Introduction

Meeting carbon neutral targets by the middle of this century is the collective aim of all countries committed to the Paris Agreement, through the implementation of their nationally determined contributions (NDCs) to abate emissions to well below 2 degrees Celsius, and aiming to further limit the temperature rise to 1.5 degrees Celsius compared to the pre-industrial level, to avoid the catastrophes caused by climate change.

The problem of climate change involves the fundamental failure of markets: those who damage others by emitting greenhouse gases generally do not pay (Nicholas Stern, 2007). The Organisation for Economic Cooperation and Development (OECD) introduced the concept of the Polluter Pays Principle (PPP) in 1972, whereby the polluter was held responsible for the pollution. PPP is the commonly accepted practice that those who produce pollution should bear the costs of managing it to prevent damage to human health and the environment (LSE, 2022).

Carbon prices or carbon taxes are generally a price-based mechanism which reflect the PPP, imposing a charge on the emitters of the greenhouse gases. Carbon prices should reflect the potential social cost caused by future climate change. Carbon prices force the emitters to take on, or internalise, the cost of pollution through technology innovation or investment in carbon off-setting projects. The carbon price can also be calibrated to achieve a certain emissions target, known as a quota-based system or cap-and-trade, where the quota to emit is moved to zero emission by a specific date, such as net zero by 2050. This is commonly referred to as a target consistent approach. Under both approaches, a financial incentive is created for a polluting entity (such as a factory) to reduce its emissions.

For the carbon market to function effectively, many economists believe the carbon price should be global and uniform across all countries and sectors, so polluters do not simply move operations to so-called pollution havens, where a lack of environmental regulation enables them to continue to pollute without restrictions. 

Among East Asia countries, Japan implemented a carbon tax (Gokhale, 2021) in 2021, at 2.89 Japanese yen (US$2.65) per ton of carbon dioxide (Ministry of Environment, 2019). This carbon tax applies to fossil fuels such as petroleum, natural gas, and coal, and is levied in addition to existing taxes on petroleum and coal. The revenue generated from the carbon tax is used to fund renewable energy projects and enhance energy-saving measures (Gokhale, 2021). Singapore, the most advanced economy in ASEAN, implemented a carbon tax in 2019 and established a state-owned exchange CIX Exchange Place (Climate Impact X, a carbon trading website [https://www.climateimpactx.com]) to drive carbon credit trading initiatives. In March 2023, Malaysia followed suit with the establishment of the Bursa Carbon Exchange (BCX) and the launch of an auction platform for carbon credits to prove the viability of carbon credit trading.

In Indonesia, Presidential Regulation (Perpres) 98/2021 on the Carbon Economic Value, or Nilai Ekonomi Karbon (NEK), is seen as a direct response to Article 6 of the Paris Agreement, paving the way for parties to trade carbon in order to lower emissions. Instruments offered under the regulation consist of carbon trading, result-based payment, and a carbon tax, which has been twice delayed and is expected to be launched in 2025. Among all the instruments, carbon trading is viewed as a mature instrument with a cap-and-trade mechanism that enables institutions to claim their high-intensive emissions by buying credits from other activities that provide carbon stocks. To strengthen the implementation of carbon trading under Law 4/2023 on the Development and Strengthening of the Financial Sector, the Financial Services Authority (OJK) has been tasked with establishing and overseeing carbon trading in the carbon market. The OJK issued regulations on carbon trading through carbon exchanges and officially launched the carbon market on 26 September, 2023 (IESR, 2023). Thailand has shown an interest in this space and opened-up a platform for carbon credit trading (FTIX) aimed at providing domestic exporters with the option of purchasing these credits. Other countries in the region are also developing institutional capacity and necessary conditions for the carbon market at different stages of development. For example, Vietnam, the Philippines, Brunei, Cambodia and Laos PDR have different levels of readiness when it comes to establishing a carbon platform and have not made solid commitments on this front.

ERIA, one of the top global and regional think tanks, wishes to facilitate and expedite the implementation of the carbon market in ASEAN through testing the barriers and necessary conditions to allow the carbon market to freely compete in the open market in ASEAN, and open the door for a carbon market hub in the near future. Enriching the study of carbon market issues in ASEAN and experiences from elsewhere, such as the EU Emission Trading System, will help ASEAN to move from a voluntary carbon market to a fully integrated/mandatory carbon market, with the participation of all emissions-related industries and businesses, with clear rules and regulations for oversight of the implementation of the market functioning at the ASEAN level.

Research Questions

The project is expected to investigate issues such as:

1. Taking stock of the institutional set-up, regulations and policies of the carbon market in the country of study, before examining the hypothesis of the study (intention of the study).
2. This academic study also aims to comprehensively understand the current institutional arrangements and policies toward the carbon market and trade, and if they fall short of both instructional and policy readiness, what is needed for the country of study or region to be ready for the future carbon market.
3. Barriers and necessary instructional capacity for regulations to set up the carbon market domestically, regionally, and later globally.
4. Stock-taking the progress and implementation of the carbon market which has recently opened-up in Singapore, Malaysia, Indonesia, and Thailand. Learning from the experience, how to move this voluntary market to a fully mandatory carbon market.
5. Policies/incentives to promote participants to join the market. Polluter pays principal vs cap and trade vs carbon credit and all combinations of those instruments, and how they are best implemented to encourage industries to change course and invest in carbon off-setting projects and/or technological innovations.
6. The study also encourages empirical studies to check the level of implementation of the carbon market and its impact on green digital finance and green financing portfolios in each country.
7. Learning from the EU Emissions Trading System (ETS) and how it can help shape the implementation of the carbon market in Asia. What works and what does not – Asia may need to find its own unique carbon market system which works best for its characteristics.

Study Methods

The project uses both qualitative and quantitative methods conducted by researchers with diversified backgrounds. This call for proposals invites researchers who can contribute to the above research questions. We will document as much as possible the progress, stock-taking necessary policies, regulations and carbon market structure in each ASEAN country and the region. This call for proposals is also disseminated through the ERIA and university networks and ERIA’s website. Given that the project involves practical implications, we will encourage collaboration between academia, banking and financial experts, experts from industries, civil society and other stakeholders involved in the carbon market to submit a proposal to ERIA, through Dr Han Phoumin, Senior Energy Economist, ERIA. Email: 

Kindly note that when you submit your proposal for our consideration, please include the following:

• Topic of research
• Brief background/introduction
• Research methodology
• Expected policy recommendations

Expected Results and Deliverables

The outputs are expected to be published by international book publishers such as Routledge, Springer, or World Scientific. We aim for two books. All project members are mandated to submit a book chapter. Serie 1 (one book) will be edited by Han Phoumin, Youngho Chang, and Professor Fukunari Kimura; and serie 2 (the second book) will be edited by Han Phoumin, Prof Phouphet K and Prof Fukunari Kimura. We will also produce the policy brief from these studies.

Recommendations and Policy Implications

This project aims to inform policy debates and practices for advancing the ASEAN carbon market. The project will provide policy recommendations to address barriers and find ways to build the institutional capacity around the carbon market to allow some countries to catch up with other countries.

Project Timeline

The expected timeline (date/month/year) of launch, workshop, submission of report, publication, etc:

Research Team

1. Project team leader and editor: Dr Han Phoumin, Senior Energy Economist, ERIA
2. Co-project leaders: Han Phoumin and Associate Professor Youngho Chang (book 1 with Springer)
3. Co-project leaders and co-editors: Han Phoumin and Prof Phouphet K, (book 2 with Springer)
4. Project advisor: Prof Fukunari Kimura, Chief Economist, ERIA

Tentative Team members: TBC

Remuneration

The research proposal, which falls under this theme, will be awarded US$4,000 as part of the honorarium if successfully selected for participation in this study. Only successful candidates will be contacted.

Deadline of proposal submissions: 30 April 2024

References:

1. The Guardian (2007) Stern: Climate Change a ‘Market Failure’. Access at [https://www.theguardian.com/environment/2007/nov/29/climatechange.carbonemissions]
2. London School of Economics and Political Science [LSE] (2022) What is the polluter pays principle? Access at [https://www.lse.ac.uk/granthaminstitute/explainers/what-is-the-polluter-pays-principle/]
3. Institute for Essentials Services Reform [IESR] (2023) Navigating Indonesia’s Carbon Market: Challenges, Opportunities, and the Road Ahead. Access at [https://iesr.or.id/en/navigating-indonesias-carbon-market-challenges-opportunities-and-the-road-ahead]