By Hanh Le | 2 April 2023

What is a carbon market?

The carbon market is a mechanism that aims to reduce greenhouse gas (GHG) emissions by putting a price on carbon. The concept is simple: by placing a cost on carbon emissions, businesses are incentivized to reduce their carbon footprint, while at the same time, creating a financial incentive for others to invest in carbon offset projects that reduce GHG emissions. In Southeast Asia, the carbon market is still in its infancy, but it is gaining traction as countries in the region aim to reduce their carbon footprint and achieve their climate goals.

Drivers for carbon trading in Southeast Asia

One of the primary drivers for the growth of the carbon market in Southeast Asia is the increasing global focus on carbon neutrality. The Paris Agreement, signed in 2015, has set a target of limiting global warming to below 2 degrees Celsius. This has led to increased pressure on countries to reduce their carbon emissions, with many countries in Southeast Asia setting ambitious targets for reducing their carbon footprint.

Thailand, for example, has set a target of reducing its GHG emissions by 20-25% by 2030, while Malaysia has committed to reducing its carbon emissions by 45% by 2030. These targets have created a demand for carbon credits, which can be purchased by businesses that need to offset their carbon emissions.

The demand for carbon credits has also been driven by the growth of sustainable business practices in the region. As more companies adopt sustainable practices, there is a need for them to offset their carbon emissions through the purchase of carbon credits. This has led to the emergence of carbon trading platforms in Southeast Asia, which allow companies to buy and sell carbon credits.

An example is the FTIX, a carbon credit platform launched by Federation of Thai Industries (FTI) in 2022 to encourage entrepreneurs to reduce carbon dioxide emissions in a move to help the government fight global warming. The platform, jointly developed by the FTI and Thailand Greenhouse Gas Management Organisation, will mark a significant step in the promotion of a carbon credit market in Thailand and potentially serve as a regional carbon trading platform.

Challenges to be addressed for thriving carbon markets in Southeast Asia

Despite the growth of the carbon market in Southeast Asia, there are still challenges that need to be addressed. The current challenges for carbon trading in Southeast Asia include the lack of regulatory frameworks and infrastructure to support the market. Most countries in the region do not have carbon pricing schemes, making it challenging for companies to assess the value of their carbon credits. Additionally, the lack of standardized methodologies for measuring emissions and verifying carbon credits can create uncertainty and increase transaction costs.

Another challenge is the lack of awareness and understanding of carbon trading among businesses and policymakers in the region. Many companies may not be aware of the potential financial benefits of reducing emissions and selling carbon credits, while policymakers may not see carbon trading as a priority for sustainable development.