Progress of Carbon Pricing in ASEAN to Support the Shift Towards a Low Carbon Economy

Highlight

• Carbon pricing is a pivotal tool in ASEAN’s shift towards a low-carbon economy, encouraging emission reductions and spurring innovation in alignment with the ASEAN Strategy for Carbon Neutrality. Furthermore, implementing a carbon pricing scheme is essential as a starting point in ASEAN’s approach to addressing the Carbon Border Adjustment Mechanism (CBAM) introduced by the EU.
• Currently Singapore and Indonesia are the only countries in ASEAN with established carbon pricing policies. However, Brunei’s pioneering initiatives, Cambodia’s and Vietnam’s ongoing journey, as well as Thailand’s and Malaysia’s plans to explore carbon tax and Emission Trading Systems (ETS), demonstrate that ASEAN countries are actively working on carbon pricing policies and showcasing a range of approaches and ambitions.
• The implementation of carbon pricing policies in ASEAN has faced several challenges, including economic dependencies on fossil fuel industries, insufficient financial support and a lack of technical expertise and comprehensive market frameworks. The complexity of carbon credit systems, coupled with the need to balance economic growth with environmental sustainability, further complicates effective implementation. The resistance from industries, concerns over competitiveness, anticipated increases in electricity prices, and the challenge of coordinating carbon pricing policies with existing strategies reflect the difficulties that ASEAN countries face in transitioning towards effective carbon pricing mechanisms.
• The policy recommendations are: 1) aligning economic growth with climate goals, 2) enhancing data collection and financial support mechanisms, 3) advancing market mechanisms and subsidy reform, 4) building local expertise and capacity for carbon pricing, 5) integrating carbon pricing within broader national climate frameworks, 6) fostering regional collaboration and sharing best practices, and 7) navigating the path to carbon neutrality in ASEAN.