Carbon trading in Southeast Asia is emerging as a key instrument in global efforts to address the climate crisis. The region is recognized for its extraordinary potential, thanks to its rich natural resources and the political commitments of its member countries.
Data from BloombergNEF (2025) reveals that five major markets—Indonesia, Malaysia, Singapore, Thailand, and Vietnam—have supplied 115.3 million tons of CO2-equivalent carbon credits over the past decade, accounting for 9.5% of the global supply. This figure underscores the region’s strategic role in the global carbon trading landscape.
Despite its promise, the mechanism is not without controversy. Questions have been raised about the effectiveness and integrity of carbon trading. As Southeast Asian nations accelerate their energy transitions, debates between economic potential and the risks of misuse continue to surface.
Potential of Carbon Trading in Southeast Asia
1. Natural Carbon Sinks as a Strength
Southeast Asia is home to the world’s largest carbon-absorbing ecosystems, including tropical forests, mangroves, and peatlands. According to Hijau Bisnis (2025), Indonesia’s 125 million hectares of forests can store up to 25 billion tons of carbon, with an economic value of USD 565–715 billion.
Conservation-based projects, such as the Katingan Mentaya initiative in Central Kalimantan, demonstrate that forest protection can generate carbon credits while improving local community welfare.
2. Green Investment Appeal
Carbon trading mechanisms are driving investments into low-emission sectors. As reported by Indonesia’s Ministry of Environment (2025), the launch of the Indonesia Carbon Exchange (IDXCarbon) in 2025 has authorized 1.78 million tons of CO2e from renewable energy projects like gas-fired and hydropower plants. This step is expected to accelerate Indonesia’s net-zero target from 2060 to 2040.
3. Alignment with Global Frameworks
Southeast Asian countries are aligning policies with international standards, such as Article 6 of the Paris Agreement. Citing Solum (2023), Indonesia opened international carbon trading in January 2025 to fulfill its NDC commitments and prevent double counting.
4. Expansion into Diverse Sectors
Carbon trading is now expanding into energy, transportation, and industry. According to Hijau Bisnis (2025), Thailand plans to launch a new carbon exchange to boost liquidity, while Indonesia will extend coverage to cement, steel, and aluminum sectors by 2025.
Controversies and Challenges
1. Transparency and Credit Quality Issues
Voluntary Carbon Markets (VCMs) face criticism over weak standards and accountability. A UBS Investment Bank report (2023) found that many nature-based carbon credits—such as those from rainforests—are deemed “worthless” or overstate emission reduction claims. This has prompted calls for stricter government oversight and quality standards.
2. Threats to Indigenous Communities
Social issues are also prominent. Carbon projects often clash with indigenous rights. Greenpeace (2024) highlights the Melchor Group project in the Aru Islands, criticized for excluding local community consent. The phenomenon of “green grabbing”—land seizures in the name of climate action—poses serious risks if governance is not improved.
3. Global Economic-Political Pressures
External pressures are shaping regional dynamics. The EU’s Carbon Border Adjustment Mechanism (CBAM), as reported by Carbon Pulse (2025), is pushing Southeast Asian nations to hasten carbon regulations. However, this risks carbon leakage—shifting emissions to countries with laxer policies.
4. Regional Market Fragmentation
Southeast Asia struggles to establish a unified regional carbon market. Disparities in market maturity and fossil fuel reliance hinder policy integration. According to Reccessary: 2024 Carbon Forward Asia – In-depth Analysis, differing energy structures complicate harmonization efforts, with some nations still dependent on fossil fuels while others transition to renewables.
Also read Navigating Together: Singapore-Indonesia Joint Roadmap for Carbon Storage
Southeast Asia has the potential to become a global carbon trading hub, particularly through nature-based projects. However, challenges like market transparency, indigenous rights protection, and geopolitical pressures must be addressed. Governments in the region must strengthen regulations to ensure these mechanisms drive equitable decarbonization, rather than merely serving as emission offsets.
References:
- Asia Tenggara Potensi Jadi Pusat Perdagangan Karbon Global, (https://hijau.bisnis.com/read/20250117/653/1832637/asia-tenggara-potensi-jadi-pusat-perdagangan-karbon-global).
- Peresmian Perdagangan Karbon Luar Negeri, (https://ditjenppi.menlhk.go.id/berita/4018-peresmian-perdagangan-karbon-luar-negeri).
- Rangkuman Kebijakan Perdagangan Karbon di Indonesia, (https://solum.id/policy-regulations/rangkuman-kebijakan-perdagangan-karbon-di-indonesia/).
- Tariff threats, CBAM add pressure on Southeast Asia to accelerate carbon market plans, (https://carbon-pulse.com/390636/).
- Carbon markets: the challenges and opportunities, (https://www.ubs.com/global/en/investment-bank/insights-and-data/2023/carbon-markets.html).
- 2024 Carbon Forward Asia: In-depth Analysis, (https://www.reccessary.com/en/research/2024-carbon-forward-asia-in-depth-analysis).
