Evaluating policy success of emissions trading schemes in emerging economies: comparing the experiences of Korea and Kazakhstan

ABSTRACT

Emissions trading schemes have been increasing in popularity as a market-based instrument to meet CO₂ reduction commitments. In this paper, we examine the emission trading schemes (ETS) of Kazakhstan and Korea, two emerging economies. We do so by using a policy success typology, which includes programme, process, political, temporal, distributional and capacity dimensions, and operationalizing criteria that the Partnership for Market Readiness and International Carbon Action Partnership have identified as key to effective ETS scheme design. We find that these criteria, or ETS success dimensions, align well with a typology of policy success. Using indicators developed to evaluate each ETS success dimension, we identify the positive and negative attributes of both Kazakhstan’s and Korea’s ETS and provide a qualitative ranking for each ETS success dimension. This evaluation and ranking allows us to identify necessary conditions for policy success in emerging market ETS: consultation with stakeholders in both the design and implementation stages; development of human and institutional home-grown capacity; mechanisms to solve illiquidity issues using market interventions; development of legitimacy from the perspective of business over time; implementation of policies that are complementary to an ETS; and flexibility to enable firms to manage periods of low revenues. Our findings provide important lessons for emerging economies planning to implement their own ETS, which may be more relevant than experiences from developed nations’ ETS.

Key policy insights

• ETS success requires more than political will and reaching programme goals.

• Identifying and involving key business and public stakeholders is necessary for ETS success.

• Capacity building within the public and private sectors should be implemented from the design stage of an ETS.

• In emerging economies, where increases in energy prices could lead to social unrest, complementary policies are necessary to ensure cost pass-through.

• Liquidity problems likely be experienced during the initial stages of an ETS need to be addressed.

KEYWORDS:

• Emissions trading schemes
• policy success
• climate policy frameworks
• comparative analysis
• emerging economies

Acknowledgement

The authors thank Nazarbayev University for funding this research. Furthermore, the authors express their gratitude to the anonymous reviewers and the editors for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

ORCID

Peter Howie http://orcid.org/0000-0002-7711-4757

Notes

1 Average GDP growth rates during 2000–2018 for Kazakhstan and Korea were 4.1% and 6.6%, respectively. As a comparison, the average GDP growth rate in the EU during the same period was 1.4% (World Bank, 2019).

2 Per capita emissions of CO₂ in 2014 for Kazakhstan and South Korea were 14.4 and 11.6 metric tons, respectively (World Bank, 2018). This puts their per capita emissions in the top 10 excluding Luxembourg, New Caledonia and similar very small countries.

3 All changes to electricity and heat tariffs must be submitted to the Kazakhstan Antimonopoly Commission for approval. The cost of carbon is currently not on the list of cost elements and therefore cannot be passed on to consumers (Sammut et al., 2018).

4 In Phase 3, three large industrial groups (Eurasian Resources Group, Samruk Energy and Arcelor Mittal) together received 49% of allowances.

5 In Phase 2, 4 million additional allowances were issued outside of the allowance reserve by increasing the overall allocation, in effect increasing the cap.

6 KazETS trading statistics are derived from authors’ calculations of Caspy data.

7 The TMS was launched in 2012 as a transitional ETS policy tool for both large GHG emitters and large energy consumers to build capacities within industries and local governments and prepare for the KETS (Shabb & Reyes, 2017; Kim & Lim, 2014). Data collected under the TMS was also used to compile the national inventory (Shabb & Reyes, 2017).

8 Indirect emissions are restricted to electricity consumption.

9 In Phase 1, the MSR reserve was 14 MtCO₂ and 34.5% of this reserve was released to auction.

10 KETS trading volume-weighted prices are derived from authors’ calculations of KRX allowance data.

11 The ETSs that Narassimhan et al. (2018) assess are the EU-ETS, Switzerland ETS; United States Regional Greenhouse Gas Initiative (RGGI); Quebec ETS; New Zealand ETS; KETS; and the seven Chinese ETS pilots.

12 Australian Productivity Commission, 2007 and 2008; Betz et al., 2004; Beuermann et al., 2017; Chmelik, 2007; Deane et al., 2017; Egenhofer et al., 2010; Farber, 2012; Harrison & Radov, 2007; Hawkins & Jegou, 2014; Hepburn et al., 2006; Kliksberg, 2005; Mickwitz, 2003; Narassimhan et al., 2018; Onda & Fine, 2011; Parry & Pizer, 2007; Raiser et al., 2002; Sandoff & Schaad, 2009; Stavins, 1995; Vinke-De Kruijf et al., 2012; Zetterberg, 2007.

13 Other complementary policies presently being implemented in Korea and Kazakhstan include: increasing coal import taxes and cutting LNG import taxes; converting existing coal plants to natural gas; and implementing auctions for a right to sell renewable energy at prices greater than the level of conventional electricity.

Additional information

Funding

This work was supported by Nazarbayev University: [Grant Number Contract ID: 090118FD5308].