Regional Webinar Driving Decarbonization: Understanding Carbon Markets in the Asian Regions

Background

Global temperatures are set to surpass the 1.5°C threshold above pre-industrial levels, a limit established to prevent the most catastrophic impacts of climate change. However, global efforts to reduce greenhouse gas emissions (GHGs) fall significantly short. By 2030, emissions are projected to be reduced by only 11%, far below the necessary goal of halving 2019 levels. This shortfall emphasizes the need for intensified global collaboration, particularly from regions like Asia, which is not only home to some of the largest GHG emitters but also one of the most vulnerable areas to climate change (IMF, 2024; WMO, 2024).

As the most disaster-hit region in 2023, Asia and the Pacific region is experiencing accelerated warming, nearly doubling the rate seen between 1961 and 1990. The region bore the brunt of 79 hydro-meteorological disasters in 2023, with floods and storms accounting for over 80% of these events, resulting in more than 2,000 fatalities and affecting nine million people (WMO, 2024). As the climate continues to warm, the intensity of these events is expected to rise. Notably, major emitters like China, India, and Indonesia contribute significantly to the region’s GHG emissions, but the geographical and demographic vulnerability of Asia heightens the stakes for climate adaptation and mitigation efforts ( IMF, 2024). Despite significant efforts, the region faces a massive financing gap, with an estimated $1.1 trillion in investment needed annually to address both mitigation and adaptation needs (IMF, 2024). However, only $333 billion of this is being raised, leaving a critical funding gap of $815 billion. This gap is further exacerbated by the depletion of public finances following the COVID-19 pandemic, forcing governments to seek private sector involvement to scale up climate action (IMF, 2024). 

The urgent need for global climate action has propelled carbon markets as one of the strategies being developed for decarbonization and achieving national and international emission reduction targets. A growing interest in and implementation of various instruments such as carbon taxes and “cap and trade” (Emissions Trading Systems – ETS) happening in Asian countries. Several countries in the Asia-Pacific are at different stages of developing and implementing carbon markets. Singapore was the first Southeast Asian country to implement a carbon tax in 2019 and is actively positioning itself as a regional carbon trading hub, allowing for international credits under Article 6 of the Paris Agreement (ISEAS, 2025 ; EDP, 2022). Indonesia launched an ETS for its coal power sector in 2023 and plans to extend it to oil and gas plants by 2025-2027, with mandatory carbon markets for industrial sectors like cement, fertilizers, steel, and paper slated for 2027. A carbon tax is also expected to commence at Rp. 30,000 per ton in 2025 (Reccessary, 2025; Mt. Stonegate, 2025). Vietnam is piloting an ETS, with a full carbon market expected to operate nationwide from 2029, as per a Prime Minister’s decision on January 24, 2025, outlining a roadmap with a pilot starting in June 2025 (KWM, 2025; Klinova, 2025). Malaysia is actively considering a carbon tax and ETS, with a study on the impact of carbon pricing in Malaysia being carried out with World Bank support and likely to be released in 2025, although currently there is no explicit carbon price (OECD, 2024; IDEAS, 2024). China operates the world’s largest ETS by coverage (approximately 5.2 billion tCO2 initially), and officially expanded its national ETS to include the cement, steel, and aluminum industries in April 2025, covering an additional 3 billion tonnes of CO2e. There are also plans to transition from an intensity-based system to an absolute emissions cap in the coming years (ICAP, 2025; Carbon Pulse, 2025). Japan‘s Joint Crediting Mechanism (JCM) continues to facilitate bilateral cooperation on emission reduction projects across the region, demonstrating its commitment to global decarbonization efforts and contributing to Japan’s NDC of a 46% reduction by fiscal year 2030 from 2013 levels (METI, 2023; JCM.go.jp, 2023). South Korea has an established ETS, although analysis suggests that industry lobbying efforts have led to overly generous free allocation volumes to high-emitting sectors (Carbon Pulse, 2025). South Korea is also pushing ambitious plans to boost Carbon Capture and Utilization (CCU) technology (Carbon Herald, 2025).

Despite this momentum, the implementation of carbon markets in the Asia-Pacific faces multifaceted challenges. These include economic dependencies on fossil fuel industries, insufficient financial support, a lack of technical expertise, and the absence of comprehensive market frameworks (ACCEPT, 2024). Furthermore, regulatory instability and unclear timelines have made companies hesitant to invest or participate in some countries (Mt. Stonegate, 2025). The complexities of corresponding adjustment mechanisms for international carbon trading, ensuring the integrity of carbon credits, and aligning methodologies and standards with international frameworks remain critical considerations (UNDP, 2025). The advent of Carbon Border Adjustment Mechanisms (CBAMs) from regions like Europe is also exerting pressure on exporting nations in Asia-Pacific to accelerate their carbon pricing efforts (Asia Society, 2025; Tilleke & Gibbins, 2025).

The dynamics at the regional and country levels within the Asia-Pacific region play a crucial role in the recent progress in climate finance, including the implementation of a carbon market. From the perspective of civil society, cross-regional knowledge sharing on this issue is vital, as similar conditions or strategies may offer valuable lessons for other regions or countries. Moreover, such knowledge exchange would help enhance civil society’s understanding ahead of the upcoming Conference of Parties (COP) 30 in Belem, Brazil, where climate finance will be one of the key topic of discussion. To support this, the Institute for Essential Services Reform, in collaboration with the Climate Emergency Collaboration Group (CECG), has organized a cross-regional webinar bringing together civil society representatives from East Asia, Southeast Asia, and South Asia.

Objectives

1. To discuss recent updates of the carbon market (including carbon tax and carbon cap and trade) in various  Asian countries.
2. To identify challenges and barriers of carbon market implementation to drive real climate impacts.
3. To identify lessons learned and success factors from carbon market implementation across Asian countries.
4. To find a common perspective and solutions on carbon market policy across various Asian countries.