Carbon markets across Asia are rapidly evolving, spurred by the global emphasis on environmental, social and governance (ESG) considerations. From the reopening of China’s voluntary carbon trading platform to Australia’s recent carbon policy reforms, Asia is a mosaic of regulatory changes and innovative market developments.
KWM partners Michael Lawson (Singapore), Molly Su (Mainland China), Richard Mazzochi (Hong Kong SAR) and Dale Rayner (Australia) recently came together to discuss current trends and issues impacting carbon markets.
This includes:
- the importance of actual abatement as opposed to merely offsetting
- the anticipated future opening of China’s carbon markets to foreign investors
- the focus on (and the importance of) integrity
- the need for credible decarbonisation strategies which take account of carbon market developments
- an increasingly connected global landscape and the impact of domestic sustainability disclosure and due diligence regimes beyond domestic borders.
The future of Asia’s carbon markets is one of convergence and collaboration. Here, we share six observations from the webinar discussion. You can watch in full here.
Want to stay up to date with movements in carbon markets across the region? Check our regulatory trackers.
- China’s carbon market revival: The reopening of Mainland China’s voluntary carbon trading platform is expected to stimulate trading activity, market development, and innovation. It has advantages such as centralised trading infrastructure and stricter regulatory requirements, particularly in relation to third-party verification and validation of emissions data.
“The suspension of China’s voluntary carbon market for over 6 years since 2017 created a great need for domestic carbon credits. Many trends and developments increased demand – including decarbonisation targets for the government and companies, as well as net zero events such as the Winter Olympics. The restricted supply meant many clients in new energy industries applied for voluntary carbon credits from various platforms elsewhere – including in the EU.” – Molly Su, Mainland China
- Australia’s carbon policy evolution: Significant carbon policy and regulatory developments are taking place in Australia, including the recent reform of the Safeguard Mechanism regime and a (completed) public consultation on proposed improvements to the federal Climate Active program. The demand for Australian Carbon Credit Units (ACCUs) is expected to increase significantly due to a combination of voluntary commitments (including significant interest from offshore) and safeguard mechanism obligations.
“It’s very hard to find financing and to trade where the ACCU is not fungible. ACCUs are not all created equally. They are priced differently according to where they came from. There’s a study underway to introduce in Australia a cross-border adjustment mechanism like the tariff-based system in the EU – because there are very real prospects that Australian businesses would, as part of their decarbonisation strategy, think about moving production offshore where there is less of a carbon price effectively.” – Dale Rayner, Australia
- Singapore’s carbon market progress: In Singapore, the carbon market is not large, but it is one of the more developed markets in the Southeast Asia region. The evolution of Singapore’s carbon tax, including significant ongoing carbon price increases, is helping to drive interest and action towards a low carbon economy. Two main exchanges or trading platforms, ACX and CIX, facilitate the trading of international carbon credits on a voluntary basis. Singapore also hosts the new Climate Action Data Trust, which aims to increase transparency and trust in carbon markets.
“While Singapore is in itself a relatively small emitter of carbon, it is positioning itself as a leader, facilitator and hub for wider efforts across Southeast Asia. It is without question one of the more developed markets in in the Southeast Asian region.” – Michael Lawson, Singapore
- Challenges in Asia-Pacific carbon markets, from greenwashing to fragmented standards: Key issues impacting the development of carbon markets across the Asia-Pacific region include standardisation (and enablement of effective cross-border mechanisms), regulation, transparency and data collection / verification. Despite jurisdictional differences, many countries are facing similar issues. The global financial regulator (the International Organization of Securities Commissions (IOSCO)) is working towards harmonisation, but it does not yet have jurisdiction over carbon credits. This leaves efforts towards achieving standardisation and integrity to independent governance bodies such as the Integrity Council for the Voluntary Carbon Market (ICVCM).
“There are lots of standards, lots of projects, lots of different ways that carbon credits are being produced internationally. The IOSCO aims to find a way to be able to bring together all these different standards and verification process to try and ensure there’s one global market.” – Richard Mazzochi, Hong Kong SAR
- Impact of wider climate and carbon regulation: Climate change is a global problem and the impact of climate laws and regulation in other parts of the world on businesses operating in the Asia-Pacific region is potentially significant. A prime example is the EU’s Carbon Border Adjustment Mechanism, set to come into full effect in 2026, which seeks to ensure that an appropriate price is paid for embedded carbon emissions generated in the production of specified goods imported into the EU.
“Policy and regulation are developing at a significant pace. It is imperative – more than ever – for companies to consider their carbon neutrality strategies and the implementation of those strategies in the context of the reviews, updates and reforms happening across the region.” – Michael Lawson, Singapore
For more on carbon markets, visit our Carbon page and explore insights:
- Scaling up Australia’s carbon market: key insights from the CMI-Westpac Carbon Market Report 2024
- The international bid for legal certainty on carbon credits: taking China’s example to the UN
- Sleeping Carbon Giant Awakes: China’s Renewed Voluntary Carbon Market is Here – What You Need to Know
- Carbon farming methods in 2024: proponents to start putting pen to paper
- How regional collaboration could lift carbon trading in Southeast Asia
