South-east Asia’s emerging carbon markets could be Singapore’s defining opportunity

AS THE world marks International Day Against Climate Change on Friday (Oct 24), and ahead of the COP30 climate summit in November this year, much of the conversation revolves around ambition and the just transition.

Yet, for Asia, the challenge is increasingly one of law and regulation – how to give carbon markets the same trust, enforceability and transparency that underpin mature financial markets. 

The region’s carbon markets have grown, but at an uneven pace. While enthusiasm is high, the legal “scaffolding” is often shaky. If South-east Asia is to mobilise capital credibly for climate action, its carbon trading architecture must evolve from soft pledges to hard rules – and that is where Singapore’s governance strengths could matter most. 

Asia’s emerging geography of carbon

Carbon markets in South-east Asia are advancing on two fronts: voluntary markets (for example, where private actors buy credits to offset emissions) and compliance markets (such as where governments cap emissions and allow trading). But both may be at risk of expanding faster than the legal frameworks necessary to support and police them.

Across Asia, four broad legal trajectories are taking shape:

• statutory emissions trading systems (ETS) – China, South Korea and India embed compliance markets in national laws, providing enforceability and price signals but limited cross-border linkage;
• “voluntary-plus” hybrids – Thailand and Vietnam have carbon-crediting systems that began as voluntary, project-based markets, but now operate under national laws and pathways towards compliance or Article 6 carbon trading;
• bilateral treaty mechanisms – Singapore’s growing network of Article 6 implementation agreements provides structured frameworks for international cooperation on mitigation outcomes;
• private-law exchanges – markets, such as those in Singapore and Hong Kong, provide trading platforms that connect buyers and sellers of carbon credits, creating financial incentives for green initiatives and providing another avenue for entities to offset their unavoidable or hard-to-abate emissions.

This mosaic reflects Asia’s diversity, and highlights the need for greater regional dialogue through Asean or the Asia-Pacific Economic Cooperation to facilitate mutual recognition and ease transaction friction. 

Beyond formal legislation, governance through private law is maturing as a parallel legal order.

The Integrity Council for the Voluntary Carbon Market and Voluntary Carbon Markets Integrity Initiative (VCMI) have emerged as quasi-regulatory bodies setting supply-side (“how good is the credit?”) and demand-side (“how good is the buyer’s climate claim?”) integrity benchmarks, respectively.

These voluntary standards are acquiring market-binding effect, with exchanges, insurers and corporates increasingly requiring carbon credits to align with Core Carbon Principles or the VCMI “Gold” standard.

This hybridisation, where “soft-law” standards complement national regulations, is reshaping Asia’s carbon landscape. It facilitates interoperability, but may also create regulatory risks and cultural tension – global norms can sometimes crowd out local context, especially in smallholder, community or indigenous projects that constitute much of South-east Asia’s potential carbon supply.

Data governance, financial regulation and dispute resolution

As markets mature, three key legal issues could dominate:

• Data integrity: In a mature market, robust measurement, reporting and verification processes are crucial for ensuring that emissions reductions are real, verifiable and quantifiable. Legal systems must also reconcile transparency and privacy, especially where project-level data falls under laws, such as Singapore’s Personal Data Protection Act 2012 or the European Union’s General Data Protection Regulation.
• Classification of voluntary carbon credits: The regulatory status of carbon credits remains unclear in many jurisdictions. They may be treated as commodities, derivatives or securities. Certainty as to their legal nature – for instance, intangible property, or whether holders of such credits have a proprietary or contractual right – would provide clarity on whether and how these credits can be pledged as security, and on the implications of insolvency or bankruptcy of the holder, custodian or carbon credit registry. Legal certainty would reduce transactional risk and enable large-scale investments in carbon markets.
• Dispute resolution: Inevitably, as the carbon markets develop, disputes will arise over the calculation of emissions reductions, the integrity of carbon projects, climate-washing and investor-state relations. Disputes may also arise between states in the application of corresponding adjustments under Article 6 of the Paris Agreement. For example, carbon credits could end up being double-counted if the host country who sold carbon credits to the buyer does not make the corresponding adjustment to its inventory. Judicial and legal institutions must be equipped with specialised skills and technical literacy to effectively interpret, litigate and adjudicate climate-related disputes, ensuring that emerging issues in carbon markets are resolved with both legal rigour and subject-matter competence.

A region in transition

The transition of South-east Asia’s carbon markets from a voluntary phase to a more regulated phase is both healthy and necessary. It has the potential to weed out low-integrity credits, attract more institutional investors and align private markets with public policy.

However, this may also mean higher compliance costs and slower project cycles. But the way forward is clear.

Mechanisms such as the EU Carbon Border Adjustment Mechanism incentivise countries to establish their own carbon pricing systems, by imposing a carbon cost on certain carbon-intensive imports unless a comparable domestic carbon pricing regime exists. This drives the expansion of global carbon markets, as countries seek to maintain export competitiveness and capture carbon revenues domestically.

The Singapore perspective

Against this backdrop, Singapore’s structured, regulatory and collaborative efforts are proving its greatest asset.

The Republic has made steady progress in building its own carbon market architecture. Its Carbon Pricing Act 2018 established South-east Asia’s first economy-wide carbon tax, currently at S$25 per tonne, with a further rise to S$45 in 2026 and S$50 to S$80 by 2030.

The Act allows taxable facilities to offset up to 5 per cent of their emissions, using fixed-price carbon credits or eligible international carbon credits sourced from authorised projects that meet stringent eligibility criteria. This creates a modest but credible anchor for domestic demand, while encouraging companies to decarbonise their activities.

Complementing this legal base, Singapore has signed Article 6 implementation agreements with 10 countries, including Thailand and Vietnam. These bilateral arrangements operationalise cross-border trade in mitigation outcomes, giving Singapore-based entities access to authorised credits.

There is room for improvement, such as ensuring better transparency in methodology selection, providing reasons for the delisting of methodologies, and relooking timelines for methodology white-listing for the recently announced nature-based carbon projects.

Nevertheless, together with the Singapore-Asia Taxonomy for Sustainable Finance (which embedded the world’s first multi-sector transition taxonomy) and the country’s alignment with international carbon crediting standards, these measures position Singapore not just as a trading venue but also as a jurisdiction of trust, where environmental integrity and regulatory discipline anchor its market’s credibility.

In a mark of global leadership, the small nation was one of only 13 countries – out of the 194 that have ratified the Paris Agreement – to submit its 2035 emissions-cutting targets to the United Nations by the Feb 10, 2025, deadline.

From rhetoric to reality

By demonstrating how trust and transparency can coexist with market efficiency, Singapore’s legal system, regulatory clarity and international credibility give the country a chance to shape the landscape of South-east Asia’s carbon markets. 

Ultimately, the success of South-east Asia’s carbon markets will depend less on ambition than on action and architecture, on whether promises are backed by rules. The region stands at an inflexion point: to move from fragmentation to mutual accountability. 

If South-east Asia’s carbon future is to be credible, it will need as much law as it does innovation – and Singapore is uniquely placed to lead that disciplined revolution.

The writers are from RHTLaw Asia LLP. Ch’ng Li-Ling heads the financial services (regulatory) practice and sustainability practice, and Tan Chong Huat is senior partner. RHT group is an early investor in AirCarbon Exchange, a global digital exchange for carbon credits.