Carbon markets could unlock a total revenue of $3 trillion for southeast Asian countries by 2050, according to a joint report by carbon market platform Abatable, the Asean Alliance for Carbon Markets and advisory firm Equatorise.
The cumulative revenue of $3 trillion could be generated through the reduction or removal of emissions equivalent to 1.1 gigatonnes/yr of CO2 over 2025-50, states the report, which was released on 4 December. The amount is made up of estimated potential total values of reducing emissions from deforestation and degradation (REDD+) markets at $27bn/yr, blue carbon markets at $96bn/yr and biochar carbon markets at $144bn/yr by 2050.
The projected amount is significant when considering the wider Asia-Pacific region needs at least $1.1 trillion/yr in climate financing, but is facing a shortfall of at least 815bn/yr.
Asean members such as Singapore, Malaysia and Thailand have already turned to carbon pricing as a means to generate funds for their transition. Singapore and Indonesia have introduced carbon taxes, while Thailand has developed and is operating a voluntary carbon credit scheme. Indonesia, Malaysia and Singapore have all launched exchanges or platforms for carbon trading.
Asean member states emitted around 3.5bn t of CO2 equivalent (CO2e) in 2023, making up about 4pc of global emissions, according to the report. Out of this, nearly 50pc or over 1.7bn t/yr of CO2e comes from the energy sector. At the same time, the region has generated over 233mn t of CO2e in carbon credits over 2009-24, or about 7pc of global issuances.
Recommendations
Southeast Asia has significant potential to supply carbon credits through nature-based solutions, states the report. A novel type of project that the region can look into is biochar, which is created from agricultural or forestry residues, of which Asean has in abundance from forests, rice husks and palm.
Carbon credits generated from the early retirement of coal-fired power plants could also be a solution.
Asean should develop carbon market regulations to establish clarity in policy and foster a more attractive investment landscape, according to the report. The group should also ensure the necessary institutional and technical capacity is developed to create a robust carbon market.
On a regional level, Asean could support governments by creating a regional carbon market network that allows members to collaborate and leverage expertise from some of the countries, to benefit the wider region.
This regional network could materialise soon. Representatives from Asian carbon market associations at the UN Cop 29 climate summit last month signed an agreement to collaborate on a Common Carbon Framework that is aimed at unlocking the potential carbon project opportunities in the region, and fostering interoperability among Asean carbon markets to increase market liquidity.
Members should also develop robust compliance schemes to create demand for carbon projects, states the report. Implementing an emissions trading scheme or carbon tax would incentivise decarbonisation, and in the longer term, countries can link their markets to collaborate on achieving their targets.
Singapore has already signed multiple Article 6 agreements with other nations, although none with a fellow Asean member yet. Asean could look to facilitate a region-wide agreement that would enable trading under Article 6.2, which would be attractive to buyer countries looking to maximise supply access in the region while only having to deal with the framework of one agreement, states the report.
