Southeast Asia's carbon market could reach $3 trillion by 2050, says ASEAN report

ASEAN countries possess rich natural carbon sinks. (Photo: iStock)

Southeast Asia's carbon market potential remains largely untapped. A recent report highlights that over the past 15 years, carbon credits provided by the ASEAN region have accounted for only 7% of the global carbon market.

However, the region's overall carbon market could potentially reach a cumulative value of up to $3 trillion by 2050, creating 13.7 million new jobs and reducing 1.1 billion tons of carbon emissions annually.

Biochar carbon credits estimated to have highest revenue

The report, jointly authored by ASEAN, international consultancy Equatorise, and carbon procurement platform Abatable, indicates that ASEAN governments play a crucial role in driving carbon pricing, particularly through UN-led carbon markets. With the passage of Article 6 of the Paris Agreement, the region's decarbonization potential is expected to grow significantly.

Researchers predict that by 2050, the carbon market could generate nearly $268 billion in revenue a year for ASEAN. By carbon credit type, the biochar carbon market is expected to generate the highest annual value of $143 billion, followed by blue carbon at $96 billion, and REDD+ (Reducing Emissions from Deforestation and Forest Degradation) at $27 billion.

Potential annual ASEAN carbon market revenue by project type (Graph: Abatable)

ASEAN carbon market challenges: uncertainty, cooperation

Following interviews with over 30 stakeholders in the ASEAN carbon market, the report identified six key policy recommendations to drive regional investment, create a healthy ecosystem for carbon projects, and stabilize demand sources. The recommendations are as follows:

Supply side

1. Clear regulations – Establishing a clear regulatory framework to attract investment in carbon projects.

2. Capacity building – Policymakers must possess the necessary technical and institutional capacity to understand the carbon market and further develop and implement carbon programs.

3. Matching standards– Aligning with international standards while localizing methodologies to create common approaches across the region.

Demand side

4. Creating demand – Developing regional compliance systems, such as carbon taxes and carbon trading systems (ETS), to require companies to decarbonize and use carbon credits.

5. Public awareness – Raising awareness among the public through endorsement from ASEAN leaders, emphasizing that the regional carbon market has the potential to lead global developments.

6. Regional trading – Completing intra-regional carbon credit trading under Article 6.2 of the Paris Agreement, with future expansion to countries outside ASEAN.

The report concludes that the risks associated with uncertainty hinder the expansion of ASEAN's carbon market. Moreover, the lack of cross-border cooperation and connections between national carbon markets poses a challenge. Effective coordination and political alliances are essential to driving the market forward, with Malaysia committing to promote the regional carbon market during its ASEAN chairmanship in 2025.

Source: Carbon Herald, Abatable