Common ASEAN carbon bloc prospect looks bleak amid persisting uncertainties: ACS

The implementation of the ASEAN Common Carbon Framework for countries in Southeast Asia looks uncertain in the current environment due to regulatory non-clarity, several sources told Platts, part of S&P Global Energy, on the sidelines of the Asia Climate Summit in Bangkok July 9.

Currently, ACCF consists of industry associations from four ASEAN countries -- Malaysia, Indonesia, Thailand, and Singapore. The purpose of ACCF is to build up consensus among ASEAN countries, especially harmonizing the carbon crediting methodologies and streamlining cross-border carbon trading practices.

Ideally, ACCF could foster the formulation of a regional carbon market, like what has been done by the EU's member countries, but market participants said realizing such an aspiration is a mammoth task.

Fragmented compliance regimes

The EU has formulated a regional Emission Trading System, which sets the foundation for building up other carbon policies and markets in a collective manner.

However, sources noted that each ASEAN country has its own political and economic ambitions, which are different from one another, and it isn't immediately clear if a common bloc is possible to establish and sustain.

Notably, among the four ACCF member countries, Singapore has adopted a conventional carbon tax; Indonesia has launched a hybrid cap-and-trade and tax regime; Malaysia and Thailand are still in the process of finalizing the design of their compliance pricing regimes. However, it seems difficult to build a common compliance system in the foreseeable future, given their different paces and practices.

A Malaysia-based participant on the sidelines of the event said countries would evaluate the individual benefits and collective benefits they would receive in having an independent domestic system and forming a common compliance system for the region, respectively.

Complete support needed

Another challenge is that ACCF is formulated by industry associations, instead of being directly established by the governments, so ultimately its effectiveness will depend on synergy and coordination between the public and private sectors, sources told Platts.

Meanwhile, a government official from one of the countries in the grouping said that, for ACCF to function, more countries in the ASEAN have to join.

"It is not completely ACCF yet. Once other countries in the grouping also join the collaboration, then it can be called ACCF," the government official said.

The official further said governments were present to provide support on the policy and regulatory front, but for the bloc to function, private investments had to pour in.

Malaysia is the current chair of ASEAN. Hence, the Malaysia Carbon Market Association has also served as the chair of ACCF's Steering Committee. However, next year, the Philippines will assume the chair of ASEAN, and the country has not yet joined ACCF, so it is still uncertain whether the ACCF's agendas can proceed smoothly, Platts reported earlier.

Finding common methodologies

To be pragmatic, the four ACCF member countries plan to start by identifying some common carbon crediting methodologies that are unique to the ASEAN region but have not been officially recognized elsewhere, according to local market participants.

A participant from Singapore, who works on policy, said perhaps there is a chance for ACCF to bridge any potential gap in the region that could not be covered by the long-awaited Paris Agreement Credit Mechanism, or Article 6.4.

However, in the longer term, ASEAN countries not only need a few pilot methodologies but also a uniform set of rules that make different carbon crediting methodologies compatible across the region, Singapore-based market participants highlighted.

Such compatibility or interoperability is very difficult to achieve, they added.

As ASEAN's key buyer country, Singapore has shown clear support for carbon credits issued under independent international standards, like Verra and Gold Standard, to be used for Article 6.2 purposes.

In contrast, Thailand has strongly supported its domestic T-VER carbon crediting methodologies and is expected to promote its Premium T-VER methodologies to be used across ASEAN and beyond.

Malaysia has adopted an in-between solution. The Ministry of Natural Resources and Environmental Sustainability has nurtured a domestic nature-based carbon crediting mechanism, called Forest Carbon Offset. Meanwhile, the state governments of Sarawak and Sabah have been facilitating their local nature-based projects to get Verra's VCM credit issuance.

"We need consistent, uniform rules to make investment decisions. We hope to have correspondingly adjusted VCM credits from ASEAN projects, following uniform quality standards. Alternatively, we are open to 'ASEAN-VERs', upgraded from a carefully selected set of high-quality T-VERs. But, honestly speaking, I think we are now stuck in the middle of this confusing, chaotic ecosystem," a Singapore-based trader said.