The following commentary is contributed by Indira Pradnyaswari and Aulia Davetta Athif from the ASEAN Centre for Energy
As Southeast Asian countries target net-zero by 2050, the region faces the challenge of balancing growing energy demand with decarbonisation goals while fossil fuels continue to dominate the energy mix.
As one of the largest sources of emissions across ASEAN, the energy sector will play a central role in determining whether these climate ambitions can be achieved. Pursuing these ambitions will require substantial investment in low carbon technologies and energy infrastructure, with annual clean power investment needs estimated at US$11.5-US$79.5 billion, suggesting an even larger financing requirement for ASEAN’s broader energy transition.
Given the scale of investment required, conventional financing sources alone are unlikely to be sufficient, highlighting the need for additional financing mechanisms to support the energy transition.
Without stronger investment flows, ASEAN risks falling short of its renewable energy (RE) and decarbonisation ambitions despite growing policy commitments. In response, the ASEAN Plan of Action for Energy Cooperation 2026-2030 identifies sustainable finance as a key enabler for addressing RE investment gaps.
As ASEAN seeks to mobilise additional sources of green capital, carbon markets are increasingly viewed as a financing instrument for the energy transition. Aligning with this objective, ASEAN has prioritised the establishment of an interoperable carbon market and the mobilisation of green capital under the ASEAN Strategy for Carbon Neutrality.
Carbon markets can improve the financial viability of low-carbon projects by creating additional revenue opportunities through carbon credits and strengthening investor confidence through clearer market signals and frameworks. This involves setting high-quality credit standards, sharing compliance market practices and adopting internationally recognised carbon credit accounting mechanisms.
Their growing importance is reflected in the national climate commitments of Cambodia, Indonesia and Singapore, which identify carbon markets as a strategy for mobilising green finance. Together, those initiatives reflect the growing nexus between the energy sector and carbon markets while highlighting the need for greater alignment across energy, investment, climate and financial policies to attract investment for the clean transition.
Despite growing policy support, regional interest and ongoing market initiatives, carbon market development across ASEAN remains at an early stage. Significant implementation challenges are observed across ASEAN, reflecting varying levels of market maturity and institutional readiness among member states.
The market-based mechanism has resulted in a fluctuating market supply and demand experienced by Indonesia, Thailand, Malaysia and Singapore. Meanwhile, Vietnam has recently established the legal foundation for its voluntary carbon market, while Singapore faces constraints related to a limited supply of high-integrity projects and underdeveloped market infrastructure.
To address these challenges, AMS have a range of measures to strengthen carbon market development. While Indonesia, Thailand and Singapore have already implemented market-based instruments, Malaysia and Vietnam are focusing on building the regulatory and institutional foundations needed for future market implementation. These differences reflect varying levels of market maturity and readiness across the region.
In the context of regional cooperation, Singapore currently plays a central role in advancing bilateral carbon market cooperation with other member states, such as Cambodia (2023), Malaysia (2023), Vietnam (2025), Thailand (2025) and the Philippines (2026), to facilitate carbon credit collaboration under Article 6.
At the regional level, the ASEAN Alliance on Carbon Market supports the alignment of national priorities with ASEAN’s carbon market ambitions, while the ASEAN Common Carbon Framework provides a roadmap to harmonise standards and enable the mutual recognition of carbon credits. Complementing these efforts, carbon exchanges are also being developed to improve market transparency and transaction efficiency.
Together, these initiatives can strengthen market confidence and create a more enabling environment for investment in RE and other low-carbon projects across the region.
While ASEAN’s regional carbon market agenda continues to advance, achieving its full potential will require stronger domestic carbon markets and credible mechanisms for cross-border cooperation. This includes developing interoperable registries, transparent accounting systems and robust governance arrangements that enhance market integrity and investor confidence. A gradual and coordinated approach will help avoid past challenges, such as credit oversupply and declining market prices, while creating a more stable environment for low-carbon investment.
Ultimately, the success of ASEAN’s carbon market agenda should not be measured solely by the creation of a regional market, but by its ability to mobilise the investment needed to accelerate RE and other low-carbon projects that drive the region’s energy transition.
