According to IETA’s latest report (June 2025), more than 38 Emissions Trading Systems (ETS) are currently in operation worldwide, covering nearly 20% of global emissions and over 50% of global GDP. CBAM is credited as a key driver behind this policy momentum.
More than just a technical trade measure, CBAM is raising deeper questions about how to align ambitious climate goals with global trade principles. This is particularly pressing in Asia - home to export-dependent economies closely linked to the EU.
In this article, KLINOVA summarizes the evolving responses to EU’s CBAM regulations of three major Asian economies: South Korea, Japan, and China according to the report of IETA (2025).
South Korea: Accelerating K-ETS Reforms to Mitigate Cost Risks
As a heavily industrialized and export-oriented economy, South Korea ranks among the countries most directly impacted by CBAM, despite having operated its K-ETS since 2015.
The year 2025 has brought a wave of key reforms: relaxed allowance banking rules, extended offset conversion timelines, increased auctioning for the power sector, and a benchmark-based allocation increase from 65% to 75% for industrial installations. Additionally, financial institutions, including banks and asset managers, have been allowed to participate in carbon trading since February 2025.
Notably, South Korea’s Ministry of Environment has established a dedicated International Cooperation Bureau to coordinate national policies at the climate–trade nexus and to lead Korea’s engagement in international negotiations on CBAM.
Japan: Politically Reserved, Technically Adaptive
Japan’s direct exposure to CBAM is lower than South Korea’s, but the steel sector - a major exporter to the EU, remains under significant pressure. In response, the Ministry of Economy, Trade and Industry (METI) released technical calculation guidelines for CBAM-covered products such as screws and bolts.
Looking ahead, Japan plans to introduce a national carbon levy in 2028 or 2029, targeting fossil fuel importers such as energy traders and utilities.
A major policy shift occurred in May 2025, when the Japanese Diet passed legislation to make the GX-ETS (Green Transformation Emissions Trading Scheme) mandatory starting in 2026. The scheme will apply to companies emitting over 100,000 tCO₂ per year, transitioning the ETS from a voluntary to a regulatory compliance tool.
Despite these moves, Japan remains politically cautious. Domestic industries have voiced concerns over potential WTO inconsistencies in CBAM’s design and the requirement to disclose sensitive cost data.
China: Political Resistance, Technical Adjustment
China has maintained its vocal political opposition to CBAM, denouncing it at platforms like BRICS and COP29 as a “unilateral trade-restrictive measure.”
Yet beneath this diplomatic stance lies a pragmatic effort to adapt technically. In 2025, China published its national electricity emission factor (0.6205 kgCO₂/kWh), standardized carbon accounting for exported products, and issued low-carbon export standards, particularly for solar PV modules.
Meanwhile, the country is pursuing deep reform of its national ETS, launched in 2021 and currently covering the power sector. By the end of 2025, the ETS will expand to steel, cement, and aluminum, with a shift from an intensity-based to an absolute cap planned in coming years.
China also relaunched its voluntary carbon market (CCER) in early 2024, after a six-year suspension, integrating it with national compliance systems.
CBAM Is Redefining the Rules of Global Trade
Across all three economies, a common thread emerges: CBAM is no longer just an EU policy, it is now a global driver of carbon market reform. While each country’s response varies in pace and scope, all three are adapting, not only to shield their exporters, but to avoid being sidelined in the transition to a low-carbon global economy.
CBAM is accelerating the establishment of ETS, the enhancement of measurement, reporting and verification (MRV) frameworks, and discussions around interoperability of carbon markets.
Key Challenges Ahead:
- How can ETS systems be mutually recognized to reduce double compliance burdens?
- What common standards are needed for MRV, product coverage, and credit accounting?
- Can WTO and COP become constructive forums for carbon trade governance, instead of flashpoints for conflict?
CBAM, once a unilateral policy by the EU, is now at the center of a fast-evolving climate–trade ecosystem. For developing countries in particular, the question is not whether to engage, but how to adapt effectively, in ways that are equitable, competitive, and aligned with national development priorities.
Source: IETA – Evolution of Global Response to EU CBAM, June 2025:
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