Accessibility links

Domestic emission trading systems in developing countries: state of play and future prospects

This article analyses possible domestic emissions trading systems (ETS) for six developing countries: Brazil, China, India, Kazakhstan, Mexico, and South Korea. It also analyses the prospects of linking the developing countries to existing trading systems, in order to establish a harmonised international carbon market.

It notes that the outlook of ETS differs from country to country. Brazil has established a stock exchange for voluntary carbon units which may precede a domestic trading scheme. China has made concrete steps towards the creation of regional ETS in various cities and provinces. India has not shown much propensity for a domestic ETS due to political and institutional reasons. However, trading schemes for energy efficiency and renewable energy are already in place. Kazakhstan has very definite plans for an ETS and has a draft law in parliament. Mexico has been one of the earliest proponents of a domestic ETS, but has not taken this plan much further. South Korea had already come very far in the design of its ETS, but due to opposition by domestic industry, targets have been weakened and the start date pushed back. The article argues that China’s new commitment to absolute targets and the creation of a nation-wide scheme by 2015 gives reason for optimism, though the implementation pathway is as yet unclear.

The report concludes that there is complexity of establishing an ETS. Even in the EU, where implementation of an ETS was fast-tracked as much as possible, the process from the publication of the Commission’s Green Paper on emissions trading to the start of the system took five years. It also notes that even though South Korea seems to be firmly on track and Chinese announcements also give reason for optimism, developing countries’ schemes are at the moment not far enough evolved to come to definite conclusions if links with e.g. the EU ETS are possible. It also notes that it can be assumed that for the time being climate policy in most developing countries will mainly revolve around non-ETS policies and measures.

The report provides the following recommendations:

  • international climate cooperation should not neglect improving the CDM and supporting transformational policies and measures through fund-based instruments
  • initiatives of EU such as the International Carbon Action Partnership (ICAP) and the Partnership for Market Readiness need to be further pursued and strengthened.