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Voluntary Carbon Markets — the APAC View

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Voluntary Carbon Markets — the APAC View

 

Anthony Chan and Jamie Lambert
May 17, 2024

The voluntary carbon market (VCM) offers a mechanism to channel private financing into underfunded climate solutions. Amid the debate over the VCM’s role in corporate decarbonization, we investigated market trends in the Asia-Pacific (APAC) region.

Despite a dip in recent years, the volume of carbon credits issued within the region has risen substantially since 2014. India, China, Australia and Indonesia have led the way, while renewable energy, followed distantly by nature restoration and REDD.plus,1 have been the top project types.

Among listed companies, those domiciled in Japan, Australia and China have led the purchase and retirement of carbon credits by volume since 2014, with renewable-energy credits accounting for almost half of these retirements. Corporate disclosures suggest that some companies may have sought credits to make carbon-neutrality claims — a practice that has drawn increased scrutiny over environmental-integrity concerns.2

Various efforts are underway within the APAC region to clarify the role of carbon credits in enabling climate action. In line with global efforts, APAC authorities are developing guidelines on the use of carbon credits for environmental claims and requisite disclosures for these claims.3 Ongoing pilot projects on the use of transition credits to bridge the funding gap for the early retirement of coal-fired power plants,4 as well as policies allowing companies to meet some of their compliance carbon-market5 obligations through carbon credits,6 may further facilitate development of the VCM.

2014-2023 carbon-credit retirements by APAC-listed companies (left); credit issuance from projects in the APAC region (right)

 
How to use this chart: Click on the bars to view breakdowns for specific categories. Hold onto shift to select multiple bars. Issuance and retirement volumes in this chart cover the markets and companies in the MSCI AC Asia Pacific Investable Market Index. Note that companies may purchase and retire credits originated outside the APAC region. Data as of March 15, 2024. Source: MSCI Carbon Markets, MSCI ESG Research


1 REDD stands for “reducing emissions from deforestation and forest degradation in developing countries.” The “plus” stands for additional forest-related activities that protect the climate, namely sustainable management of forests and the conservation and enhancement of forest carbon stocks. Source: UNFCCC

2 Our research into corporate disclosures of some buyers suggests that transactions could have been made to offset emissions from operational activities or implement consumer-offset programs.

3 Initiatives include the Australian Competition and Consumer Commission’s guidelines on environmental claims and localization of the International Sustainability Standards Board’s climate-disclosure standard in Australia and Japan, which includes disclosure requirements on carbon-credit usage.

4 “Transition Credits,” Monetary Authority of Singapore, accessed April 5, 2024.

5 Carbon markets operate within mandatory compliance frameworks and voluntary initiatives, differing in regulation, impact and scale. Mandatory carbon markets, or compliance markets, arise from binding emissions reduction commitments established by agreements like the 1997 Kyoto Protocol and the 2015 Paris Agreement. These markets typically adopt cap-and-trade mechanisms, referred to as emission-trading systems.

6 Singapore and China have developed mechanisms to allow regulated entities to use carbon credits to meet up to 5% of their compliance carbon-market obligations.


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