Institutional Design of an ASEAN–Japan Joint Carbon Market in AZEC and the Challenges of Regional Decarbonization Governance

This chapter aims to provide a comprehensive analysis of the institutional design of an envisioned ASEAN–Japan joint carbon market under the Asia Zero Emission Community (AZEC) framework, and to examine its political economy challenges. Achieving the Paris Agreement’s 1.5 °C goal, as underscored by the IPCC Sixth Assessment Report, requires reaching net-zero emissions by mid-century. Japan and many ASEAN member states have announced long-term carbon neutrality targets; however, their current Nationally Determined Contributions (NDCs) remain insufficient, and regional emissions are still projected to increase in the coming years. Existing studies have primarily used quantitative models to evaluate how linking emissions trading systems (ETS) can improve cost-effectiveness. Yet these analyses often fail to adequately incorporate political and institutional barriers, such as institutional resistance, governance asymmetries, sovereignty concerns, and the difficulty of trust-building. This chapter reassesses the feasibility of an ASEAN–Japan joint carbon market from a multi-dimensional perspective that explicitly includes such non-economic factors. It also argues that carbon pricing alone is not sufficient to achieve net zero; a comprehensive policy package, incorporating technology transfer, financial support, and capacity building, is indispensable. As an institutional foundation for such efforts, AZEC could serve as a core platform for regional policy coordination and for catalyzing low-carbon investment. Finally, this chapter reframes the joint carbon market not merely as a market mechanism, but as a regional governance project requiring institutional coordination, and proposes directions for decarbonization cooperation in Asia in the net-zero era.