Resurgence of Carbon Pricing in Asia

By

Smita Rana

Tom Kerr

Asian economies continue to drive the engine of  global growth – they are also some of the most vulnerable economies to the impacts of climate change. To help speed industries’ transition away from emissions-intensive production, countries in the region are increasingly exploring carbon pricing policies.

In 2017, we continued to see steady growth of carbon pricing in Asia. Some of the encouraging trends include China launching its national emission trading system (ETS) in December 2017, Kazakhstan restarting its ETS in 2018 after a two-year suspension, Korea introducing new design reforms in the ETS, Singapore preparing to implement a carbon tax from 2019 and India declaring its intention to launch a voluntary carbon market in the country.

It wasn’t very surprising then, though indeed very reassuring, to see the CPLC receiving a positive response from Asian stakeholders for its event, Financial Institutions, Business and Climate Change: Addressing Risks and Finding Opportunities in a Changing World. The event was convened in Singapore earlier this month as part of a special track within the UN Global Compact’s Sustainable Solutions Expo and focused on bringing leaders from business, financial and public sector from the region to discuss the rapidly evolving landscape related to climate risk and opportunity. Over 200 participants attended the conference to learn about the emerging trends and tools that can be used to future-proof their business activities.

  Images courtesy of Global Compact Network Singapore -  Flickr

Images courtesy of Global Compact Network Singapore - Flickr

The panels and discussions covered the current carbon pricing policy landscape in various Asian countries. One of the discussants, Sungwoo KIM, Head of Environment & Energy, Kim & Chang Environment & Energy Research Institute, spoke about how the Republic of Korea has been working towards making the Korean ETS (KETS) efficient and effective by successfully addressing the industry concerns through design reforms. Launched in 2015, the KETS completed its first phase in December 2017, during which it suffered from market liquidity issues. As per the government’s recent announcements, the 2nd phase (2018-2020) of KETS will now include amendments like expansion of benchmark-based free allocation from three sub-sectors (grey clinker, refinery and aviation) to also include other subsectors like power generation, group energy, industrial complex, petrochemical, and waste. The KETS has been observing relatively a high carbon price with the allowance price floating around US $25 (KRW 28,000), in response to which the government will release a share of the allowances held in reserve for market stabilization. The 2nd phase will also permit CERs from CDM projects which compliant entities could use to meet 10% of their obligations.

Prospects also seem bright in case of China’s national ETS. Once operational, it will regulate around 1,700 companies from the power sector (including combined heat and power as well as captive power plants of other sectors), which emit more than 26,000 tons GHG per year, or consume more than 10,000 tons of standard coal equivalent (tce) per year. As per the State & Trends of Carbon Pricing 2018 report, in its initial phases, the Chinese system is expected to cover about 30% of national emissions. While discussing the ETS during the event, Caspar Chiquet, Commercial Projects Manager, Supply & Trading, BP, stated that the carbon prices in the system are likely to go north of US $15 in the next 3 years.

On the other hand, Singapore has emerged as a leader for carbon pricing in south-east Asia. Earlier this year, the country announced a carbon tax and became the newest government partner of the CPLC. Their carbon tax will start in 2019, with a US$3.8/tCO2e (S$5) tax on GHG emissions on 30-40 energy-intensive companies, covering 80% of Singapore’s emissions, with plans to increase the tax to US$7.6-11.4/tCO2e by 2030.

The panels also discussed the current state of play in India. Although, India doesn’t have an explicit carbon pricing framework yet, there has been growing interest in the private sector to understand how they can climate-proof their business models and stay competitive in the coming future. According to CDP, 51 Indian companies responded to their disclosure programs in 2017, out of which, 49 companies have integrated climate change into their business strategy. It is quite noteworthy that 40 of these companies have plans or current practice of putting an internal price on carbon.  

  Images courtesy of Global Compact Network Singapore -  Flickr

Images courtesy of Global Compact Network Singapore - Flickr

In response to this increasing interest from the Indian corporate sector and the announcement of a voluntary carbon market by the Indian government, the CPLC has collaborated with WRI India on a carbon market simulation study.  Talking about the simulation, Vivek Adhia, Head - Business Engagement, World Resources Institute India, confirmed that the study aims to provide bottom-up, evidence-based policy recommendations on the design and implementation of an effective and sustainable carbon market in India while also building corporate readiness and capacity. The simulation study has recently completed its initial design phase and preparations are now underway for the implementation stage.

In response to this government activity, over the past few years, the number of companies using an internal carbon price in Asia has increased dramatically. As per CDP, 139 companies in Asia are currently using an internal carbon price, while about 200 companies from the region have plans to adopt a price by 2019.  It is now becoming increasingly visible that the private sector in Asia is no longer inclined to act as a mute spectator waiting for the government to impose some regulatory carbon pricing policy on them – they are eager to drive discussions on climate risk and opportunities and learn more about the existing tools like (internal) carbon pricing that can help them design resilient business strategies for their organizations.

As private sector prepares to hedge itself from potential carbon pricing and other climate risk exposure, there are various tools and methodologies that can support them in this process. At the forum, Erik Christianto, Business Development Manager Asia Pacific, Trucost, introduced Trucost's Carbon Pricing Tool, which helps companies assess exposure to evolving carbon pricing mechanisms and recommends a range of internal carbon prices aligned to regional policy trends. Using this tool, companies can also benchmark their carbon regulation risk exposure against key competitors, understand current and future financial implications of these risks on their operating costs and margins, and conduct a 2°C stress test against rising carbon prices and respond to investor expectations.

  Images courtesy of Global Compact Network Singapore -  Flickr

Images courtesy of Global Compact Network Singapore - Flickr

As the story of the post 2020 global carbon pricing framework unfolds, we can clearly envision Asia claiming centerstage. This trend was well confirmed by the strong attendance of the regional stakeholders at the CPLC event in Singapore.  In response to this, Leonie Lee, Director (Energy and Climate Policy), Ministry of the Environment and Water Resources, Singapore, expressed Singapore’s strong interest in continuing collaboration with the CPLC and UN Global Compact in convening more such dialogues, particularly focused on issues like competitiveness and the investment opportunities that carbon pricing policies can open up. The next set of regional dialogues will be held in Singapore from July 11-13 in the margins of the Asia Pacific Carbon Forum & Climate Week.

Going forward, the CPLC plans to continue this conversation with the private sector in Asia and engage them on myriad carbon pricing related concerns, including competitiveness, and provide them with a variety of tools and techniques that could help them assess and manage their climate risks and opportunities. If you are interested in joining the Coalition, the infographic below explains how private sector can showcase leadership and engage more effectively with us and if you want to attend our events, check our calendar of events or subscribe to our newsletter.

 

 

Images courtesy of Global Compact Network Singapore - Flickr

About the authors

Smita Rana.png

Smita Rana works in the Carbon Markets and Innovation Unit of the Climate Change Group at the World Bank. She earned a Master’s degree from the Fletcher School of Law and Diplomacy, Tufts University, where she focused on international energy and climate policy as well as international business relations. She has also previously completed a Master of Science in Environmental Studies from the TERI University, India and a Bachelor of Science from the University of Delhi. 

Prior to joining the World Bank, she has worked in the field of climate and energy policy in various capacities in India, with organizations like Federation of Indian Chambers of Commerce & Industry (FICCI), SGS India and the Economic and Global Affairs department of the German Embassy in New Delhi. 
 

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Tom Kerr has worked for 20 years designing and implementing public/private efforts that transform markets for resource-efficient climate business solutions. 
He was part of the original team launching CPLC and he is now the International Finance Corporation’s Global Manager for Outreach and Engagement.