Asian economies are accelerating the development of carbon pricing systems as a central tool to drive decarbonisation. With the region responsible for around half of global emissions, these frameworks will be decisive for global climate action. Carbon pricing is advancing unevenly across the region. Japan and South Korea already operate large-scale systems covering, respectively, 60% and 79% of national emissions, while Vietnam, Indonesia, and the Philippines are still in the early stages of designing and piloting carbon-pricing instruments.

This also comes at a time when the EU’s Carbon Border Adjustment Mechanism (CBAM) starts entering into force, and exports to the EU in sectors such as cement, steel, iron, aluminium, fertilisers, electricity and hydrogen will gradually face a carbon cost. Under the CBAM regulation, importers can claim a reduction in the number of CBAM certificates they have to surrender in order to account for a carbon price “effectively paid” in the country of origin. From a national economic perspective, it is preferable to impose carbon costs internally rather than paying a levy at the EU border.

This report examines potential CBAM costs for Japan, South Korea, Vietnam, Indonesia, and the Philippines, based on their trade exposure, production outlooks, and progress toward implementing a domestic carbon price signal.

While the CBAM is often seen as a major threat to Asian exporters, this report shows that its overall impact remains limited and decreases with the implementation of an effective domestic carbon pricing system. CBAM-covered goods always represent only a small share of total exports, which limits its impact. Even in the most exposed cases, estimated CBAM fees remain in the order of hundreds of millions of dollars, not billions.

Sandbag’s modelling suggests that Japan and South Korea feature as countries that will face among the highest EU CBAM fees, of $619 million applied to South Korean products if a modest carbon price of $7 is paid in the country of origin (1.74% of the value of imported South Korean goods to the EU), and $291 million applied to Japanese products (0.96% of the value of their traded goods) if no carbon price is paid in Japan.

CBAM fees are only part of the picture. The CBAM, combined with the phasing out of free allocation in the EU ETS, raises carbon costs for all affected goods sold in the EU regardless of origin, which shifts the market price upward for all sellers. Once the revenues from higher selling prices are taken into account, net costs for South Korean goods fall to $196 million and for Japanese goods they fall to just $115 million. A detailed overview of the impacts and other countries can be found in the report’s appendix.

These costs can be further reduced. Stronger domestic carbon pricing and cleaner production directly lower CBAM payments. This makes effective carbon pricing a strategic opportunity to deliver emission reductions at reduced costs.