Carbon Markets Worldwide: From Cap-and-Trade to Taiwan's ETS Pilot

Updated on 6 October 2026. Taiwan's ETS pilot plans and first carbon fee collection, Korea's fourth phase, and EU and Indian implementation timelines have been updated.

Global Cap-and-Trade and Emissions Trading Systems (ETS) at a Glance

1. EU ETS: The World's Most Mature Carbon Market Benchmark

Since launching the EU ETS (Emissions Trading System) in 2005, the European Union has gradually established the world's most comprehensive and influential carbon market. Based on cap-and-trade, the system auctions and allocates emission allowances (EUAs) to encourage companies to internalise their emissions costs.

The system is now in Phase 4 (2021–2030), covering power generation, industry, aviation and maritime transport, added in 2024. The separate emissions trading system for fuels used in buildings and road transport, ETS2, has been postponed to 1 January 2028. Emissions caps tighten each year across the carbon market, driving up carbon prices.

Companies should pay attention to these five regulatory details and risks:

(1) Allowance Allocation Continues to Tighten

Industries at high risk of carbon leakage can still receive a proportion of free allowances, but this share declines each year. Companies whose emissions exceed their allowances must purchase EUAs to meet their obligations. Businesses should establish carbon inventories and forecast emissions and allowance demand early to avoid unexpected annual financial impacts.

(2) Rising Carbon Prices and Market Volatility Management

The EU ETS operates primarily through auctions, with prices determined by supply and demand. Carbon prices exceeded EUR 100 per tonne in 2023 and fluctuated sharply. The EU also maintains a Market Stability Reserve (MSR) to balance prices. Companies are advised to introduce internal carbon pricing or establish a trading risk management function to control cost volatility.

(3) The Carbon Border Adjustment Mechanism (CBAM) Takes Effect

The EU launched CBAM's transitional phase in October 2023 and its definitive phase on 1 January 2026. Emissions embedded in 2026 imports must be covered by CBAM certificates, which go on sale on 1 February 2027 and must be surrendered by 30 September 2027. Initial coverage includes iron and steel, cement, aluminium, hydrogen, fertilisers and electricity. Taiwanese exporters without carbon inventory and verification mechanisms will be unable to demonstrate carbon fees already paid and will have to pay the difference, creating a tangible carbon cost burden.

(4) MRV and Compliance Requirements

The EU ETS relies on a rigorous Monitoring, Reporting, Verification (MRV) framework. All regulated companies must prepare carbon inventories and verify data in standard formats. This has become an entry requirement for businesses seeking to work with European supply chains.

(5) Incentives for Green Investment and Complementary Policies

Companies investing in low-carbon transition can apply for support such as the EU Innovation Fund. Carbon market revenues also support energy efficiency, renewable energy and industrial transformation policies within member states, creating a positive economic cycle.

💡 Key Reminder: If your company works with EU supply chains or exports to Europe, establish an ISO 14064-1 or ISO 14067 verification framework promptly and monitor CBAM and EUA market developments to anticipate costs and response strategies.

References:
CBAM's Definitive Phase: Preparation Priorities for Taiwanese Companies
European Commission – EU ETS Factsheet
CBAM Regulation – European Commission

2. Japan's GX-ETS: Voluntary Participation and Financial Tools for Green Transformation

Japan officially launched the GX-ETS (Green Transformation – Emissions Trading Scheme) in 2023 to develop its carbon market through voluntary participation. Rather than mandatory emissions cuts, its design uses voluntary corporate commitments, transparent disclosure and financial incentives to encourage investment in low-carbon technology upgrades and industrial transformation.

Companies should pay particular attention to these five features:

(1) Disclosure of Voluntary Reduction Targets

Participating companies must set specific medium- and long-term emissions reduction targets and publish them on the GX League website. This builds stakeholder trust, including among investors and supply chain partners, while supporting ESG ratings and access to funding.

(2) Simulated Trading and Carbon Pricing Capabilities

In its early stages, GX ETS primarily uses a simulated trading market. Companies exchange and trade allowances based on actual emissions. Although trades cannot be settled in cash, they help develop internal carbon accounting and financial management capabilities, laying the groundwork for future pricing or international alignment.

Response strategy: Taiwanese companies can simulate carbon inventory and allowance management processes to strengthen their readiness for international systems.

(3) Linking Transition Finance Instruments

GX ETS is more than a carbon trading platform: it is also linked to green finance instruments such as Transition Bonds and transition loans. Companies presenting clear decarbonisation pathways and technology upgrade plans can obtain funding from banks and investment institutions.

(4) Supporting Low-Carbon Technology and Supply Chain Collaboration

The GX League emphasises vertically integrated supply chain decarbonisation. Large companies collaborate with suppliers on carbon information exchange and low-carbon innovation, forming collective decarbonisation alliances and jointly developing technologies such as hydrogen, bioenergy and CCUS.

Recommendation: SMEs should proactively disclose carbon footprint information to major customers to seek inclusion in Japanese companies' low-carbon procurement lists.

(5) Information Transparency and ESG Integration

GX ETS publishes participating companies' targets, trading records and performance online and works with ESG rating agencies and the financial sector to make carbon performance a factor in investment assessments.

Recommendation: Corporate ESG teams should work with finance departments to develop carbon performance tracking reports in preparation for future capital market engagement.

💡 Overall, GX-ETS is centred on pursuing growth and decarbonisation together. It uses market incentives, data transparency and financial links to influence corporate behaviour rather than penalties and mandatory requirements. For Taiwanese companies supplying Japanese businesses or planning to enter Japan's carbon market, GX ETS provides an important reference framework and practical benchmark.

References:
GX League
A New GX Leadership Declaration to Support Companies Actively Creating GX Markets

3. Korea's Carbon Market: Asian Carbon Trading Challenges and Opportunities Through K-ETS

Launched in 2015, the Korea Emissions Trading Scheme (K-ETS) covers carbon-intensive sectors including power generation, steel, petrochemicals, semiconductors and cement. It has entered Phase 4 (2026–2030). Approved on 11 November 2025, the allocation plan sets a five-year cap of 2.5373 billion tonnes CO₂e, introduces a quantity-based market stability reserve and increases auctioning.

Although K-ETS is mandatory, implementation has revealed limited market liquidity, unstable carbon prices and substantial government intervention, offering valuable lessons for other emerging markets. Taiwanese companies should consider these five key details:

(1) Allowance Allocation and Auctioning Are Being Adjusted

Phase 4 increases auctioning but does not introduce full auctioning. The power sector's auction share will rise gradually to 50% in 2030. Industries exposed to carbon leakage, including steel, petrochemicals and cement, retain 100% free allocation, while other non-power sectors face a 15% auction share.

Recommendation: Companies should assess the carbon costs of entering auctions and establish internal carbon budgets and investment mechanisms early.

(2) Limited Trading Activity and High Price Volatility Risk

Phase 3 faced issues including allowance surpluses and market liquidity. The Phase 4 allocation plan introduces a quantity-based Korean Market Stability Reserve (K-MSR), but companies must continue monitoring carbon prices and compliance costs.

Response strategy: Include K-ETS prices in carbon risk assessments and establish an internal reference carbon price (shadow pricing) to avoid misleading decisions on low-carbon transition.

(3) A Comprehensive and Rigorously Enforced MRV Framework

The Korean government has introduced an internationally aligned MRV framework for inventories, reporting and verification. All regulated companies must classify emission sources, prepare inventory reports and obtain third-party verification. Verification results affect allowance allocation and penalty decisions.

Recommendation: Taiwanese companies seeking to enter the Korean market or work with Korean businesses should establish emissions reporting and verification mechanisms aligned with K-ETS requirements.

(4) High Expectations for Corporate Management Transparency

The government publishes regulated entities' carbon emissions and allowance allocations annually, strengthening public oversight. Some private ESG rating agencies also incorporate this information into their indicators, creating additional disclosure pressure.

Recommendation: Taiwanese companies working with Korean brands or distributors should establish voluntary disclosure mechanisms to strengthen trust in supply chain partnerships.

(5) Frequent Policy Intervention and System Adjustments

Despite its maturity, K-ETS remains subject to considerable policy changes, including allowance reallocations, changes to offset limits and price intervention, increasing strategic uncertainty for businesses. The Korean government is also integrating K-ETS with ESG finance and green investment to broaden its policy role.

💡 Overall, K-ETS has established legal and technical foundations, but the system is still being strengthened. Export-oriented Taiwanese companies with Korean supply chain links or Korean competitors should understand its structure and carbon pricing pressures to prepare early and build a competitive advantage.

References:
K-ETS official site – Korea Environment Corporation (KECO)
International Carbon Action Partnership (ICAP) – ETS Detailed Information: Korea

4. Emerging Economies: India, Indonesia and Brazil Are Also Developing Carbon Markets

(1)India's national Carbon Credit Trading Scheme (CCTS) is listed in ICAP's 2026 report as launching in 2026. Companies should confirm specific compliance requirements for their sectors against local announcements.

(2)Indonesia passed carbon pricing legislation in 2021 and began pilot trading in the power sector in 2023, launching the first phase of its mandatory carbon trading system.

(3)Brazil passed legislation in November 2024 establishing the Sistema Brasileiro de Comércio de Emissões de Gases de Efeito Estufa (SBCE), expected to become fully operational within the following five to six years. The cap-and-trade system allows companies to offset emissions by purchasing carbon credits and plans to link with European carbon offset markets.

References:
ICAP – Emissions Trading Worldwide 2024 Report
World Bank – State and Trends of Carbon Pricing 2024
Argus – India consults industries on emission intensity targets
Mt.Stonegate – Navigating Indonesia's Carbon Market: Progress, Policy, and Pathways Toward Net-Zero
ICAP – Brazil adopts cap-and-trade system

Taiwan: Carbon Fees Begin as an ETS Takes Shape

2025: The Carbon Fee System Takes Effect

Taiwan introduced its carbon fee in 2025, with a general rate of NT$300 per tonne CO₂e and preferential rates of NT$50 under Rate A and NT$100 under Rate B. On 3 June 2026, the Ministry of Environment announced the first collection results: by the 1 June deadline, all 461 facilities belonging to 240 companies had paid, totalling NT$4.97 billion. Voluntary reduction plans were approved for 402 facilities, with 64 qualifying for Rate A and 338 for Rate B. Carbon fee revenues will fund:

• Research and development of greenhouse gas reduction technologies
• Subsidies for low-carbon transition costs
• Stronger green industrial competitiveness
• Incentives for greenhouse gas reduction efforts

ETS Pilot Planning: Targeting a 2028 Launch

According to the Ministry of Environment's 15 September 2026 statement, a draft ETS pilot plan is expected by the end of 2026, followed by further institutional and corporate participation preparations in 2027, targeting a pilot launch in 2028. Initial participants will be larger emitters with existing voluntary reduction plans. Coverage, allocation and market rules remain under development. Preparations focus on:

• Dual Carbon Pricing: Carbon Fees Alongside Emissions Trading
  The Ministry of Environment plans a dual carbon pricing policy combining fees and trading. Carbon fees provide price stability, while emissions trading encourages companies to pursue the most cost-effective emissions reductions.
• Establishing MRV, Allowance Allocation, Review and Verification Systems
  The Ministry of Environment is establishing a comprehensive monitoring, reporting and verification (MRV) framework and designing review and verification mechanisms to ensure fairness and transparency in emissions trading.
• Developing Carbon Credit Markets Alongside Voluntary Reduction Projects
  Voluntary reduction projects are submitted and reviewed under approved methodologies. They are distinct from voluntary reduction plans under the carbon fee system and ETS emission allowances and cannot simply be treated as the same type of credit.

References:
Ministry of Environment – Carbon Fee Information
Earlier planning information from the Small and Medium Enterprise and Startup Administration, Ministry of Economic Affairs (pilot timing follows the Ministry of Environment's September 2026 statement cited here)
Ministry of Environment Amends the Regulations Governing Greenhouse Gas Accreditation Bodies and Validation and Verification Bodies
United Daily News (2025/04/30) – Taiwan Carbon Solution Exchange, TWSE and National Sun Yat-sen University Hold Seminar on Taiwan's ETS Development

Sources for National Timelines: ICAP: ETS2 Postponed to 2028, ICAP: Korea's Phase 4 Allocation Plan, ICAP Status Report 2026, Ministry of Environment's September 2026 ETS Pilot Plans, First Carbon Fee Collection Results, Carbon Fee Rate Announcement, Voluntary Reduction Projects and Carbon Markets Explained.

CBAM's definitive phase began on 1 January 2026, and certificate sales start on 1 February 2027. Sources: European Commission CBAM Portal, CBAM Certificate Sales Platform Timeline.

Carbon Fee System Carbon Credits Emissions Trading System (ETS)