Imagine a world where businesses in Singapore can offset their emissions by investing in reforestation projects in Indonesia, or a factory in Thailand can trade carbon credits seamlessly with a solar farm in Vietnam. This is the promise of a truly integrated carbon market, one that ASEAN has yet to fully realise.

ASEAN’s carbon markets are currently a patchwork of national policies, voluntary initiatives, and regulatory gaps. The lack of standardisation stifles investment, making it harder for businesses to participate in meaningful climate action. But under Malaysia’s chairmanship of ASEAN in 2025, the region now has a unique opportunity to change the status quo.

With Bursa Malaysia leading the charge, the ASEAN Common Carbon Framework (ACCF) aims to create a unified system for carbon credit trading, one that can unlock billions in green investments and put ASEAN on the map as a leader in the global carbon economy.

Malaysia leads a historic step forward

Negotiators at the United Nations’ (UN) recent climate summit, COP29 in Azerbaijan unanimously approved a crediting methodology for Article 6.4 of the Paris Agreement, also known as the Paris Agreement Crediting Mechanism (PACM). The decision is a momentous step toward operationalising an international voluntary carbon market governed by the UN.

On the heels of the UN announcement, ASEAN nations also took a landmark step in regional climate collaboration through a Memorandum of Collaboration (MoC), signed by Malaysia together with carbon market associations from four other ASEAN countries to develop the ASEAN Common Carbon Framework (ACCF).The AACF marks the first step in establishing a common set of guidelines and standards for a carbon market in the region. The collaboration aims to streamline the production of high-quality carbon credits, enhance market liquidity, and align domestic methodologies across Member States to foster regional integration.

YB Nik Nazmi Nik Ahmad, Minister of Natural Resources and Environmental Sustainability (NRES) who witnessed the MoC exchange stated that the collaboration reflects “Malaysia’s growing recognition of the urgency to address climate change” and is part of the initiatives the nation hopes to operationalise as it assumes the ASEAN Chairmanship in 2025.

The AACF will unlock carbon project opportunities unique to the ASEAN region while sending stronger demand signals through a bigger market of supply and demand for carbon credits. Fostering greater interoperability between ASEAN nation’s carbon markets can also help improve market liquidity and achieve better price efficiency for carbon projects.

A closer look at Malaysia’s first carbon market exchange

Notably, the concept of the ACCF was first introduced by Bursa Malaysia at the ASEAN Carbon Forum, initiated by the Working Group on Carbon Market under the ASEAN Business Advisory Council of Malaysia (ASEAN-BAC-MY). The Forum served as a catalyst for discourse on potential initiatives to set in motion the ASEAN Strategy for Carbon Neutrality.

Indeed, Bursa Malaysia launched Malaysia’s pioneer voluntary carbon market as early as 2022 with the introduction of the Bursa Carbon Exchange (BCX) – the first Shariah-compliant carbon exchange in the world. The launch of BCX marked a significant milestone in the country’s effort to address climate change and achieve a more sustainable future.

Since its inception, BCX has played a pivotal role in facilitating carbon credit trading for corporations to offset their carbon footprints, offering three modes: auctions, continuous trading, and off-market transactions. The nation’s first carbon credit auction was held in 2023, where 150,000 carbon credits were purchased by 15 local corporate entities.

Due to increasing domestic demand, BCX also offered renewable energy certificates (RECs) for the very first time by way of auction in 2024. This underscores Bursa Malaysia’s progress as a multi-asset exchange in democratising access to and creating new opportunities for the market through additional types of environmental products.

Malaysia’s positive experience and successes with the BCX will be instrumental in supporting the ACCF’s goal of developing interoperable carbon markets in the region, while improving transparency and aligning with international best practices and standards including the International REC Standard and Verra/Gold Standard for carbon credits.

Why does ASEAN need carbon markets?

Southeast Asia holds vast potential for carbon trading, and particularly for generating carbon credits. The region hosts some of the world’s most valuable investable carbon stock, and it is estimated that potential offsets generated in the region may offer US$10 billion in economic activity annually by 2030.

The region hosts some of the world’s most valuable investable carbon stock, and it is estimated that potential offsets generated in the region may offer US$10 billion in economic activity annually by 2030

Nonetheless, unlocking this opportunity will involve navigating challenges to ensure the costs and benefits are equitably shared, while contributing to meaningful emissions reductions. At present, carbon markets in ASEAN remain nascent and fragmented, which is both a symptom and a cause of the broader challenges facing the region.

The diversity of ASEAN countries in terms of economic development, energy mix and institutional capacities create hurdles for a truly unified carbon market. Without a common carbon framework, it would be difficult to enable equivalency in carbon pricing schemes as well as ensure the environmental integrity of emissions reductions.

Another challenge is the potential for carbon leakage – where emissions reductions in one country leads to an increase in emissions in another. This is particularly relevant in ASEAN, where economic activities are closely interconnected. Without a clear policy on equivalence for carbon pricing, businesses may relocate to countries with less stringent regulations.

With the ACCF, Malaysia has now established itself as the natural leader for ASEAN’s carbon framework, demonstrating climate commitment through its national carbon crediting system development. The ACCF will leverage the strengths of and address the disparities between Member States to fulfill the region’s full environmental and economic potential.

The way forward for realising the ACCF

By standardising carbon methodologies, the ACCF can ensure the environmental integrity of emissions while building trust in ASEAN’s carbon markets. This would certainly require overcoming political and economic differences, but the benefits in terms of cost savings and increased investment in low-carbon technologies could be substantial.

To this end, the Malaysian government should involve both public and private sector stakeholders in policy planning to ensure diverse interests are represented as it works towards setting up a fair mechanism for carbon regulation and pricing. This would not only be important for securing a sustainable carbon movement in Malaysia, but ASEAN overall.