Linking Emissions Trading Systems in China, Japan, and South Korea: The Opportunities and Challenges

Since the establishment of the European Union Emissions Trading Scheme (EU ETS) in 2005, emissions trading systems (ETS) have expanded globally, with 36 jurisdictions implementing such schemes and 24 others considering adoption. Carbon prices under these programs vary significantly, reflecting differing environmental ambitions and economic contexts. International cooperation through mutual recognition of credits and cross-border ETS linkages has emerged as a key strategy to enhance cost-effectiveness in reducing global emissions. Existing regional linkages, such as the Western Climate Initiative (WCI) in North America and the EU-Swiss ETS linkage, demonstrate the feasibility of such collaboration. In East Asia, where Japan, China, and South Korea together account for one-third of global CO₂ emissions, national ETS frameworks and carbon neutrality commitments underscore the urgency of regional integration. Despite collaborative efforts such as the trilateral Carbon Pricing Mechanism Forum, formal linkage mechanisms have yet to materialize. This chapter analyzes international ETS linkage models and proposes a framework for an East Asian ETS (EA-ETS), emphasizing phased cooperation—from policy dialogue to binding agreements—to align market structures, regulatory standards, and emissions reduction targets. By drawing on lessons from global precedents and regional developments, this chapter advocates for institutionalized collaboration to unlock synergies, increase market liquidity, and accelerate decarbonization across East Asia.