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Heightened expectation of forthcoming carbon pricing schemes in several ASEAN countries, has led to governments and the private sector taking initiatives to boost carbon market trade. Whether this push is the result of more elaborated international guidance is difficult to know.
In any case, it coincides with the conclusion of the rulebook for carbon trade under Article 6 of the Paris Agreement. This “conclusion” does not mean that there will be no more discussion, but it does mean that some of the outstanding issues from years of negotiations have been solved. An immediate impact is that countries can finalize their regulations, decrees, by-laws, and guidelines for operationalizing Article 6. This will prepare them to export ITMOs; carbon credits that are accounted for in the Paris Agreement scheme. The supply of ITMOs will facilitate countries purchasing them to achieve national mitigation targets (such as Japan, the Republic of Korea, Singapore, Sweden, and Switzerland), CORSIA (the international reduction and offsetting program for international aviation), and actors wanting to use ITMOs towards voluntary targets.
In the voluntary market space, the Integrity Council for the Voluntary Carbon Market (ICVCM) has established core carbon principles to guide independent carbon programs, project developers, and carbon credit buyers. The voluntary carbon market works with carbon credits not accounted for under the Paris Agreement, and with carbon credits that are accounted under the Paris Agreement. Sometimes, ITMOs are referred to as “adjusted units” since selling countries must adjust their emissions levels to reflect the export, and carbon credits outside this scheme are referred to as non-adjusted units.
The current demand for ITMOs from purchasing countries is limited and will likely remain so for some time ahead. However, a (future) demand from CORSIA has been announced, and there is a shortfall of ITMOs to match this demand.[1]
The trend in voluntary trade shows solid demand. After a peak in 2021, retirements in 2021 were 162 million tons, in 2022 160 million tons, and in 2023 160 million tons.[2] However, the annual issuance of carbon credits is much higher than the retirement.
In sum, international rules and guidance exist, ITMO demand is limited, and the VCM trade may not grow to the extent predicted a few years ago. How does this relate to what is currently happening in the ASEAN?
Carbon Markets in ASEAN
ASEAN could become a center for carbon markets. Several ASEAN countries have been active in CDM and the voluntary carbon market, the latter generating 233 million tons of CO2 equivalent (MtCO2e) in carbon credits from 2009 to 2024.
Abatable has modeled ASEAN’s potential carbon market opportunities, showing that ASEAN could generate more than 1.1 gigatons of carbon removals or reductions per annum, resulting in up to $267 billion annual carbon revenue and 13 million jobs created by 2050. This would make a cumulative revenue of up to $3 trillion between 2025 and 2050.”[3]
To realize this revenue, several of the larger ASEAN countries have established carbon exchanges to facilitate trade. These exchanges have recently been established or are under development. How the trade will develop in Malaysia, Viet Nam, and other countries is yet to be seen. However, some observations regarding the demand versus the substantial supply mentioned above can be made. Let us look at a couple of examples.
The Thailand Greenhouse Gas Organization issued about 22 million T-VERs from 379 projects between 2015 and 2025.[4] The T-VERs retired for the Thai carbon offsetting program have been around 200,000 annually.[5] The supply outnumbers the demand by far.
Indonesia had its first auctioning of ITMOs from six energy sector projects on the 20th of January 2025. A total of 2.48 million tons of carbon are stated to be ready for international trade. On the first day of trade (January 20), 48,788 tons of CO2 were traded through 19 transactions involving 14 buyers. The price ranges between IDR 96,000 (USD 5.9) and IDR 144,000 (USD 8.8) per ton, a low price for a carbon credit that has received host country authorization as ITMO.[6]
The low demand could reflect a heightened level of scrutiny of voluntary carbon market buyers with concerns about environmental integrity including additionality. The type of projects that generate the carbon credits is also a determining factor for buyers. Renewable energy projects have become less popular (and are together with project types that increase fossil fuel extraction largely ruled out in the ICVCM’s Core Carbon Principles). However, the main point of this example is that the supply outpaces the demand.
From a focus on supply to a market with demand and supply
Carbon markets are carbon pricing instruments. More precisely, they are cap-and-trade markets that rely on caps limiting the amount of greenhouse gases emitted. Establishing national carbon crediting standards and trading platforms are reasonable steps in preparing for vibrant carbon markets. However, without significant demand, these carbon markets will not grow, provide the right price signals, or result in a shift to low-carbon development.
On the positive side, legislation (Viet Nam, Thailand, Malaysia, the Philippines) is on the way to establishing carbon pricing schemes that can establish demand. At the same time, it must be noted that establishing a scheme with a substantial price signal takes time (see the emissions trading schemes of the European Union and the People’s Republic of China).
Therefore, the current situation may result in disappointment, with supply outpacing demand. Another barrier could be complicated host country processes for authorizing ITMOs. In several countries (not all), sector ministries tend to be included in clearing projects for ITMO transfers. This may be well founded, given their responsibility for implementing the NDC, but it can also lead to unduly complicated authorization processes.
If countries’ approaches to the Article 6 market constitute barriers, the international demand from CORSIA and sovereign purchasers will not capture the supply. If there is no national compliance demand, e.g., through allowing offsetting for parts of the compliance quota in an ETS, the supply will be in abundance.
Another trend that speaks to a supply-driven market is that several countries in the region get international support to identify project pipelines. If there were strong international or national demand, with strong price signals, the private sector would identify suitable projects, identify the mitigation opportunities, discover the prices, and develop these projects.
Focusing on supply will not boost the carbon markets in ASEAN. Carbon pricing instruments with caps and costs for polluters must be introduced to boost investment in low-carbon technologies and practices. This is on the radar in several large ASEAN countries; let’s see how it works out. The current focus on establishing exchanges and boosting supply may be at risk of leading to disappointment.
The developments in ASEAN point to a situation where strong promotion of supply and trade is taking place, while the key factor is lagging—setting the caps, creating the demand, and creating the price signals.
Distributional impacts and industrial competition are challenging to manage in this context for fast-growing economies such as the middle-income ASEAN countries. Still, there is no way around it. Moving the ASEAN carbon markets to a balanced supply and demand situation is challenging, but a necessity.
References
[1] “Voluntary Carbon Market: CORSIA Carbon Credit Demand Expected to Outstrip Supply by 2030.” 2024. Abatable Blog, accessed January 31, 2025. https://abatable.com/blog/corsia-carbon-credit-demand-expected-to-outstrip-supply-by-2030/.
[2] Forest Trends’ Ecosystem Marketplace. 2024. State of the Voluntary Carbon Market 2024. Washington, DC: Forest Trends Association.
[3] Abatable, ASEAN Alliance on Carbon Markets, and Equatorise. 2024. The Opportunity for Carbon Markets in ASEAN: National and Regional Policy Considerations to Aid Development and Increase Interconnectivity. December 2024.
[4] Thailand Greenhouse Gas Management Organization (TGO). n.d. “Carbon Credit Category Budget.” Accessed January 31, 2025. https://tver.tgo.or.th/database/summary/creditcategorybudget/1?lang=en.
[5] Thailand Greenhouse Gas Management Organization (TGO). n.d. “Thailand Carbon Label Program.” Accessed January 31, 2025. https://thaicarbonlabel.tgo.or.th/.
[6] “International Carbon Trading Officially Opens, Transactions Reach 48,788 Tons.” 2025. Hijau Bisnis, January 20, 2025. Accessed January 31, 2025. https://hijau.bisnis.com/read/20250120/653/1833078/perdagangan-karbon-internasional-resmi-dibuka-transaksi-tembus-48788-ton.
