The region accounts for more than 50 per cent of greenhouse gas emissions internationally and 55 per cent of global GDP, making it a dominant player in the world’s climate response. However, the region’s carbon market currently covers only 28 per cent of regional emissions, read the study.
Global carbon markets could cut the cost of implementing nationally determined contributions (NDCs) by more than half, saving up to US$250 billion by 2030, noted the analysis. Last year, global carbon pricing mechanisms mobilised more than US$100 billion for public budgets, the bulk of which was earmarked for environmental, infrastructure, and development projects.
“Unlike the European Union’s mature, unified carbon market, Asian carbon markets are characterised by rapid scaling-up, diverse development stages and strong potential for regional synergy,” said Pedro Gomez, head of industry agenda at the World Economic Forum and co-author of the report.
Malaysia, Indonesia, Singapore, and Thailand have signed a memorandum of collaboration at COP29 in November to advance regional carbon market integration through Asean’s Common Carbon Framework (ACCF). Image: SSFA
Asia is home to advanced carbon markets such as those in China, Japan, South Korea, and Singapore, as well as nascent systems in Southeast Asia that could mobilise the region’s annual US$800 billion climate financing gap by lowering abatement costs through flexibility and innovation, read the analysis.
For instance, Gomez cited how China, which hosts the world’s largest carbon market and the biggest mandatory national emissions trading system (ETS), relaunched its voluntary carbon market in a bid to achieve emissions cost reductions and renewable energy goals. The superpower’s ETS could reach up to US$84 billion in market size by 2030, driven by 2 billion tonnes of carbon traded at a maximum of US$ 42 per tonne, he added.
Meanwhile, an ETS is in force in Indonesia, under development in Vietnam and Malaysia, and being considered in the Philippines and Thailand.
Regional initiatives like Asean’s Common Carbon Framework (ACCF) and Japan’s Joint Crediting Mechanism (JCM) are developing common, localised carbon crediting methodologies to recognise each other’s projects and credits, read the report.
“Such collaboration could enhance the effectiveness of regional carbon markets and drive collective progress towards low carbon development,” it added.
Article 6.2 boosts Asia’s crossborder carbon trading
Asia is the leading issuer of Article 6.2 deals, with Japan, Singapore and South Korea among the most actively involved buyers, enabling more international collaboration for the carbon market, the study also found.
These countries have used Article 6.2, which establishes rules for countries to voluntarily collaborate on emissions reductions, to purchase internationally transferred credits from lower-cost reduction projects in Asia, particularly nature-based solutions like reforestation and renewable energy projects.
“Central to this effort [of limiting global warming] is Article 6 of the Paris Agreement, which has emerged as a transformative framework for international cooperation, enabling crossborder carbon trading, harmonising standards and mobilising global capital to scale up climate solutions,” wrote Sebastian Buckup, managing director of WEF, in the study.
Japan relies on mechanisms like the JCM to accumulate emission reductions, including the installation of solar power systems in Ho Chi Minh City’s commercial centres and the deployment of high-efficiency amorphous metal transformers in southern Vietnam’s distribution system. These projects generate verified emission reductions that Japan can use to help meet NDCs under the Paris Agreement.
For its part, Singapore has introduced a carbon tax covering 80 per cent of emissions and procures Article 6 credits through government tenders, focusing on nature-based solutions. The city-state leads Southeast Asia in its participation in international carbon markets, having inked memorandum of understandings with Vietnam, Cambodia, Laos, the Philippines and Malaysia to collaborate on carbon credits.
South Korea operates a comprehensive ETS covering 79 per cent of national emissions and uses benchmarking strategies to incentivise carbon abatement. It applies Article 6 to purchase internationally transferred credits through bilateral cooperation agreements with countries like Mongolia, Vietnam, Gabon, Fiji, Lao, and Uzbekistan. The East Asian regional power purchases carbon credits generated from renewable energy, energy efficiency, and landfill gas capture projects in these countries, which typically have lower mitigation costs.