This is an extract from a recent report “Carbon Pricing in Asia: Examining Emissions Trading Systems and Carbon Taxes” published by IEEFA.

Asia, the world’s most populous region, accounts for over 50% of global GHG emissions. Emissions are expected to keep rising, driven by rapid economic growth and growing energy demand. The region is warming at nearly twice the global average and experienced its hottest year in 2024, heightening its vulnerability to extreme weather events that threaten lives, ecosystems, and economies.

Carbon pricing plays a vital role in supporting sustainable economic growth in Asia. If appropriately priced, it can be a powerful tool to drive innovation and clean technology adoption, generate revenue that can be reinvested in climate projects, and align economic growth with national and global climate goals.

ETS: China, South Korea, Kazakhstan, and Indonesia

The four national ETSs in China, South Korea, Kazakhstan, and Indonesia differ in sectoral scope, gases covered, and cap-setting approach (volume- or intensity-based). South Korea’s ETS has the broadest coverage, regulating 79% of national emissions and the widest range of gases. China follows at around 60% after recently expanding beyond the power sector to include steel, cement, and aluminum. 

Kazakhstan’s ETS covers about 50% of national CO2 emissions, while Indonesia’s scheme remains limited to the power sector only. Indonesia plans to evolve its ETS into a hybrid ‘cap-tax-and-trade’ system, under which facilities exceeding their ETS limits would face a carbon tax of IDR30,000/tCO₂e (approximately USD1.8/tCO₂e). Implementation was scheduled for April 2022, but has been repeatedly postponed, and there is no confirmed timeline. 

Carbon Tax: Japan and Singapore

Japan and Singapore have opted for carbon taxes as their primary national carbon pricing instruments. Similar to ETSs, these taxes differ in sectoral scope and the types of GHG covered. Singapore’s broader carbon tax applies to all major GHG emissions from large industrial facilities. Approximately 70% of national emissions in both countries are subject to carbon pricing. In Japan, coverage includes the subnational ETS programs in Tokyo and Saitama, alongside the national carbon tax.

Carbon Tax/ETS Under Development: Thailand, Malaysia, Taiwan, and Vietnam

In January 2025, Thailand’s cabinet approved the Ministry of Finance’s proposal to introduce a carbon tax to reduce GHG emissions further. The tax, set at THB200/tCO2e (around USD6.2/tCO2e), applies to petroleum products such as benzene, gasohol, kerosene, jet fuel, diesel, biodiesel, liquefied petroleum gas, propane, and fuel oil. 

The Malaysian government announced plans to introduce a carbon tax by 2026, targeting high-emission sectors such as iron, steel, and energy. The tax could later apply to other key industries, especially those already covered under the EU’s Carbon Border Adjustment Mechanism (CBAM) and other jurisdictions. 

Taiwan and Vietnam are adopting ETSs as their preferred mechanism. The Taiwan Carbon Solution Exchange has recently signed an agreement with the European Energy Exchange (the EU ETS’s main trading platform) for building the country’s ETS. Vietnam has also started an ETS pilot project, covering the power, cement, and steel sectors.

Carbon Prices Remain Too Low to Support Decarbonization

Significant carbon price differences exist across regions, and between the costs on exchanges and ETSs and those recommended by studies and reports. Although global carbon revenue exceeded USD100 billion in 2023 and 2024, carbon prices remain far lower than required to meet international climate targets. In 2017, the High-Level Commission on Carbon Prices estimated that direct carbon prices must be between USD40/tCO2e and USD80/tCO2e by 2020, and be in the USD50/tCO2e to USD100/tCO2e range by 2030 to limit global warming to below 2 degrees Celsius. Similarly, in 2022, the Intergovernmental Panel on Climate Change reported that marginal abatement costs would need to reach around USD90/tCO2e by 2030 and USD210/tCO2e by 2050 to remain within the 2-degree limit. Recently, the Network for Greening the Financial System projected that carbon prices would need to increase to approximately USD300/tCO2e by 2035 under a net-zero transition scenario.

Except for EU carbon permits, which averaged EUR71.2/tCO2e (USD78.8/tCO2e) in the first half of 2025, no other carbon pricing system is at the levels recommended to meet global climate goals. Most systems, especially those in emerging markets, remain significantly underpriced. In Asia, China’s emission allowances traded at an average of RMB90.3/tCO2e (USD12.5/tCO2e) in the first quarter of 2025, broadly unchanged from the 2024 average price of RMB92.3/tCO2e (USD12.9/tCO2e). South Korea’s allowances approximated KRW9,021/tCO2e (USD 6.3/tCO2e) (year-to-date until 11 July 2025), while Kazakhstan’s carbon price remains at just USD1/tCO2e. Similarly, current rates remain too low to drive consequential emission reductions in countries with carbon taxes. Japan’s carbon tax is particularly modest, at only JPY289/tCO2e (USD2/tCO2e) since its introduction in 2021. By contrast, Singapore’s carbon tax is higher at SGD25/tCO2e (USD18.6/tCO2e) and is scheduled to increase to SGD45/tCO2e (USD33.3/tCO2e) in 2026, and to SGD50–SGD80/tCO2e (USD37.0–59.2/tCO2e) by 2030. 

A realistic carbon price may be gauged from the credits established under Sections 45Q and 45V of the US Inflation Reduction Act, which aim to incentivize decarbonization and carbon reduction technologies such as CCUS, and direct air capture (DAC). The Act provides a credit of USD60-USD130 per tonne of carbon captured using CCUS, and USD85-USD180 per tonne using DAC. Despite these incentives, there has been limited progress in encouraging CCUS and DAC projects due to the high operating costs and significant upfront investments required. Carbon prices under the various emission pricing regimes need to increase significantly to drive decarbonization in real-world applications.

Aligning Carbon Prices with Marginal Abatement Costs 

A carbon price or an ETS does not automatically transform the energy or emissions backdrop. Size, sectoral reach, and carbon tax level are critical factors for success. If the carbon price is too low, emitters simply pay for allowances or taxes rather than invest in reducing emissions. In these instances, the carbon price becomes another business cost with little climate impact. If the price rises moderately but remains insufficient to generate substantial investment in low-carbon technologies, companies will likely pass the added cost on to consumers. This can create inflationary effects, acting as a tariff for buyers. 

These higher costs would disproportionately affect lower-income households, as they allocate a larger share of their income to essentials like energy, transport, and food. Determining the appropriate carbon prices for Asian economies requires evaluating the costs of shifting from high- to low-carbon technologies. Marginal abatement costs (MACs) are a potential assessment method. These costs vary significantly across sectors and decarbonization activities, reflecting differing technological maturity, capital intensity, and low-carbon alternative viability. Existing research on decarbonization costs and MACs indicates a wide range of estimates.

For low-cost abatement opportunities, particularly in power generation (such as coal-to-renewables switching), a carbon price of between USD10/tCO₂e and USD30/tCO₂e is likely to be effective, since renewable sources are broadly competitive with fossil fuels for new generation. While adding storage to renewable capacity to guarantee availability would increase costs, falling storage prices make this less critical. Goldman Sachs’ 2025 Carbonomics report, which provided MAC estimates for various sectors, found a MAC of USD65/tCO₂e for renewable power with storage.

In contrast, higher carbon prices are essential for sectors with significant decarbonization costs. Bloomberg New Energy Finance (BNEF) estimates that replacing Europe’s existing fleet of internal combustion engine (ICE) cars with electric vehicles (EVs) would require a carbon price of EUR407/tCO2e — a figure consistent with the Carbonomics report. While expensive, this replacement would have the maximum reduction in future emissions. 

More limited approaches, such as the replacement of only new cars, have far lower MACs, according to research by the Environmental Defense Fund. Similarly, replacing fossil fuel-powered heating with decarbonized heat pumps would be viable for building heating with carbon prices of between EUR87/tCO2e and EUR93/tCO2e. The International Energy Agency (IEA) estimates USD87/tCO2e as the average MAC for heat pumps.

In 2024, BNEF estimated that abating emissions in steelmaking would require carbon prices ranging from USD144/tCO2e in the US to USD105/tCO2e in India and USD83/tCO2e in China. For decarbonized ethylene production in India and China, carbon prices above USD230/tCO2e would be necessary. Across the region, carbon capture in aluminum oxide or petrochemicals manufacturing would require average prices above USD200/tCO2e, assuming viable transport and storage techniques were available at scale. The Environmental Defense Fund estimates a MAC range between USD90/tCO2e and USD150/tCO2e for renewables-based hydrogen technology in industry. Goldman Sachs estimates a weighted average MAC of USD130/tCO2e for industry as a whole, with a high USD420/tCO2e cost for “hard to emit” sectors that rely on hydrogen.

It was found that sustainable aviation fuel (SAF) prices are at least 2.5 times that of regular jet fuel due to the high decarbonization cost. Another BNEF report estimates a minimum of USD252/tCO2e, while the Goldman Sachs estimate is above USD550. A Norwegian Environment Agency study found a MAC of USD300/tCO2e for full abatement of shipping emissions, and USD50–USD100 for 20-30% abatement. 

MACs can differ depending on variables such as location, emission intensity of the technology replaced, and period of replacement, among other factors. Regardless of the particular MAC for any application, the existing carbon tax and ETS pricing regimes globally are inadequate to address the challenge of rapid decarbonization. 

Access the report here