Emissions trading systems (ETSs) are becoming an ever more important tool to reduce carbon emission to achieve the goals of the Paris Agreement. China, as the world’s largest emitter, has seen significant developments of its ETS in the past years and its ETS development is expected to influence climate action around the world, particularly for its neighboring countries. Against this backdrop, this report analyses whether China’s climate ambition and ETS development can drive regional harmonisation of ETSs (e.g. in Southeast Asia) and how China’s ETS would be possibly linked with other countries, in regard to political alignment as well as technical design.

By deriving success factors of ETS harmonisation from successful and unsuccessful ETS harmonisation case studies from Norway and the EU, Switzerland and the EU, Quebec and California and the Regional Greenhouse Gas Initiative (RGGI), as well as from the literature, this report develops a model for analysing ETS harmonisation in Southeast Asia. The factors that are analysed include domestic environmental, political, and economical motivation of respective jurisdictions, the relationship between jurisdictions, as well as ETS robustness, and system design of respective ETSs.

While currently ETS developments in the selected countries of China, Vietnam, Indonesia, Thailand, and the Philippines is still ongoing, the study finds several important parallels, but also relevant divergence in ETS developments in these jurisdictions, making future harmonisation challenging: China’s national ETS is expected to be officially launched in 2021, while Vietnam recently adopted a revised law and created a mandate for ETS implementation; Indonesia and Thailand are still discussing and drafting ETS legislation, while ETS development in the Philippines needs further acceleration.

The results show that due to differentiated mitigation goals and different status of ETS development, the potential for harmonising the selected countries with China’s national ETS over the next 5 years is limited. In contrast, the design of the ETS in Vietnam, Indonesia, and Thailand make them more likely to be linked to each other, based on similar reduction ambitions and ETS development status.