This article is published on BusinessToday
As Southeast
Asian countries target net-zero by 2050, the region faces the challenge of
balancing growing energy demand with decarbonisation goals while fossil fuels
continue to dominate the energy mix. As one of the largest sources of
emissions across ASEAN, the energy sector will play a central role in
determining whether these climate ambitions can be achieved. Pursuing these
ambitions will require substantial investment in low-carbon technologies and
energy infrastructure, with annual clean power investment needs estimated at USD 11.5–79.5 billion, suggesting an even larger financing
requirement for ASEAN’s broader energy transition. Given the scale of
investment required, conventional financing sources alone are unlikely to be
sufficient, highlighting the need for additional financing mechanisms to
support the energy transition. Without stronger investment flows, ASEAN risks
falling short of its renewable energy and decarbonisation ambitions despite
growing policy commitments.
In response, the ASEAN Plan of Action for Energy
Cooperation (APAEC) 2026–2030 identifies sustainable finance as a key enabler for
addressing renewable energy investment gaps. As ASEAN seeks to mobilise
additional sources of green capital, carbon markets are increasingly viewed as
a financing instrument for the energy transition. Aligning with this objective,
ASEAN has prioritised the establishment of an interoperable carbon market and the
mobilisation of green capital under the ASEAN Strategy for Carbon Neutrality. Carbon markets can improve the
financial viability of low-carbon projects by creating additional revenue
opportunities through carbon credits and strengthening investor confidence
through clearer market signals and frameworks. This involves setting high-quality credit standards, sharing compliance market practices
and adopting internationally recognised carbon credit accounting mechanisms. Their
growing importance is reflected in the national climate commitments of Cambodia, Indonesia, and Singapore, which identify carbon markets as a
strategy for mobilising green finance. Together, those initiatives reflect the
growing nexus between the energy sector and carbon markets while highlighting
the need for greater alignment across energy,
investment, climate, and financial policies to attract investment for the clean transition.
Despite
growing policy support, regional interest, and ongoing market initiatives,
carbon market development across ASEAN remains at an early stage. Significant
implementation challenges are observed across ASEAN, reflecting varying levels
of market maturity and institutional readiness among member states. The
market-based mechanism has resulted in a fluctuating market supply and demand
experienced by Indonesia, Thailand, Malaysia,
and Singapore. Meanwhile,
Vietnam has
recently established the legal foundation for its voluntary carbon market,
while Singapore
faces constraints related to a limited supply of high-integrity projects and
underdeveloped market infrastructure.
To address
these challenges, AMS have a range of measures to strengthen carbon market
development. While Indonesia, Thailand,
and Singapore
have already implemented market-based instruments, Malaysia and
Vietnam are
focusing on building the regulatory and institutional foundations needed for
future market implementation. These differences reflect varying levels of
market maturity and readiness across the region.
In the context of regional cooperation,
Singapore currently plays a central role in advancing bilateral carbon market
cooperation with other member states, such as Cambodia (2023), Malaysia (2023), Vietnam (2025), Thailand (2025), and the Philippines (2026), to facilitate carbon credit
collaboration under Article 6. At the regional level, the ASEAN Alliance on Carbon Market (AACM) supports the alignment of national
priorities with ASEAN’s carbon market ambitions, while the ASEAN Common Carbon Framework (ACCF) provides a roadmap to
harmonise standards and enable the mutual recognition of carbon credits. Complementing
these efforts, carbon exchanges are also being developed to improve market transparency and
transaction efficiency. Together, these initiatives can strengthen market confidence and create
a more enabling environment for investment in renewable energy and other
low-carbon projects across the region.
While ASEAN's regional carbon market
agenda continues to advance, achieving its full potential will require stronger
domestic carbon markets and credible mechanisms for cross-border cooperation.
This includes developing interoperable registries, transparent accounting
systems, and robust governance arrangements that enhance market integrity and
investor confidence. A gradual and coordinated approach will help avoid past
challenges, such as credit oversupply and declining
market prices, while
creating a more stable environment for low-carbon investment. Ultimately, the
success of ASEAN's carbon market agenda should not be measured solely by the
creation of a regional market, but by its ability to mobilise the investment
needed to accelerate renewable energy and other low-carbon projects that drive
the region's energy transition.
Cover image source: rawpixel.com / Freepik
