Carbon Markets and the Electricity Sector: Issues, Opportunities, and Priorities for East Asia

Regional Workshop on Emissions' Trading

Emission reductions in the electricity sector will be paramount if the Paris commitments of reducing global warming to well below 2 degrees Celsius are to be attained. Emissions trading systems (ETS) as a cost-effective instrument for emissions control are now being implemented or considered across a diverse set of jurisdictions in East Asia. KAS RECAP will hold a two-day workshop in Bangkok to discuss the carbon markets in the subregion.

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Through the introduction of an emissions cap and resulting price on carbon, ETS promise to have a central role in the transformation of our electricity systems. However, to be effective, an ETS must be designed to operate within the specific local context. For East Asia, three broad themes need to be addressed:

1.    Regulation of the electricity sector – Most East Asian jurisdictions feature different regulatory structures when compared to the European context of liberalized markets where consumers are free to choose their electricity sup-pliers, generators are free to supply the market and there is competition in both wholesale and retail markets. Rather the government is heavily involved in setting electricity tariffs, planning investments and determining the dis-patch order of power plants. Where regulation prohibits price discovery, re-stricts price pass through or places constraints on investments in power plants and their operation, an ETS may not deliver the economy wide mitiga-tion signal promised. Here we aim to discuss what an ETS can achieve in vari-ous power sector regulatory settings, as well as potential limits to a carbon price in such settings. Some of these limits may also be addressed by amending the design of the ETS or through adjusting electricity regulation. The Republic of Korea and China are operating an ETS in a regulated electricity sector. A close look at how these systems are designed and lessons learned can provide guidance for the next generation of ETS.

2.    Interactions with existing clean energy policy instruments – Regardless of the specific “type” of regulation, governments are likely to continue to have a strong role in the electricity sector and its decarbonization. This might be through direct control of investments or through setting technology-specific targets, performance targets, phasing out emission-intensive technologies or supporting innovation in low-carbon alternatives. These policies will be guided by more than just emission reduction considerations and can either support the ETS to overcome barriers from existing regulation or in some cases erode the efficiency of the system. Therefore, it is critical that regulators consider the effects of these “companion policies” on the allowance market. Here we will look at broad trends for existing electricity sector policies in East Asia and discuss the role for an ETS within this policy mix.

3.    Carbon Market Cooperation and East Asian Energy Market Integration – The benefits and challenges of East Asian energy market integration are well understood. But can regional cooperation through emissions markets provide a new forum of cooperation and impetus for market integration? Here we will look at the opportunities and challenges for a regional East Asia carbon market, with a specific focus on the implications for Energy Market Integration.

The workshop is co-organized by International Carbon Action Partnership (ICAP), Chinese University of Hong Kong CUHK, National University Singapore (NUS), Chulalongkorn University, Thailand and The Thailand Greenhouse Gas Management Organization (TGO).

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  • Dr. Peter Hefele
  • William Acworth
    • ICAP Secretariat
  • Prof. Anatole Boute
    • CUHK
  • Piti Eiamchamroonlarp
    • Chulalungkorn University