The Association of Southeast Asian Nations (ASEAN) holds vast potential for generating carbon credits, given the region’s rich biodiversity and renewable energy sources. Climate experts suggest that member countries should collectively commit to a timeline for implementing regionwide carbon trading.
Carbon credits are a market-based mechanism designed to incentivize the reduction of greenhouse gas emissions. They are generated when entities take specific actions to reduce or remove CO2 and other GHG. This can be achieved through various ways, such as transitioning to renewable energy, implementing energy-efficient practices, investing in carbon capture and storage projects, or participating in reforestation and afforestation initiatives.
Once the emission reduction is verified typically by independent verification bodies such as Verra or Gold Standard, these entities receive carbon credits, each representing a specific amount of avoided or removed emissions. These carbon credits can then be traded on the carbon market to other entities that need them to meet their emission reduction targets. This process not only provides financial incentives for sustainable practices but also contributes to efforts to combat climate change by facilitating the transfer of emission reduction to where they can be most efficiently achieved.
ASEAN holds out huge potential for generating carbon credits, given the region’s abundance of renewable energy sources such as hydro, solar and geothermal. Indonesia, Malaysia and the Philippines comprise three of the world’s 17 megadiverse countries. However, the carbon credit system remains elusive. To date, ASEAN countries have not attempted to forge a unified timeline or collective commitment for the implementation of carbon trading across the region.
Every ASEAN member has its own unique political, economic, and environmental considerations, which influence their individual approaches and timelines for implementing carbon trading initiatives. Singapore, the most advanced economy in the region, has taken significant steps in carbon pricing, notably in implementing a carbon tax in 2019 and establishing a state-owned exchange, Climate Impact X, to drive carbon credit trading initiatives.
In March 2023, Malaysia followed suit with the founding of the Bursa Carbon Exchange (BCX) and the launch of an auction platform for carbon credits to prove the viability of carbon trading.
Other South Asian countries are also venturing into this space. As one of the largest carbon emitters globally, Indonesia faces substantial challenges in curbing emissions. Despite delaying the rollout of a carbon tax citing adverse economic conditions, the country recently announced plans to launch a carbon exchange in the second half of this year.
As of January 2023, Thailand has shown interest and opened a platform for carbon credit trading, FTIX, aimed at providing exporters with the option of buying these credits. Other ASEAN members such as Vietnam, Philippines, Brunei, Cambodia and Laos have different levels of readiness when it comes to setting up a carbon platform and have not made solid commitments regarding the issue.
According to sustainability experts, there are many potential benefits ASEAN could receive from carbon trading. It has been estimated that the value of carbon credit markets could increase by up to $277 billion in investments.
The ASEAN region holds almost 25% of the world’s potential for natural climate solutions with an estimated 58% of threatened forests (about 114 million hectares) in ASEAN being seen as financially viable carbon credit projects. Proceeds from these projects could be channeled toward spurring investments in renewable energy, energy efficiency, and sustainable practices, thereby fostering the development of green industries while creating new job opportunities.
There are risks and challenges associated with carbon credit mechanisms, as acknowledged by the authoritative Intergovernmental Panel on Climate Change. These challenges include integrity in governance, equitable distribution of benefits, potential adverse impacts on competitiveness and negative social and environmental impacts.
The challenges must be carefully considered for carbon credit trading to be effective. ASEAN nations can follow a few steps to establish a robust carbon trading platform. First, it is important to construct a regulatory framework for carbon trading. The framework should set clear rules for participation, monitoring, reporting and verification of emissions reduction. Second, the region must set accurate baselines and emission inventories. This requires investment in data collection, technology, and capacity building.
Third, cooperation with international organizations and sharing of best practices from more mature carbon markets, such as the U.S. or Europe, can help ASEAN nations adopt standardized methodologies and ensure the integrity and credibility of the carbon credit market.
Lastly, the region can begin implementing pilot programs. ASEAN countries that are new to carbon trading could lead with piloting initiatives within selected industries to evaluate the effectiveness of the system and make necessary adjustments. This was seen in Malaysia’s BCX, where participants were allowed to test out the trading platform and provide feedbacks.