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.