The Asia-Pacific (APAC) region is experiencing an acceleration in carbon pricing mechanisms. Driven by a combination of enhanced domestic climate ambitions ahead of COP 30, the full operationalization of Article 6, and the sweeping impacts of the European Union’s Carbon Border Adjustment Mechanism (CBAM), the landscape is shifting from fragmented pilot programs to maturing compliance markets.
In a recent ClearBlue Markets "Market by Market" client webinar, Chief Market Intelligence Officer Jennifer McIsaac and Principal Analyst and APAC specialist Yan Qin unpacked the rapidly evolving compliance and voluntary carbon markets across the region. From a regulatory "reset" in China to the launch of new centralized trading platforms in India, this deep dive explored the essential developments, fundamental modeling, and price forecasts shaping the future of global carbon trading.
The Unprecedented Scale of China’s Evolving Carbon Market
China's national Emissions Trading System (ETS) began its journey with pilot programs in 2013, officially launching national trading for the power sector in 2021. Today, it is undergoing an evolutionary leap.
The national ETS is actively expanding beyond the power sector to include three carbon-intensive industries targeted by the EU CBAM: aluminum smelting, cement, and steel. With this expansion, the ETS now covers approximately 8 billion tons of CO2 emissions, representing roughly 60% of China's total national emissions and establishing a market approximately seven times the size of the EU ETS. The system currently covers around 3,500 enterprises, with an average allowance price in 2025 hovering around CNY 81 (approximately $11 USD).
Looking toward the future, the scope will only grow. China plans to cover all industrial sectors and domestic aviation by 2027. By 2030, the carbon market is expected to cover up to 80% of China's total 40 billion tons of emissions, making it an undeniably dominant force in global carbon pricing.
The 2025 "Reset" and Long-Term Price Outlook
For market participants, 2025 will be remembered as the "reset year" for the Chinese carbon market. During the transition into the system's fifth compliance cycle, regulators introduced strict carry-over rules to address a massive surplus of nearly 400 million allowances accumulated from pre-2025 compliance cycles.
According to Qin, the regulator mandated that older vintage Carbon Emissions Allowances (CEAs) could only be converted in limited amounts, meaning from 2026 onward, only 2025 vintage CEAs can be used for ETS compliance. "It's like currency," Qin explained. "Your old bank notes cannot be used for compliance".
This sudden restriction forced enterprises to offload surplus allowances, driving prices down to a near all-time low of CNY 52. However, the regulator quickly stepped in to stabilize the market, increasing the banking quota for industrials and releasing high-level central government opinions on strengthening the carbon market to restore confidence. Consequently, prices rebounded and stabilized around CNY 80 to 81 in early 2026.
As for long-term price forecasts, ClearBlue Markets models suggest a gradual increase in carbon prices. China aims to hit a carbon emissions peak by 2030, and significantly, reduce economy-wide emissions by 7% to 10% from that peak by 2035. To meet these targets, the ETS must introduce auctioning (starting with 3% of yearly allowances in 2026) and transition to an absolute, declining emissions cap starting in 2031.
While prices are expected to rise to reflect abatement costs, Qin cautioned that they will not reach EU ETS levels in the near term. This is due to China's continued reliance on intensity-based allocations with soft benchmarks, an energy market structure that limits the pass-through of carbon costs to consumers, and overlapping complementary policies like fossil fuel subsidies and massive renewable energy build-outs.
The Re-emergence of China's Voluntary Market & Breaking Financial News
Running in parallel to the compliance market is China's domestic offset program. In 2025, China officially relaunched its National Voluntary Greenhouse Gas Emission Reduction Trading Market (formerly the CDM scheme which had been suspended since 2017).
The system has issued nearly 20 methodologies covering renewables, energy efficiency, and nature-based solutions. Notably, coal-bed methane projects are expected to be highly active, potentially generating 20 million tons of offsets per year by 2030.
Covered enterprises in the national ETS are permitted to use these new China Certified Emission Reductions (CCERs) to meet up to 5% of their compliance obligations. In a market of 8 billion tons, this 5% limit equates to a theoretical maximum demand of 400 million tons of offsets annually. Thus far, only about 20 million tons of new CCERs have been issued, causing them to initially trade at a premium of around 90 to 100 CNY, slightly above the allowance price. However, as the allowance market tightens and more offset supply comes online, CCERs are expected to become a cheaper compliance alternative.
Breaking Market News: During the webinar, Qin shared breaking news that will fundamentally alter market liquidity. For years, international and domestic financial institutions have been waiting for permission to directly trade Chinese allowances. On the day of the webinar, China's State Council officially released high-level opinions encouraging financial institutions to directly participate in carbon trading. A preliminary list of eligible institutions has already been circulated, signaling a massive influx of financial sophistication and liquidity into the CEA market.
The EU CBAM: A Global Catalyst
A primary driver forcing the rapid maturation of these APAC markets is the European Union’s Carbon Border Adjustment Mechanism (CBAM), which entered its definitive compliance phase on January 1, 2026.
CBAM targets highly carbon-intensive imports. Exporters to the EU must now meticulously track their embedded emissions or face punitive default values with substantial mark-ups.
Importantly, the CBAM regulation features a deduction mechanism: an EU importer can reduce the number of CBAM certificates they must surrender if a carbon price was "effectively paid" in the jurisdiction of origin. This includes domestic carbon taxes or emission trading costs, minus any free allowances or rebates.
During the Q&A, Qin clarified a vital technical detail regarding this deduction: the offset or deduction is measured in monetary terms, not strictly in tonnage. Because of this, APAC nations are heavily incentivized to fast-track their own domestic carbon pricing schemes so that the carbon revenue stays within their national borders rather than being paid as a border tax to the European Union.
The Diversified Asia-Pacific Landscape
Despite the shared goal of decarbonization and the looming pressure of CBAM, there is no single model for carbon pricing in the Asia-Pacific. Because national energy mixes, industrial policies, and stages of economic development vary wildly, the region features a highly diverse array of carbon taxes, cap-and-trade systems, and hybrid frameworks. Consequently, most APAC carbon schemes currently feature prices below $20 USD, prioritize familiarizing emitters with monitoring and reporting, and focus predominantly on thermal power.
Key developments across the region include:
- India: India accelerated its market development by launching a centralized carbon market trading platform in March 2026. This platform serves as the foundation for its Carbon Credit Trading Scheme (CCTS), which will support a large-scale voluntary market before transitioning into a compliance model covering 490 large industrial units across 7 energy-intensive sectors.
- South Korea: Preparing for COP 30, South Korea has announced an enhanced 2035 Nationally Determined Contribution (NDC) and finalized its Phase 4 allocation plan. It is also aiming to finalize a formal Market Stability Reserve by August 2026 to govern its K-ETS.
- Australia: Australia's enhanced NDC has necessitated steeper declines in its Safeguard Mechanism baselines. High-emitting facilities face a default baseline decline rate of 4.9% per year. Facilities that beat their baselines earn Safeguard Mechanism Credits (SMCs), while others rely on Australian Carbon Credit Units (ACCUs) generated through land-based projects.
- New Zealand (The Outlier): While most APAC nations are tightening their markets, New Zealand serves as a cautionary tale of policy impact. The country recently announced it would decouple its ETS targets from its NDC, leading to a severe decline in NZU prices as the market recalibrated to lower compliance ambitions.
- Emerging Markets: Countries like Vietnam, Indonesia, and the Philippines are actively refining their frameworks. Vietnam has scheduled a pilot stage for power, steel, and cement, while the Philippines is advancing a hybrid framework of emissions trading and carbon taxes.
The Article 6 Opportunity
Finally, the full operationalization of Article 6 under the Paris Agreement represents a strategic, highly lucrative opportunity for the Asia-Pacific region. With its vast natural capital and massive capacity for nature-based solutions, Asia is uniquely positioned to become a leading global exporter of Article 6.2 and 6.4 credits, unlocking new revenue streams to fund domestic decarbonization.
This opportunity is heavily amplified by the European Union. In February 2026, the EU legislated its ambitious 2040 climate goal, aiming for a 90% reduction in emissions compared to 1990 levels. Crucially, the EU determined that up to 5% of this 2040 target can be met using high-quality international credits.
The potential demand generated by this 5% allowance is staggering. According to calculations by the French Ministry presented at the European Climate Summit, this could translate to a cumulative demand of 716 million tons of international credits. While other market observers place the estimate slightly lower—between 300 million and 400 million tons—it represents a massive influx of foreign capital seeking high-quality offsets.
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To dive deeper into the fundamental modeling, precise exposure indices, and long-term price forecasts for these APAC markets, contact ClearBlue Markets about our Market Intelligence services delivered via the Vantage carbon intelligence platform.