Home to the world’s most populous and rapidly growing economies, Asia has a critical role to play in the global decarbonisation journey to net zero emissions. While the region accounts for more than half of global carbon emissions, several of these countries are also some of the most vulnerable to the impacts of climate change.
Earlier this year, I attended the Economist Impact’s Sustainability Week Asia in Singapore on behalf of CMI, and participated in the panel “Carbon Markets and Emissions Trading in Asia.” This event brought together 500 senior executives from government and non-government sectors alike to share their insights on high-level sustainable commitments and actions.
Here are a few key takeaways from the three-day event:
Sustainability awareness is emerging, but its growth is hindered by immediate business challenges
The private sector in the region is increasingly considering environment, social and governance (ESG) principles as essential to long-term business opportunities and growth. However, global disruptions have hindered incorporation of these principles into business decisions at all levels.
According to the 12th United Nations Global Compact-Accenture CEO Study, businesses in Asia have been hit hard by supply chain disruptions, increased costs of raw materials, and rising energy prices. These challenges have diverted corporate attention to short and medium-term priorities.
The CEO of AirAsia, Tony Fernandes, commented in the opening session, “when we talk about sustainability, my first goal is to be sustainable and survive this huge crisis.” This sentiment was echoed by many corporate executives during the event, who felt that governments should scale up policy reforms and incentives to better support private sector progress on ESG goals.
Governments are gearing up efforts to adopt market-based mechanisms
As noted in the CMI September 2022 Quarterly Update, carbon markets are widely recognised by policymakers in the region as one tool to encourage businesses to invest in emissions reduction and removal activities.
Six months ago, Malaysia announced its intention to launch a voluntary carbon market exchange. To date, the Bursa Carbon Exchange (BCX) has been set up as the world’s first Syariah-compliant carbon market. Additionally, the Malaysian government has committed to a seed fund of RM10 million to shore-up the initial demand for carbon credits generated from local carbon projects.
Similarly, Thailand has also established its first carbon credit exchange – FTIX – to encourage companies to purchase domestic carbon credits and renewable energy certificates. Indonesia, Vietnam and the Philippines are also in different stages of implementing emissions trading schemes or regulatory frameworks.
These developing countries are keen to learn from the experiences of developed nations with functioning and mature carbon markets. Japan and South Korea are the two leading Asian countries that export their knowledge and expertise into the region, while Singapore is positioning itself as a technology-based carbon trading and services hub.
Capacity building is required to grow the nascent carbon market
However, although countries in the region are actively scoping carbon market development, the majority of the event participants expressed that they are unfamiliar with the development of national, international and voluntary carbon trading standards.
The Article 6 rules of the Paris Agreement remain opaque to local participants despite their critical role in governing market, and non-market cooperative approaches to help meet nationally determined contributions. Nevertheless, many attendees expressed an eagerness to expand their understanding of the technical knowledge in carbon trading to improve their engagement with carbon market initiatives.
With governments and private sector actors in the region now ready to develop their markets alongside broader sustainability agendas, Australia has a unique opportunity to capitalise on its renewed climate ambition to establish itself as a leader and frontrunner of carbon markets in Asia Pacific (APAC).
While we are currently undergoing a period of reviewing and reforming the domestic systems, we should also make use of this window of opportunity to build effective partnerships with APAC by sharing our lessons learnt over the past decade.
With this in mind, CMI will convene its first international event on July 19 & 20 in Singapore this year. The Singapore Carbon Market & Investor Forum will foster international linkages between key carbon market actors across the APAC region. Not only is this a valuable opportunity for our Asian-based colleagues to learn from the Australian experience, but it is an opportunity for Australian businesses to identify knowledge gaps and spaces for future collaboration.
We look forward to nurturing the relationships necessary to grow the important carbon market in Asia.
Mei Zi Tan is CMI’s Manager of International Research & Projects. Mei Zi has extensive experience in analysing climate change and carbon-pricing policies, and is passionate about contributing to the delivery of research works and programs to support the development of carbon markets.