REM Asia 2023 highlights: Challenges and opportunities facing Asia's carbon markets


In response to the global net zero trend, governments in Northeast and Southeast Asia have announced policy plans, covering carbon taxes, carbon trading, as well as mandatory and voluntary markets. While everything seems in the progress, the Renewable Energy Markets (REM) Asia 2023 conference held in Singapore on April 27-28 provided a different perspective.

The conference focused on the development of renewable energy market in Asia, attended by participants from China, Japan, South Korea, Singapore, Vietnam, Malaysia, and Indonesia, allowing a better understanding of the current status of policy implementation in Asian countries. In general, there are two major issues of concern for Asia's carbon markets:


Low carbon prices and slow implementation of carbon taxes

As the implementation deadlines for the U.S. carbon tariff and the EU's Carbon Border Adjustment Mechanism (CBAM) approach, governments are introducing carbon trading schemes or carbon taxes to prevent capital outflows to other countries. While the operating systems are different, both carbon trading and carbon taxes set a price for carbon to align with the international market. Especially in Northeast Asia and Southeast Asian countries, which are major exporters of metals and electronic components, the implementation of the carbon tariff has sounded alarm bells for many companies. However, the actual implementation of the policies has not progressed as expected, and some countries are even at a standstill, which makes it difficult to successfully align with the U.S. carbon tariff by 2024.

In China, where a national carbon trading system has been adopted, set a price of about US$8 per tonne. However, due to the limited trading volume since the system only includes the power industry (more than 2,000 companies) at the moment, as well as the economic pressure after the pandemic, the Chinese business community believes that the market will remain inactive until the end of this year, and it is unlikely that more industries will be included in the near future. At a price of $8, China will be subject to the cost pressures of the U.S. carbon tariff starting at $55 per tonne in 2024. South Korea, which has also adopted a carbon trading system, has seen its carbon prices fall steadily from US$15 per tonne last year to about US$10 this year due to the government’s inability to address oversupply of allowances. If this situation cannot be improved, it will be detrimental to the competitiveness of businesses.

On the other hand, Indonesia has established a carbon tax system, targeting only coal-fired power plants in the first phase. However, it was originally scheduled to start in April 2022, but was later postponed to July and has yet to be launched this year. Thailand also planned to implement a carbon tax this year, but has not yet announced any implementation details and is not expected to do so until next year at the earliest. The examples of these four countries show that despite the governments' willingness to implement a new system, lack of force has slowed the progress.

Southeast Asia’s natural resource potential and cross-border cooperation

The global market value of voluntary carbon credits has exceeded $2 billion, with a trading volume approaching 300 million tonnes (CO2 equivalent). Meanwhile, due to the increasingly stringent international requirements on the quality of carbon credits, renewable energy projects will be phased out of the market and replaced by nature-based projects, such as afforestation and blue carbon. These projects are exactly where the potential lies in Southeast Asian countries, where rich marine resources and high forest coverage have led to an increasing number of developers moving in for carbon credits. However, the voluntary carbon market still faces its own challenges.

For example, companies purchase carbon credits to offset emissions, but in Singapore, only 5% of the total number of carbon credits are acknowledged by the government and are required to meet certain project types and ensure no double counting. In fact, voluntary carbon credits can be used globally but there are no clear regulations governing double counting, resulting in very few credits available for purchase within the country. To address this issue, the Singapore government has cooperated with Ghana to develop a carbon project that specifies the type and ownership of carbon credits through a Memorandum of Understanding (MoU) to ensure the applicability of carbon credits purchased by companies. Cases like this are rapidly growing, such as the one between Japan and Vietnam. After all, no one wants to waste great natural resources and miss out on the carbon credit opportunity.


How companies can respond to the two issues

For businesses, both carbon trading and carbon credits can be great opportunities to turn the tables. Under a carbon trading (or carbon tax) system, companies should not solely rely on government's carbon pricing measures, but should examine their own sources of emissions and minimize potential carbon costs, or even sell extra credits to others to create another source of revenue. In addition, companies can start paying attention to the development of the voluntary market and look for opportunities in terms of price, the volume of carbon credits purchased by competitors, and development channels.

Take Climate Impact X (CIX), Singapore's carbon exchange, for example, has many customers from Singapore, Vietnam, Indonesia, who are under pressure not from the governments, but from parent companies or supply chain requirements in Europe and the U.S. This shows that if companies only follow the government's footsteps, they are likely to lag behind their competitors. Therefore, whether net zero is a crisis or an opportunity depends on the deployment speed of businesses.

Learn more: Renewable Energy in Southeast Asia and Global Carbon Market Trend



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