by Haningrum Eka Putri Rahayu

Background/Introduction 

Through the Paris Agreement, Countries are committed to reducing global greenhouse gas (GHG) emissions to limit temperature rise and reduce climate change impacts. As stated in the Article 6 of the Paris Agreement, carbon market serves as a mechanism to incentivise GHG emissions reduction and a cost-effective tools for reducing emissions. Carbon market is divided into two types: compliance markets and voluntary markets. Compliance carbon markets are established through national, regional, or international policies and regulations while voluntary carbon markets operate independently of such requirements, enabling the voluntary issuance and trading of carbon credits. On regional context, the topic of carbon market is also presented within ASEAN climate initiatives. In this case, the ASEAN Strategy for Carbon Neutrality emphasises the interoperability of carbon market as one of the regional strategies to achieve a low carbon future. As a starting point, Malaysia, Indonesia, Singapore, and Thailand have signed a Memorandum of Collaboration of the ASEAN Alliance on Carbon Market (AACM) during COP 29 to advance regional cooperation on carbon markets and further develop the ASEAN Common Carbon Framework (AACF). Moreover, ASEAN will strengthen its commitment to develop an interoperable carbon market by adopting the “promotion of common recognition and interoperability amongst carbon markets in ASEAN” as one of its Strategic Measures through the ASEAN Economic Community Strategic Plan 2026-2030. 

As of now, several ASEAN Member States (AMS) are in the process of developing carbon markets, as shown in Table 1. 

Table 1 presents AMS’ national policies and initiatives in supporting the carbon market scheme. Meanwhile, other AMS have also developed its own Voluntary Carbon Market mechanisms. For instance, Malaysia has launched a voluntary carbon market along with the establishment of Malaysia Carbon Market Association. Thailand also launched its Thailand’s Voluntary Emissions Reduction programs, managed by the Thailand Greenhouse Gas Management Organization, which allows companies to generate and trade carbon credits through emission reduction projects. Furthermore, Indonesia launched its carbon trading platform, IDXCarbon, in 2023 for domestic trading, and from 2025, it opens to global investors to boost climate finance and emissions reduction. Meanwhile, other AMS are still undergoing discussions and planning targeted to the development of carbon market. 

Given its national progress, however, ASEAN’s carbon markets remain fragmented due to the absence of a unified framework. The existence of a unified framework will expand the potential benefits of carbon markets, such as cost efficiency and broader emissions reductions. For instance, an interoperable carbon market will allow companies to trade carbon permits across regions, creating a more efficient market. Interoperability also mitigates carbon leakage, where industries relocate to jurisdictions with weaker carbon regulations, thereby undermining the environmental objectives of carbon pricing. The AACM suggests that establishing robust carbon markets in ASEAN could generate up to US$3 trillion in cumulative revenue and create 13.7 million green jobs by 2050. In relevant, there are growing calls for a framework to address the interoperability of carbon markets across AMS, which could help countries meet national NDC targets, drive private sector innovation, and strengthen regional cooperation for a more resilient carbon market. 

What should be prepared next? 

In preparation of an interoperable carbon market, ASEAN should be prepared, therefore different carbon markets can operate together seamlessly, ensuring alignment between national, regional, and global standards. A robust regulatory framework is needed to enable effective linkages between each AMS’ carbon markets. To achieve this, it is necessary to harmonise rules and standards across the region with emphasis on: 

1). Standardisation of Measurement, Reporting, and Verification (MRV) System 

The MRV system is prominent within the carbon market mechanism because it ensures that emissions reductions are accurately measured, transparently reported, and independently verified. Reliable interoperability allows accurate information sharing among registries, tracking systems, and verification bodies. In contrast, fragmented data due to inconsistent methods, incompatible systems, and uneven technological adoption can hinder the verification of mitigation outcomes, ownership, and emissions reductions. A harmonised regional MRV system is required as it enables high quality carbon credits and provide policy support to a seamless international export of carbon credits. For instance, a harmonised MRV system is exemplified by the linkage between the EU Emissions Trading System (ETS) and the Swiss ETS, where both parties have agreed that their MRV processes must be at least equally stringent. This mutual agreement ensures that emissions data reported under each system is compatible, reliable, and subject to equally robust verification standards.  

2). Robust registry infrastructure 

An efficient carbon market needs robust infrastructure, with reliable registries serving as the digital backbone for recording the issuance, ownership, transfer, and surrender of credits. An interoperable carbon market requires harmonised data and compatible registry systems to ensure transparent transactions and smooth data exchange across platforms and borders. To ensure interoperability, registries must be linked, enabling transparent tracking of units across systems and preventing double counting. For example, the linkage between the EU ETS and the Swiss ETS established an automated registry connection that facilitates transactions and ensures consistent functionality in both markets.    

Establishing connections between registries at both national and international levels, together with integration of recognised independent standards, is vital to ensure credits remain interchangeable and double counting is avoided. Ultimately, avoiding double counting is critical to maintaining the integrity of carbon markets as it assures that each carbon credit corresponds to a measurable reduction of greenhouse gas emissions and upholds the credibility of the Paris Agreement by ensuring that international emissions transfers do not result in higher overall global emissions. 

These efforts must also align with ASEAN’s commitment to a just and inclusive energy transition, as emphasised in the ASEAN Plan of Action for Energy Cooperation (APAEC). By integrating interoperable carbon markets with inclusive energy policies, ASEAN aims to accelerate its transition to a low-carbon economy while ensuring economic resilience and social equity across the region.  

Way Forward 

ASEAN’s way forward on an interoperable carbon market is a key part in its broader climate and economic strategies, including the ASEAN Strategy for Carbon Neutrality and the ASEAN Economic Strategic Plan 2026-2030, which target decarbonisation in key sectors and carbon neutrality by 2050. Central to this vision is the development of the ACCF, designed to harmonise carbon market standards and facilitate regional integration. A historic Memorandum of Collaboration (MoC) signed at COP29 by carbon market associations from multiple ASEAN countries marks a significant step toward operationalising this unified framework, aiming to enhance market liquidity, standardise crediting methodologies, and attract green investments. To realise a robust and attractive interoperable carbon markets, ASEAN must focus on establishing a framework to link carbon markets across the region with the focus on developing a standardised MRV system and robust registry infrastructure.  

Through the adoption of the ASEAN Carbon Neutrality and the implementation of activities that support the region’s circular economy practices, ASEAN will be able to reduce the regional carbon footprint and support the transition towards a low-carbon future. As ASEAN moves into the next phase of the APAEC, there is a growing emphasis on fostering a just and inclusive energy transition. This means ensuring that the transition to renewable energy and low-carbon technologies benefits all members of the society. To mainstream these principles within carbon market regulations, ASEAN can incorporate social and equity considerations into the design and implementation of carbon market systems. Embedding just and inclusive transition goals within carbon market policies will help ASEAN align climate action with socio-economic development, ensuring that the pathway to carbon neutrality fosters sustainable prosperity for all.