Securing Standardization will Resolve ASEAN’s Carbon Market Conundrum

Picture: East Asia Forum

In an article by East Asia Forum, Renard Siew sheds light on ASEAN’s potential to drive the carbon market, accelerate climate action and boost economic growth.

The diversity of ASEAN countries in terms of economic development, energy mix and institutional capacities presents a challenge to creating a unified carbon market. Singapore, a highly developed economy with a sophisticated financial sector, has the capacity to implement and manage complex carbon market mechanisms, but developing countries in the region may struggle with the technical and financial resources needed to participate in such markets.

Without a common carbon framework, it is difficult to ensure the environmental integrity of emissions reductions and carbon pricing equivalent, which is crucial for the credibility of a carbon trading system.

Another challenge is the potential for carbon leakage — where emissions reductions in one country lead to an increase in emissions in another. This is particularly relevant in ASEAN, where economic activities are closely interconnected. Without clear policy on equivalence for carbon pricing, businesses may relocate to countries with less stringent regulations, undermining the overall effectiveness of the region’s climate policies.

Despite these challenges, the potential benefits of a well-functioning carbon market in ASEAN are significant. A unified regional carbon market could enhance ASEAN’s competitiveness in the global economy and help achieve its climate targets more cost-effectively. This would enable less developed countries to attract investment in low-carbon technologies, while more developed countries could meet their emissions targets more affordably.