Carbon credits from SEA: Quantifying regional interest

Southeast Asia is home to 15% of the world’s tropical forests and at least four of the world’s twenty-five most important biodiversity hotspots. That's why nature-based solutions from the region could play a critical role in reducing emissions and building resilience against climate events. However, such solutions only contributed to less than 1% of disclosed retirement activity in 2023. The region is not harnessing its full potential.

“[This] region is home to more than 25% of the world’s known plant and animal species although it only occupies 3% of the world’s surface area”

—Dr. Theresa Mundita Lim, Executive Director of ASEAN Center for Biodiversity (ACB) at COP28

Almost all ASEAN member states have set emission reduction goals to be reached by 2030. In pursuit of such sustainability targets, several Southeast Asian (SEA) nations are taking more proactive steps by setting a ‘cost’ to carbon. Singapore was the first in the region to adopt a progressive and universal carbon tax, with Brunei, Indonesia, Thailand, Malaysia, and Philippines considering the development of their own national carbon tax. Indonesia is currently a market participant and an active supplier of carbon credits; it launched a multi-phase rollout of its national compliance market targeting to include oil and gas-fired power plants and other industrial sectors. Nearly all other countries are either operating or considering a domestic carbon credits market, with aspirations to establish an ‘interoperable carbon market’ that connects to and interacts with other global markets.

State of ASEAN nature-based credits

Southeast Asia accounts for over 300 million cumulative voluntary carbon credit issuances, globally. The region is currently still a supply hub for quality Nature-based Solutions (NBS) credits, with most of the issuances dominated by forestry or coastal ecosystem projects largely due to the area’s natural attributes and the relative lower cost of investment when compared to technology-based credits. Unsurprisingly, most credit issuances have originated from Indonesia with over 144 million credits, followed by Cambodia, and Vietnam with over 56 and 42 million credits respectively.

Although SE Asia’s biodiversity is rich, the region is not as mature in developing NBS projects compared to other regions with similar potential (e.g. South America). This is mainly due to a lack of regulatory incentives, environmental challenges, and a nascent developer ecosystem.

Accordingly, most credit purchases from this region come from abroad – with 68% of beneficiaries located in Europe, and most others coming from the US, China and Australia.

Activity of ASEAN buyers

Until now, interest from buyers in the ASEAN region has been limited. Among the disclosed retirements of Verra registered credits last year, less than 1% were retired by corporates or beneficiaries based in the region.

As global awareness of climate change grows and sustainability becomes a higher priority for businesses worldwide, there is a great opportunity for ASEAN corporates to capitalize on carbon credit markets both domestically and internationally. Encouraging greater involvement from regional entities could drive economic growth and contribute significantly to global efforts in combating climate change.

Certain ASEAN countries are beginning to establish domestic carbon exchanges or have begun to pilot credit initiatives locally within specific industries, as is the case with Malaysia’s launch of Bursa Carbon Exchange (BCX). Though initial volumes traded currently remain low, it is a promising first step in cultivating a platform for demand in the country and the region. Some key drivers signaling growth in credit purchases from corporates in Southeast Asia include:

ASEAN countries and companies are becoming more dedicated to sustainability initiatives and are increasingly looking towards carbon markets as a key driver for sustainable economic development. Salceda, statesman in the Philippines and co-chair of the UN-established Green Climate Fund, stated that carbon markets can “bring in an initial USD 14 billion…initially to the [Philippines], in cash and…climate benign technologies…needed for the Philippine’s shift towards sustainable socioeconomic development." The same is true for the other countries in the region.

Ultimately, fostering regional collaboration and partnerships among ASEAN member states is critical to building local interest and demand in carbon credits. The region should look to global experiences to do so, whether it be through established compliance systems like Emissions Trading Schemes (ETS) and carbon taxes like in the EU and domestically started by Singapore and Indonesia, or through voluntary initiatives by facilitating financing and incentivizing offsets. By adopting best practices and harmonizing regulations, a more robust credit ecosystem can be facilitated, further enhancing the region’s position in the global sustainability landscape.

Follow AWR Lloyd for more insights on the state of carbon markets in the Indo-Pacific region.

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