Carbon Pricing: Asia's Untapped Revenue Stream in the Climate Fight

The carbon market can be an important revenue stream for developing countries in Asia and the Pacific. Photo: Marek Piwnicki
The carbon market can be an important revenue stream for developing countries in Asia and the Pacific. Photo: Marek Piwnicki

By Duc Tran

Developing countries in Asia and the Pacific are among the hardest hit when it comes to climate change and yet many have limited resources to address the issue. Valuing carbon as a commodity and developing the immature carbon market is an important strategy for the region moving forward.

Climate change is hitting Asia's developing countries hard, and they often lack the resources to effectively address the issue. But there's a way to change this: by treating carbon as a sellable item and entering the growing carbon market.

This process starts with carbon pricing. Simply put,  carbon pricing is like putting a price tag on pollution. It's a way to make businesses think twice before emitting harmful gases. Europe and North America are already doing this, and the People’s Republic of China has also joined in.

This is an excellent time for Asia’s developing countries to enter the global carbon market. 

In Europe, the price for emitting a ton of carbon reached a record 99 euros in August 2022. Singapore has a carbon tax of around 17 euros. These high prices are essential to keep global warming under control, as outlined in the Paris Agreement.

Developing countries in Asia and the Pacific need to recognize carbon as a valuable asset.

Another factor at play is the carbon border tax. To make sure businesses don't just move their pollution elsewhere, the European Union is introducing a new rule. Importers will have to buy certificates that match the European Union's carbon price, making it more expensive to pollute. Developing countries can earn valuable revenue by participating in this scheme through the sales of these certificates. 

A carbon price between $50-$100 per ton is needed by 2030 to keep global warming in check. Some even suggest higher prices will be needed to reach net-zero emissions by 2050. This indicates that the market price of carbon is set to increase in the years ahead, which is an incentive for developing countries in Asia to participate.

Developing a vibrant carbon market does not mean that countries are forced onto a specific path toward decarbonization. Under the Paris Agreement, countries can choose their own projects to reduce emissions. This flexibility can lead to different types of carbon credits and prices, offering more opportunities for developing countries.

To make the most of this opportunity,  developing countries in Asia and the Pacific need to recognize carbon as a valuable asset. And to sell it, countries need to prove they've actually reduced emissions. ADB and other organizations can help with this. These institutions can also help verify that carbon credits are legitimate, making them easier to sell.

Right now, there are two types of carbon markets: one for companies trying to do good (valued at $2 billion in 2021) and one enforced by governments (valued at $751 billion in 2021). By bringing these markets together, developing countries can benefit even more.

Climate change isn't waiting. New rules are coming out all the time, and countries need to keep up.  By working with international organizations, developing countries can stay ahead of the game and make the most of the carbon market. Developing countries in the region have a golden opportunity to fight climate change while boosting their economies.