Asia’s Billion-Dollar Carbon Boom?

In an unexpected turnaround, 2025 has shaped up to be a phenomenal year for carbon markets. Purchases by global companies to offset their emissions are at levels last seen in 2022 and are on track to reach record levels by the time the year ends.

That’s great news for a market that began the year with rock-bottom demand and a sea of controversies. In the past three years, companies were found to have purchased millions of dubious credits, sometimes even from non-existent projects. A huge number of offsets were also found to either be largely ineffective or overstating their impact on emissions. Those issues rightly fuelled immense scepticism around carbon markets — scepticism that sent prices of credits to multi-year lows.

But recent findings from carbon credit rating agencies are signalling that change may be afoot in how companies are now approaching offsets. Early this month, carbon credit rating agency Sylvera reported that global firms are now shelling out premium prices for higher-quality, verifiable credits, effectively driving their prices to record levels as of the third quarter of the year. For instance, prices for credits from high-integrity projects involved in establishing new forests or restoring degraded land by planting trees and implementing soil conservation practices (also referred to as ARR or Afforestation, Reforestation, and Revegetation) have more than doubled this year. From $10 at the start of the year, these offsets are now selling at $24 per credit — a record high.

That’s a shift with profound consequences for carbon markets.

At a basic level, companies purchase credits to offset emissions they produce through their operations and supply chains. These credits are meant to fund projects that deliver real cuts to carbon emissions or remove planet-warming gases already in the atmosphere. The credits are not meant to substitute genuine efforts by companies to cut down their emissions. Instead, they are meant to compensate for emissions that are either hard-to-abate or produced temporarily while a company decarbonises its operations. But until as recently as last year, scores of companies were found to be purchasing the cheapest available credits, often to placate regulatory requirements or shareholder concerns. That’s because, regardless of its price, one credit would still signify one metric tonne of carbon dioxide avoided or removed.

Which is also what makes Sylvera’s findings so interesting. They suggest that an increasing number of companies now see carbon offsets as purpose-driven investments and prefer to pay for credible offsets that are certified and highly rated. According to the agency, buyers are willing to pay as much as a $5 premium for every jump in credit rating.

Sylvera also reported that demand for such high-integrity credits is now so strong that it is outpacing supply (a finding that’s also backed by MSCI). A key reason for that is projects such as reforestation can often take several years to deliver the emissions benefits they promise to generate, and are, therefore, slower to issue credits. That’s also why high-integrity credits created from those projects are often more expensive.

This booming demand for reliable credits — and the resulting supply gap — presents massive opportunities for Asia to cut emissions, fund decarbonisation, and improve resilience as it faces an outsized impact of a changing climate.

A report last month by the World Economic Forum and Bain & Company found that Asia’s carbon markets so far cover only 28% of the continent’s emissions, even though the region produces more than half of the world’s total emissions. That gives the continent tremendous potential to develop and supply credits, especially now that far better mechanisms than ever are in place to scrutinise new credits.

One such mechanism is the Core Carbon Principles framework by UK-based watchdog The Integrity Council for the Voluntary Carbon Market (ICVCM). Just this week, ICVCM announced it had set up its first-ever physical office in Asia to support the development of a high-integrity carbon market across the region.

And if you’re wondering why the focus on Asia, take a quick look at the kind of projects the Council evaluates or considers as generating ‘high integrity’ credits: capturing methane from landfill sites; retiring coal-fired power plants; improving forest management; practicing sustainable agriculture; using clean cookstoves; reducing deforestation and forest degradation; and using technologies such as biochar (among others).

Most of those projects have massive potential in Asia. For instance, most Asian countries are yet to regulate landfilling of solid waste like in the United States or Europe, and so have mountains of waste (sometimes literally) that need addressing. Meanwhile, India and China — the continent’s two biggest carbon emitters — are also the world's biggest coal-using countries. Both are in the process of transitioning to greener sources of energy. Then there are forestry and agricultural projects, the potential for which is immense in Asia’s emerging economies like India, Indonesia, Thailand, Malaysia, and Vietnam. According to the World Economic Forum, these economies can become some of the biggest suppliers of carbon credits globally by leveraging their abundant natural assets for nature-based projects such as ARR. India and Myanmar, meanwhile, are also significant generators of cookstove carbon credits.

Those factors also make the region — particularly Southeast Asia — well-suited to generate technology-driven credits like those from biochar. Biochar is a charcoal-like substance created from burning organic materials in the absence of oxygen. The process locks in the carbon from biowaste within biochar and prevents it from seeping out into the atmosphere for at least a hundred years. The technology can be key to mitigating emissions from waste sitting in landfills or those from the open burning of crop residues, which is a common practice in countries like India, Indonesia, and Vietnam. Scientists say biochar can also enhance soil and improve crop yields, making it an effective alternative to emission-causing chemical fertilisers for millions of farmers on the continent.

Qualities such as those have made biochar one of the fastest-growing sectors in the voluntary carbon market. According to MSCI, demand for credits from biochar has doubled every year for the past two years. And Asia has seen a surge in deals to meet that demand.

By some estimates, all that potential means that the value of Asia's carbon market could exceed $100 billion by the end of the decade.

Some wins and many lessons

While Asia’s prospects are significant, there are several challenges it will need to overcome to make the most of this booming market, the biggest being credibility. According to UK-based sustainability consulting firm ERM, as of now less than a fifth of the world’s rated projects achieve what most carbon credit buyers consider an acceptable level of quality. And credits from Asia can be particularly problematic.

Myanmar’s clean cookstove projects, for instance, have been found to issue more credits than they should. In India, a whole host of projects have been found to lack any transparency on how credits are issued or even verified as delivering the emissions reductions they promised. Verification-related issues also held up payments from carbon credits to marginalised workers like farmers in sustainable farming projects. In some cases, where payments did come through, ‘greedy’ middlemen end up taking big chunks of the payout, leaving little left for farmers.

Similarly, in Cambodia, nature projects meant to deliver carbon credits were developed without consulting the indigenous communities living in the areas and often negatively impact their livelihoods and freedom. One study also found carbon offset projects working on reducing emissions from deforestation and forest degradation in Southeast Asia were “significantly overstating their climate benefits”.

Some of Asia’s biggest economies, meanwhile, including China, India, Japan, South Korea, Indonesia, Thailand, Malaysia, and Singapore, are also making an outsized push for carbon capture and storage (CCS), a controversial technology often seen as a way to keep fossil fuel companies running. CCS projects are meant to capture emissions from carbon-intensive processes like oil refining, but many climate experts say they “don’t actually work”. According to a report out this month, if Asian countries keep a high dependence on CCS projects, they could create an additional 25 billion tonnes of emissions. That would raise questions again about any credits they generate.

Experts say the key to fixing these issues is consistent governance and a push to link in with broader regional and international markets to increase accountability. And on that path, Asian countries are on the right track.

China — home to the world’s largest carbon market — is making efforts to move past a chequered history of greenwashing scandals to make its emissions trading system more robust. It relaunched its voluntary carbon market last year and has been working to expand it and improve its accountability. According to the WEF report, China’s ETS now has the potential to cover 8.7–10.6 billion tonnes of emissions in 2028–2029, with a market size of $56–84 billion by 2030. One of China's two international carbon exchanges has now also started offering clients blockchain-based carbon credits to try to bring in more traceability.

Countries like India, Thailand, Indonesia, Malaysia, Vietnam, and Singapore have launched or are on track to launch their carbon markets, while also working to create a unified framework for cross-border trades amongst each other, and also with larger regional partners like Japan. Taiwan and India are also working to bring their carbon markets in line with the European Union’s well-established emissions trading system. Last month, India came closer to an agreement with the EU to sell its credits to the region. To be able to do so, it would need to ensure it can generate high-quality, verifiable credits. Experts involved in the process said a high-quality credit wouldn’t just be about carbon — it would need to “deliver social and environmental co-benefits”.

• Apple is making moves to expand its investment in China and India despite increasing pressure on the company to cut its dependance on its Asian partners.

• Google has announced its biggest investment yet in India with plans to build an artificial intelligence data centre worth $15 billion over five years.

• Sanctions imposed by China this week on US-linked units of shipbuilder Hanwha Ocean could undermine the Trump Administration’s plan to revive shipbuilding in the US.
  

• And the Netherlands government has taken control of Chinese-owned Dutch chipmaker Nexperia due to fears of potential transfers of crucial technology to China.