Existence of carbon offset project is possible even if it is proceeded in 2017 as it wasplanned.
(3) Attempt to introducing diverse financial product market other than spot market- Futures market product was first introduced by Guangzhou exchange in March, 2016(4) No decision has been made on using early reductions during the pilot period.
- NDRC decision (discussion on entire & partial use and etc.)(5) Direction of Fund’s policy is clear, but lacks flexibility and activeness of commercialoperation(6) Requires stronger fund’s absorption capability

 Future improvement plans(1) Disclosure on regional emission, carbon credit size, implemented industry(2) Analysis on extreme price difference of carbon credit among regions(3) Establishing sophisticated MRV system(4) Simultaneously starting free allocation and auction – Prioritize strict free allocation(5) Propelling compliance as a form penalty and actively supporting finance(6) Research on carbon finance method and introduce futures market18

4. Status of Korean ETS and Problem
Phase I (‘15~’17)

Phase II (‘18~’20)

Phase III (‘21~’25)•Set ETS• Considerable Emission• Proactive Emission Reduction•Flexible Operation• Reduction• Expand Allocation Auctioning•Accumulate Infrastructure and• Expand Application Sectors• Expand FlexibilityExperience• Advance Allocation Method• Set Allocation Method•100% Free Allocation• 97% Free Allocation• Less than 90% Free Allocation

100% Free Allocation for EITE Entities (EITE : Emission Intensive Trade-Exposed)

GHG Emission Forecast & 2020 Target19

Ex-Ante Total Allowances and Allowances by Sector
Total Amount during Phases

Compliance Year
SectorIndustry

Total(1000 KAU
‘15

‘16

‘17(Korean Allowance Unit)

573,460

562,183

550,906

1,686,549

88,822

Reserve
Ex-anteAllowance
Conversion

Power &Energy

543,227

532,576

521,924

1,597,728

250,190245,284

240,379

735,853

Public &Waterworks

766

751

736

2,254

Waste

Waste

8,920

8,745

8,570

26,234

Building

4,017

3,938

3,860

11,815

3,089

3,029

2,968

9,086

1,290

1,264

1,239

3,793

Building

Telecommunication

Trans.

Aviation

20

Reserve

Use
Market Stabilization
Early Action
New or Additional
Installation

Additional Allowance for ETS Market Stabilization
Additional Allowance for Early Action
Unexpected Opening of New or Additional Installation
Merge of Installations
Change in Production Line or Business Plan
Additional Allowance for Increase in Emission Due to Restriction on Development

Allowances

Market Stabilization

Early Action

Other Purposes

Total

14,316

41,392

33,11488,822

Note: 1000KAU(Korean Allowance Unit)

21

Total Allowances and Allowances by Sector
SectorIndustry

Note : 1000KAU(Korean Allowance Unit)

Compliance Year

Industry

Total Amount during
Phases‘15‘16‘17Mining245

241

236

722

Food & Drink

2,535

2,485

2,435

7,455

Textile

4,701

4,609

4,517

13,828Lumber

384

377

369

1,130

Paper

7,630

7,481

7,331

22,443

Oil-Refining

19,153

18,77818,40256,334

Petrochemistry

48,85747,89946,941

143,698

6,264

6,141

6,018

18,423

Glass &Ceramic22

Total Allowances and Allowances by Sector
Sector

Note : 1000KAU(Korean Allowance Unit)

Compliance Year

Industry

Total Amount During Phases

‘15

‘16

‘17

103,285

101,259

99,234

303,778

675

662

649

1,986

Nonferrous

6,888

6,753

6,618

20,260Machinery

1,416

1,388

1,361

4,165

8,253

8,091

7,929

24,273

2,202

2,159

2,116

6,477

6,705

6,574

6,443

19,722

2,438

2,390

2,343

7,171

Electric & Electronic

2,877

2,821

2,765

8,463

Automobile

4,243

4,160

4,076

12,479Shipbuilding

2,683

2,631

2,578

7,892

Non-Steelprocess
F-gas
process

Non-

Semiconductor
Industry

process
F-gas
process
Non-

Display

process
F-gas
process23

Basic Method For Allocation

Allocation Based on Past Emission :Grandfathering

Allocation Plan of Phase I

Allocation Based on Past
Performance : Benchmarking

2425

26

1st year (2015-2016) Result of Trading ;- Lack of 6 Million Ton ; Demand > Supply- Complain about the EARLY Reduction and- Require for the allocation of New Facilities

KAU16 ; Trend of Price and Volume (2016.4.~2017.4)– Korean Allowance Unit

KCU16 ; Trend of Price (2016.4.~2017.4) – Korean Carbon Off Unit

Problems of Korean ETS Lacks of Participants from SME
 Uncertain about Price Signal
 Lack of Financial Market ; Future’s Market
 Lacks of Market flexibility and activeness of commercialoperation
 Lack of equal allocation method among industry
 Dispute about the Permit of Early Credit Design is not perfect (banking and borrowing, newfacilities, etc)
Banking allows only 20% in the next year. (before unlimited) Small Trading Volume
 A little high price compared to the other EA market
 Lack of Adoption for Carbon Offset
20% accept in the second phase (before 10%, 3rd)29

4. Status of Japanese ETS and Problem
 Tokyo ; 『Reduce 25% of GHGS until 2020 Compared to 2000』
 Start 2010. 4. 『Law of GHG Emission Reduction and ETS 』▷ 1 Period (2010년 ~ 2014년) : 8% or 6% reduction▷ 2 Period (2015년 ~ 2019년) : 17% or 15% reduction

Reduction ratecompared to base year

Base( st )(Emission( ,ton)
100001기준배출량계획서
제도

 2 period
5 year Ave. 17%

 1 period
5year Average 6% reduction)[ Target : 5 year Ave. ]Building 17%, Plant 5%[Target : 5 year Average]
Building 8%, Plant 6%

Base Yr

Base Yr

2005~2009source : 東京都プレスリリース （2016年２月25日）

Base Yr

2010 ~20142015~201930

Unit Site
Participants cond  Use more than 1,500kL(toe)/year - 3 consecutive yearsition Number of sites ; 1,300 (2013)
GasesPeriod CO2※ the other GHGs ; Should be reduced voluntary

1st : 2010 ~ 2014
2nd : 2015 ~ 2019 ,3rd ; every 5 year
Base year : 2002 ~ 2007 and consecutive 3 years Cap and Trade 2011 ~ 2014
< 20% of CHP Energy Use in Office Building8%> 20% of CHP Energy Use in Office Building

6%

Other site such as Plant, Drinking Water facilities, Waste Treatment

Reduc.
Level6%

 2015 ~ 2019
< 20% of CHP Energy Use in Office Building

17 %> 20% of CHP Energy Use in Office Building

15 %Other site such as Plant, Drinking Water facilities, Waste Treatment

15 %※Base Year ; 2002 ~ 2007, Any 3 consecutive years in average※ Excellent reduction site ;Reduction % will be 1/2 or 3/4

31

Usable Credit Inside Tokyo SME Credit (or inside credit) Renewable energy(RE) credit (conversion rate for the env. Value and otherTypereduction ) Outside credit Shaithama credit

CreditCap outside credit : only can use 1/3 of Cap
 Other credit; unlimitedbanking Allowed ; unlimited But can not bank into 3rd phase.

borrowing No allowed
Record of credit

Type of credit

2014. 4~2015. 3
amount (t-CO2)

2015. 4 ~ 2016. 1# of trade

Amount (t-CO2)# of trade

Less than Cap

641,257

115

540,066

114

Tokyo inside SME

7,929

144

11,723254

RE Credit(conversion for the env.;)

8,636

2

133

1

RE credit(other reduction)

13,725

14

21,77211

Out side credit

0000

Shaitama credit

00

1,298

2

Other non CO2 reduction

00

8,300

2

671,547275

583,292384
32TotalShaitama Prefecture Target; 『25% reduction until 2020 based on 2000년 』
 2011 ; Begin “Target based ETS”. At 2015 ; “ 25% reduction until 2020 ＂.
 ▷ (2011년 ~ 2014년) : 8% or 6%▷제2계획기간 (2015년 ~ 2019년) : 15% or 13%
 Mutual credit system with Tokyo .
 Use more than 1500kL/year site (3 consecutive years)
 # of Sites; 600 (2013)21%

Reduction rate compared toBase year
22%
22%

Emiission (,10000ton)

Base year(2000)

1st (2011~2014)source : 埼玉県プレスリリース（2015 年５月22 日)

2nd (2015~2019)33

 Cap and Trade 2011 ~ 2014
< 20% of CHP Energy Use in Office Building8%> 20% of CHP Energy Use in Office Building

6%

Other site such as Plant, Drinking Water facilities, Waste Treatment

Reduc.
Level6%

 2015 ~ 2019
< 20% of CHP Energy Use in Office Building

15 %> 20% of CHP Energy Use in Office Building

13 %Other site such as Plant, Drinking Water facilities, Waste Treatment

13 %※Base Year ; 2002 ~ 2007, Any 3 consecutive years in average※ Excellent reduction site ;Reduction % will be 1/2 or 3/4

Usable CreditCreditTypeCap

Inside shitama SME Credit (or inside credit)
Renewable energy(RE) credit (conversion rate for the env. Value andother reduction )Forestry absorption credit
Outside credit
Tokyo credit

 都外 (outside credit) : only can use 1/3 of Cap and 1/2 for the plant
 Other credit; unlimitedbanking Allowed ; unlimited But can not bank into 3rd phase.

borrowing No allowed34

# of TradingTypes

2016. 1(t-CO2)#Less than Cap

841,164

107

Inside SME credit00

RE credit00

RE credit (other )00

Outside credit

00

Forestry absorption (shithama ceertified )00

Forestry absorption (J-VER)

00Tokyo credit

00

Non- co2 reduction

1,0500Total

842,2141※출처 : 埼玉県「排出量取引に係る情報」 (2016年1月28日）

35

Problems of Japanese ETS Lacks of Participant (non-Building) Price is too low Lack of Financial Product Market ; Future’s Market
 Lacks of Market flexibility Lack of active commercial operation
 Not cover the nation wide site
 Design is not perfect (only CHP and partial Plant
 based energy reduction)
 Small Trade volume
 Lack of Adoption for Carbon Offset

36

6. Establishing NE Asian Carbon Market in the Future Korean Case is very strong and relatively good design- Make Standard MRV (monitoring, reporting and verify)- Review Each Countries MRV Process Japan shows good Carbon Offset project- study carbon-offsetting projects among Northeast Asia
- and find out prototype project Pilot Study for the Bench Marking Industry (Steel, Cement, Auto?)- allocation and auction, technology
 Pilot Study for Building sector- Easy to control (electricity, gas and water) for MRV- Use ICT technology will even better37 Joint Study for the Forestry carbon offset ; REDD plus
 Organize

professional

network,

joint

workshop,andperiodic

symposium through the establishment of ETS KSP(knowledge sharingplatform) among Northeast Asian countries
 Core agreement ; Allocation Rule, Banking, Borrowing, auction,financial mechanism(future) Review Financing Source for research budget- Tripartite Environment Ministers Meeting (Korea, China, and Japan )- Try Korea Foundation, Japan Foundation
 Personal carbon trading (EV or Fuel cell – Valued weighted)

38

Reference
Environment Forum – Enforcement Status and Implications of ETS in Major Countries VOL.18 NO.7
The Bank of Korea International Economics Department – Status and Issues of ETS in Major Countries
Korea Legislation Research Institute– Policy Analysis on Non-European ETS

Hyundai Research Institute – Lessons learned from 10 years after adopting EU ETSLim YuJin (Economics, Yonsei University)–
The issues of the EU emissions trading scheme and the implication for the Korean ETS
Greenhouse Gas Inventory and Research Center http://www.me.go.kr/home/file/readDownloadFile.do?fileId=97929&fileSeq=1&openYn=Y
Ministry of Environment http://www.me.go.kr/home/file/readDownloadFile.do?fileId=105557&fileSeq=1&openYn=Y
ICAP - https://icapcarbonaction.com/ko/?option=com_attach&task=download&id=233
KIM, Jeongin, Chang Sukwon “ Water-energy-Food Nexus,” K-Water policy Forum presentation paper,2013.11
KIM, Jeongin, “Green Growth Main Features and Key Progress: Green Growth Policy of Korea,”
IETC, CIFAL, 2013.4.4
KIM, Jeongin,, “Energy Self-Reliance Village in Korea,”
KIM, Jeongin,, “Resource Constraints in ASIA and It’s Impact ,” BASF Asia-Pacific Region workshop,2Deloitte, Water/UK, “ Tapping into growth; economic Impact of the Water and sewage sector in theUK,“ 2014.3Frontier Economic, HSBC, “ Exploring the links between water and economic growth ; A report
prepared for HSBC
by Frontier Economics: Executive Summary,” June 2012.
Global Water Partnership, “Water in the Green Economy, “ PERSPECTIVES PAPER, 2012.6
KIM, Jeongin, Chang Sukwon “ Water-energy-Food Nexus,” K-Water policy Forum presentation paper,2013.11
KIM, Jeongin, “Green Growth Main Features and Key Progress: Green Growth Policy of Korea,”
IETC, CIFAL, 2013.4.4
KIM, Jeongin,, “Energy Self-Reliance Village in Korea,”
KIM, Jeongin,, “Resource Constraints in ASIA and It’s Impact ,” BASF Asia-Pacific Region workshop,
2Marie-Agnes Jouanjean, Josephine Tucker, Dirk Willem te Velde, “ Understanding the effects ofresource
degradation on socio-economic outcomes in developing countries,“ 2014.3
SEI, “Understanding Nexus,” 2012.10
Shah, M., “ Water: Towards a Paradigm Shift in the Twelfth Plan,” Special Article, Economic andPolitical Weekly,
Vol 03. 2013www.gwptoolbox.org
www.odi.org

40Thank You
jeongin@cau.ac.kr

Source : United Nations ESCAP Report

41