Japan starts a trial trading of carbon credits on the Tokyo Stock Exchange on Sepember 22. About 150 companies are taking part in the government-launched trial. Photo: Kyodo
Eye on Asia
by Michael Sheren
Eye on Asia
by Michael Sheren

Climate handouts are not enough: Asia must build its own carbon credit market

  • Voluntary carbon markets can encourage carbon sequestering while generating revenue, but they are held back by a lack of standardisation and transparency
  • With robust systems in place, emerging markets stand to benefit from new revenue drivers as part of a global carbon trading network

From heatwaves to flash floods, Asia has borne the brunt of “one-in-a-lifetime” weather events in recent years. The continent sees temperatures rising at twice the rate of the global average, making it far more prone to frequent, severe weather events and, consequently, the economic burden of destabilised communities and infrastructure.

Recognising the challenges, the Group of Seven last year reaffirmed its commitment to the collective goal by developed countries to jointly mobilise US$100 billion annually to 2025, to help address the climate needs of developing nations. But is this truly enough to mobilise change in the face of Asia’s unique set of challenges?
For many developing nations across the globe, a post-pandemic economic recovery is still very much a work in progress. Meanwhile, rising energy and food costs as a result of Russia’s invasion of Ukraine have led to energy shortages and supply disruptions in Asian markets, with bills expected to soar by 27 per cent by 2025.
With price inflation in imports and a strong dollar threatening a debt crisis across emerging markets, climate initiatives have, by and large, taken a back seat.

There are no easy choices. The climate crisis, however, only serves to exacerbate economic challenges: whether it’s the impact of diminished water supplies that lead to reduced crop yields, or novel health hazards emerging as a result of community and nature displacement.


South Korean government hopes to boost kimchi industry with cabbage warehouses

South Korean government hopes to boost kimchi industry with cabbage warehouses

And then comes the structural challenges. Despite being home to some of the world’s smallest and most climate-vulnerable countries, Asia simultaneously accounts for two of the three largest carbon dioxide emitters globally.

As the continent continues its green transition on an uneven footing, its effects will be felt across the globe.

While North America and Europe look to shift their focus to renewable energy, most of Asia continues to rely heavily on coal for power generation and this is set to intensify amid the energy crisis. With Asia set for the fastest growth in electricity consumption over the next decade, its policymakers need to satisfy demand without compromising energy security.

Green shoots of investment in renewable energy are starting to be seen, but most of this capital is being channelled towards China, India, Japan and South Korea. Though this bodes well for the budding green finance sector, more needs to be done.

Rooftop solar panels help bring affordable energy to Chinese villagers
Green financial markets need to be more economically attractive and accessible if Asia is to fully engage. For one, governments in both developing and developed markets need to make good on their promises at COP26, the last UN climate change conference, and realise Article 6 of the Paris Agreement, which recognises the value of public- and private-sector solutions to help countries meet their nationally determined contributions (NDCs) to greenhouse gas cuts.
Here, the role of voluntary carbon markets is exceptionally valuable as they provide an incentive for capital to be directed towards carbon sequestering projects, such as mangrove or rainforest preservation, generating hard currency revenues from voluntary carbon credits sold on international markets.

When carbon credits can be easily traded across borders, the economic potential of these projects is realised, injecting fresh overseas capital and support for local communities.

How voluntary carbon markets can tip the scales in climate change fight

But voluntary carbon markets remain held back by a lack of standardisation and transparency. While renewable energy projects and nature-based solutions represent 80 per cent of all credit issuances on Climate Focus’ Voluntary Carbon Market Dashboard, a lack of consistency in project methodologies and measurement models is casting doubt on the veracity and environmental integrity of these voluntary emission reductions.

In addition, double counting of credits remains an issue – it is unclear whether the country that produced and sold the credit, or the country that bought it, can claim it towards its NDC.


China launches world’s largest carbon-trading scheme as part of 2060 carbon neutrality goal

China launches world’s largest carbon-trading scheme as part of 2060 carbon neutrality goal
Recognising that voluntary carbon markets remain a work in progress, many financial bodies have looked to establish their own standards. Whether it is the Hong Kong International Carbon Market Council or private-sector solutions, approaches to strengthening Asia’s market span far and wide.

Before these markets can scale up, there is a trust gap that needs to be filled. Tech-based solutions can do that by shaping the infrastructure that carbon registries and carbon trading systems are built on – where public-private partnerships can be leveraged to encourage high-integrity, internationally recognised standards, verifiably transparent registry systems, and a firm understanding of international carbon policy.

With robust systems in place, emerging markets stand to benefit from new revenue drivers – at the very minimum, US$40-60 per tonne – borne out of being part of a global carbon trading network.

As Asia grapples with its green transition, it’s clear the region can no longer rely on the support of its neighbours. Change must come from within, driven by innovators coupled with meaningful changes in carbon policy.

Michael Sheren is president and chief strategy officer of MetaVerse Green Exchange