ASEAN’S Evolving Climate Governance Framework

INTRODUCTION

As ASEAN member states step up efforts to implement their Nationally Determined Contributions (NDCs) under the Paris Agreement, questions have emerged about the extent to which ASEAN as a collective is facilitating these efforts. While climate and energy policies remain primarily under national jurisdiction, there is a growing recognition that regional coordination—through shared infrastructure, harmonised standards, and institutional frameworks—can play a catalytic role in accelerating the green transition.

According to estimates, ASEAN will require approximately US$1.5 trillion in investment by 2030 to realise its energy transition goals. However, there is a significant financing gap with only US$45 billion mobilised between 2021 and 2023, thus underscoring the urgent need for stronger regional mechanisms to attract green investment, encourage capital flows, and align national decarbonisation pathways with ASEAN’s collective vision for a low-carbon future.

The region has seen piecemeal but noteworthy progress in climate and inter alia, energy cooperation. ASEAN’s climate governance framework is undergirded by the ASEAN Strategy for Carbon Neutrality, adopted in 2023, which reflects the cross-cutting nature of the climate transition and a more integrated institutional approach across ASEAN’s existing sectoral cooperation. Regional discussions on carbon markets and a regional sustainable finance taxonomy are also underway, signalling a need for more coordinated facilitation by ASEAN.

On the energy front, ASEAN is moving, albeit gradually, toward its collective renewable energy targets, driven largely by rising demand from energy-intensive industries and the growing use of artificial intelligence (AI), which has increased the need for clean energy to support data centres. The region renewed its commitment to realise the ASEAN Power Grid (APG) after piloting successful cross-border initiatives such as the Lao PDR–Thailand–Malaysia–Singapore Power Integration Project (LTMS-PIP). Momentum for greater energy interconnectivity has picked up under the Malaysian Chairmanship. Discussions around potential new subsea cable projects also indicate that the region is beginning to explore strengthening infrastructure connectivity in response to the evolving energy transition landscape. A new tripartite financing initiative between the ADB, World Bank and ASEAN for the ASEAN Power Grid, announced at the recent 42^nd ASEAN Ministers on Energy Meeting, will help to mobilise large-scale financing for cross-border interconnections on land and seabed and catalyse private sector financing as well.

This article evaluates ASEAN’s progress in climate governance and analyses the drivers behind recent policy shifts with proposed strategic recommendations to enhance collective coordination and ambition in the years ahead.

STOCK TAKE OF COUNTRIES’ CLIMATE COMMITMENTS

At the time of writing, all but two ASEAN countries (Myanmar and the Philippines) have communicated economy-wide net zero targets, and only two ASEAN countries (Cambodia and Singapore) have submitted their 2025 NDCs. For the first time, Cambodia’s 2025 NDC committed to an unconditional quantifiable emissions reduction target of 16% (equivalent to approximately 21.7 MtCO2e) compared to its 2035 business-as-usual (BAU) scenario. Singapore’s 2025 NDC is committed to reducing emissions of between 45 and 50 MtCO2e by 2035. In terms of longer-term plans, only Cambodia, Indonesia, Singapore and Thailand have submitted long-term low greenhouse gas emissions development strategies (LT-LEDS) to further elaborate on their plans for achieving net zero.

According to estimates, ASEAN will require approximately US$1.5 trillion in investment by 2030 to realise its energy transition goals. However, there is a significant financing gap with only US$45 billion mobilised between 2021 and 2023 …

All ASEAN countries (except Myanmar and Timor-Leste) have chosen to set quantitative economy-wide emissions reduction targets in their latest NDCs (see Table 1). Seven countries set their targets as a percentage reduction in emissions relative to a Business-As-Usual (BAU) scenario, which is consistent with around 46% of all Parties internationally. For most developing ASEAN countries, the conditional target is significantly stronger than the unconditional target. This is especially true for the Philippines, whose unconditional target is only 2.71% in emissions reduction by 2030 relative to BAU levels, compared to its conditional target of 75% reduction, signalling that it will be heavily dependent on international support for any substantial climate action. Brunei, Singapore and Malaysia, the three wealthiest countries in ASEAN in terms of GDP per capita, only set unconditional targets, indicating their intention to achieve their climate targets using domestic resources.

An assessment of ASEAN’s climate ambitions based on their 2021/2022 NDC submissions concluded that while most countries have added or strengthened their economy-wide targets (Brunei, Cambodia, Lao PDR, Malaysia, Philippines, Singapore, Thailand and Vietnam), some were merely marginal increases by 2-6% in emissions reduction (Indonesia, Philippines and Vietnam) whereas others raised their emissions targets by at least 10% (Cambodia, Malaysia, Singapore and Thailand) or added new economy-wide targets which they previously did not have (Brunei and Lao PDR). ASEAN countries made noteworthy progress in increasing the coverage of their NDCs, for example, by including more types of non-CO₂ greenhouse gases or expanding to more sectors of the economy; and many opted to add a significant number of new sectoral targets or actions. But regional countries will be expected to demonstrate further ambition enhancement in their next-generation NDCs due at the end of 2025.

Table 1. Latest NDCs submitted by ASEAN Countries

Country	Year submitted	NDC type	Unconditional target	Conditional target
Brunei Darussalam	2020	1st NDC (Updated submission)	Emissions reduction of 16% (equivalent to approx. 21.7 MtCo2e) compared to the 2035 BAU scenario	–
Cambodia	2025	3rd NDC	Emissions reduction of 55% (Equivalent to approx. 73.7 MtCo2e) from the 2030 BAU scenario	Emissions reduction of 31.89% from the 2030 BAU scenario
Indonesia	2022	1st NDC (2nd updated submission)	Emissions reduction of 43.20% from the 2030 BAU scenario	Emissions reduction of 60% from the 2030 BAU scenario
Lao PDR	2021	1st NDC (Updated submission)	Emissions reduction and avoidance of 2.71% from the 2020-2030 cumulative BAU scenario	Additional sectoral targets totalling emissions reductions of 45.69 million tonnes of CO₂ equivalent per year (MtCO₂e/year) in 2020-2030
Malaysia	2021	1st NDC (Updated submission)	Carbon intensity reduction of 45% from 2005 levels	–
Myanmar	2021	1st NDC (Updated submission)	No economy-wide target; sectoral targets adding up to emissions reductions of 244.52 MtCO₂e	No economy-wide target; sectoral targets adding up to emissions reductions of 414.75 million MtCO₂e
Philippines	2021	1st NDC	Emissions reduction of 75% from 2020 to 2030 in the cumulative BAU scenario	Emissions reduction of 30% from the 2030 BAU scenario
Singapore	2025	2nd NDC	Reduce emissions to between 45 to 50 million MtCO₂e in 2035	–
Thailand	2022	1st NDC (2nd updated submission)	Emissions reduction of up to 40% from the 2030 BAU scenario	Emissions reduction of 15.8% from the 2030 BAU scenario
Vietnam	2022	1st NDC (2nd updated submission)	Emissions reduction of 43.5% from the 2030 BAU scenario	Emissions reduction of 43.5% from 2030 BAU scenario
Timor-Leste	2022	Updated NDC 2022-2030	None, sectoral actions only	None, sectoral actions only

Note: Greenhouse gas emissions are expressed in million tonnes of CO₂ equivalent (MtCO₂e).

KEY DEVELOPMENTS IN ASEAN CLIMATE GOVERNANCE

ASEAN’s climate governance architecture has evolved alongside the urgency to align with the Paris Agreement. Furthermore, the ability to attract international climate finance has become increasingly linked to credible regionally-coordinated action. The convergence of ASEAN climate-related initiatives through key regional strategies that promote cross-sectoral and cross-border cooperation, such as the ASEAN Strategy for Carbon Neutrality and the ASEAN Taxonomy for Sustainable Finance, along with a nascent interest in spurring the creation of a regional carbon credit market, have contributed to the emergence of an early framework for climate governance.

ASEAN Strategy for Carbon Neutrality

The ASEAN Economic Ministers’ endorsement of the ASEAN Strategy for Carbon Neutrality in August 2023 represents a notable advancement in the region’s approach to climate governance. The Strategy adopts a cross-sectoral and cross-pillar approach that integrates environmental priorities with economic objectives, in line with global trends in green transition. It aims to align national climate pledges through a regional framework that cuts across key environmental priorities such as agriculture, finance, disaster risk, and energy. There are four key outcomes of the strategy:  (1) the development of green industries to maximise ASEAN’s role in regional green value chains, and to boost exports; (2) enhanced interoperability across member states to facilitate cross-border exchange of green electricity, products, and feedstocks; (3) the establishment of globally credible standards to attract international capital and deepen regional market liquidity; and (4) the cultivation of green talent and expertise to support the climate transition.

Key to the Strategy’s operationalisation is firstly a prioritisation of actions related to the energy and land-use sectors—the two largest sources of greenhouse gas emissions in the region. Secondly, to mainstream the Strategy’s priorities into different ASEAN work streams, for instance, in the trade facilitation and ASEAN FTA upgrade negotiations with different Dialogue Partners, a focus on greening supply chains (Priority 1) or inclusion of circular economy principles (Priority 2) would be a good complement. The ASEAN-China Free Trade Area 3.0 and the ASEAN-Australia-New Zealand FTA upgrades—which were negotiated prior to the 2023 Strategy—have incorporated green economy and environmental provisions. These examples provide a good basis to align ASEAN decarbonization pathways, although future FTA upgrades need to explicitly contain practical measures to achieve the Strategy’s outcomes.

Given its inherently cross-sectoral and cross-pillar nature, the establishment of the ASEAN Task Force for Carbon Neutrality—which functions like a coordinating body interfacing with the ASEAN Working Group of Climate Change and the ASEAN Committee on Science, Technology and Innovation—to ensure alignment and avoid duplication is commendable. This body will serve as a central hub to develop work plans and indicators to monitor decarbonisation progress and ensure effective communication, collaboration, and alignment among Member States and relevant stakeholders. It would also enhance visibility, signal ASEAN’s elevated climate commitments, and facilitate cooperation with dialogue and development partners. However, the detailed implementation should still be delegated to existing sectoral mechanisms. With sustained attention paid by the ASEAN Economic Ministers on issues of sustainability and decarbonization, it is likely that there will be marked progress in the region’s collective efforts. The incorporation of private sector and civil society actors’ inputs and commitments to implement the Strategy’s plans and milestones will further boost these efforts.

ASEAN Taxonomy for Sustainable Finance

The ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy) was established under the auspices of the ASEAN Finance Ministers and Central Bank Governors’ Meeting in 2021. It serves as a regional guide to define and classify sustainable projects and activities in ASEAN, while ensuring interoperability among ASEAN countries’ national taxonomies (Table 2) and external taxonomies such as the EU Taxonomy for Sustainable Activities and the Climate Bonds Taxonomy. It plays a crucial role in ensuring that investments coming into the region adhere to sustainable standards, and facilitates ASEAN countries’ plans to participate in regional and international markets for green financial products in a credible, evidence-based and inclusive way.

Table 2. National-level taxonomies for sustainable finance in ASEAN

Country	National-level taxonomy	Year launched
Indonesia	Indonesian Taxonomy for Sustainable Finance	2024
Malaysia	Climate Change and Principle-based Taxonomy	2021
Philippines	Philippine Sustainable Finance Taxonomy Guidelines	2024
Singapore	Singapore-Asia Taxonomy for Sustainable Finance	2023
Thailand	Thailand Taxonomy (Phase I)	2023
Cambodia	Under development
Lao PDR	Under development
Vietnam	Under development

To encourage wider adoption among ASEAN countries, the ASEAN Taxonomy takes a multi-tiered approach consisting of the Foundation Framework, which is based on qualitative and sector-agnostic screening criteria when detailed data are unavailable, and the Plus Standard, which is a more robust system based on sector-specific technical screening criteria. Both adopt a traffic light system, which is also used in ASEAN countries’ national taxonomies, wherein activities are assessed with colour-coded classifications. “Green” indicates fulfilment of the activity’s respective screening criteria, “Amber” indicates a transition stage towards fulfilling “Green” criteria, and “Red” indicates that none of the criteria for “Green” or “Amber” were met. In particular, the highest tier of Plus Standard “Green” indicates alignment with the 1.5 degrees Paris Agreement target. The ASEAN Taxonomy is updated periodically to increase coverage and improve usability in response to stakeholder consultations. Version 2, which was released in 2023, fleshed out the Foundation Framework by adding guiding questions for easy application, as well as a methodology for developing the technical screening criteria under the Plus Standard. Version 3, which took effect on 20 December 2024, includes new activities within the construction, real estate and transport sectors. Version 4 is currently underway to further strengthen the activity coverage of the Taxonomy.

The ASEAN Taxonomy aims to be inclusive of ASEAN countries’ different developmental challenges by addressing climate transitional activities, more specifically, early coal retirement projects in the region. While there is limited precedence for transitional activities in international taxonomies, the ASEAN Taxonomy’s coal power phase-out criteria for a “Green” classification are based on the International Energy Agency (IEA) Net Zero Emissions Pathway, requiring (a) coal phase-out by 2040; (b) exclusion of coal plants achieving financial close after 2022; (c) operation duration of no more than 35 years; and (d) independent verification of the climate impact and additionality of emissions savings due to the early closure. In recognition of region-specific mechanisms for coal phase-out, the criteria also stipulate that projects accepted by the ADB’s Energy Transition Mechanism (ETM), Just Energy Transition Partnership (JETP) or aligned with the Guidelines for Financing a Credible Coal Transition by the Climate Policy Initiative, Rocky Mountain Institute and Climate Bonds Initiative are included.

Since the Taxonomy’s introduction in 2021, it has been referenced by Indonesia, Malaysia, the Philippines, Singapore, and Thailand in developing their own national taxonomies. An analysis carried out found that regional and national taxonomies’ screening criteria and Environmental Objectives were largely aligned. Some notable differences are in the approach to “Green” transition financing, e.g., the assessment of coal and gas projects, where the ASEAN Taxonomy is generally either aligned with or stricter than national taxonomies in Southeast Asia.

In terms of practical application, the ASEAN Taxonomy has been used by three companies: Bangkok Expressway and Metro PLC, the Provincial Electric Authority of Thailand and Wasco Berhad, for the assessment of company-level sustainable finance frameworks and the issuance of sustainable finance instruments. All three were assessed through a Second Party Opinion by DNV, usually in conjunction with other frameworks such as the Sustainable Development Goals and Green Bond Principles issued by the International Capital Markets Association.

In terms of interoperability with taxonomies beyond the region, further study is needed to make detailed comparisons between screening criteria for each sector and classification, but the Plus Standard “Green” Tier (the strictest classification under the ASEAN Taxonomy) is said to be designed with reference to international taxonomies including the EU Taxonomy, with some exceptions such as its unique inclusion of the early coal power plant retirement project.

Challenges remain in the broader uptake of the ASEAN Taxonomy due to its largely non-mandatory and voluntary nature. While the Taxonomy is envisioned for multiple uses such as bond issuance, sustainability reporting and as a benchmark for risk management and ESG, its usage beyond a reference guide remains limited. Table 3 summarises key limitations and suggestions raised through stakeholder consultations on the ASEAN Taxonomy.

Table 3. Key limitations and suggestions from stakeholder feedback on the ASEAN Taxonomy

Category	Description/Issue	Approach / Example	Observation
Usability & Capacity-Building	Some stakeholders have called for greater emphasis on the just transition and social aspects in the Taxonomy, while others argue that it is too soon to incorporate just transition principles.	Version 3 has made some progress on this by including example cases tailored for SMEs. A potential model for a more comprehensive tool could be the EU Taxonomy Compass, a website that allows users to search and filter for activities relevant to them and access the associated criteria.	Stakeholder surveys have also revealed that many lack detailed understanding of the ASEAN Taxonomy, and that clearer communication of its benefits would help increase uptake.
Incorporating Just Transition Principles	Existing guidelines for reference include those developed by the International Labour Organisation and the World Bank.	To address gaps in the social aspects of the ASEAN Taxonomy, clear principles for a just transition could be developed for consistent guidance across all countries as a complement to existing national legislation. The granularity of such guidelines can be based on stakeholder consultations.	Existing guidelines for reference include those developed by the International Labour Organisation and the World Bank.

Towards an ASEAN Regional Carbon Trading Mechanism

ASEAN does not yet have a unified regional carbon market. The development of an ASEAN regional carbon trading mechanism is still in its nascent stages. In November 2024, Indonesian, Malaysian, Singaporean, and Thai carbon market associations joined forces with the ASEAN Alliance of Carbon Markets, which was set up under the ASEAN-Business Advisory Council during Indonesia’s Chairmanship in 2023, to draw up an ASEAN Common Carbon Framework (ACCF) thus signalling strong interest from private-sector and civil society actors to participate in developing a carbon credit mechanism at the regional level. While the interest is clearly there, the market remains highly fragmented because national-level carbon pricing initiatives and market-based emission trading systems (ETS) have failed to keep pace.

Singapore and Indonesia started with the implementation of direct carbon pricing. Singapore launched Southeast Asia’s first carbon tax in 2019, priced at SGD 5/tCO₂e with plans to reach SGD 50–80/tCO₂e by 2030. Meanwhile, Indonesia initially introduced a direct carbon tax into law in 2021 for coal power plants (IDR 30,000 per tonne of CO₂, about USD2) with full implementation by 2022. However, this policy has been delayed due to issues with inter-ministerial coordination, policy design flaws, and the absence of long-term policy certainty.

Regional countries prefer to prioritise the development of ETS in order to assess the impact of carbon pricing on industries instead of imposing a direct carbon price. This is occurring in parallel across multiple countries and is driven by a combination of private-sector actors and national governments keen to mitigate using market mechanisms. The momentum is fuelled by strong complementarities between hard-to-abate industries seeking to purchase carbon credits and sectors capable of generating them through carbon mitigation projects. Singapore, Indonesia, Thailand, and Malaysia are leaders in this space.

The regional preference of using voluntary non-binding mechanisms could eventually pose risks of over-reliance on carbon offsets, thus dis-incentivising direct emission reduction actions and questions over the integrity of credits traded.

Singapore is the region’s leader when it comes to voluntary carbon markets (VCM). In 2021, DBS Bank, Singapore Exchange, Standard Chartered, and Temasek announced the development of Climate Impact X (CIX), a global voluntary carbon market platform. In 2024, CIX launched the CIX Exchange, a global spot trading platform focusing on nature-based carbon credits. Singapore also permits the use of eligible international carbon credits to offset a portion of its domestic carbon tax obligations, and in 2024, it announced specific criteria for monitoring and reporting.

While its direct carbon tax policy remains stalled, Indonesia is currently developing a regulatory framework for both compliance and voluntary markets under Presidential Regulation No. 98/2021 and the Carbon Economic Value framework. The ETS system has been implemented since 2023 and currently only covers coal-fired plants under the state-owned utility PLN. There are plans to eventually expand to oil and gas-fired power plants and non-PLN coal plants. Malaysia is advancing its Voluntary Carbon Market Exchange (BCX) through Bursa Malaysia to facilitate the transaction of high-quality carbon credits at transparent prices. Meanwhile, Thailand has established a voluntary carbon credit certification system through the Thailand Greenhouse Gas Management Organisation (TGO), which supports both domestic and international offset trading.

The development of interoperable carbon markets is a strategic priority under the ASEAN Strategy for Carbon Neutrality, and this is supported by growing interest across ASEAN in developing shared frameworks and taxonomies to support the future interoperability of national carbon markets. The operationalisation of Article 6, including both Article 6.2 – which governs bilateral and multilateral carbon trading – and Article 6.4, which establishes a centralised United Nations (UN)-supervised carbon market mechanism during the Baku COP in 2024, has given cause for ASEAN countries to seriously implement domestic carbon measures. This is accompanied by surging regional and global demand for high-integrity carbon credits, along with increasing levels of investment in carbon sink projects, particularly in forestry, peatland restoration, and blue carbon. Therefore, the harmonisation of standards and market mechanisms is essential to ensure environmental integrity, avoid double counting, and enhance market credibility, objectives that align closely with Article 6 provisions of the Paris Agreement. The development of an ASEAN carbon market will thus depend on the integrity of its member states’ national carbon governance frameworks.

The regional preference for using voluntary non-binding mechanisms could eventually pose risks of over-reliance on carbon offsets, thus disincentivising direct emission reduction actions and raising questions over the integrity of credits traded. Without setting an actual price on carbon for emitters, the lack of transparency on pricing and the absence of price signalling become troubling over time. Potential greenwashing and the flooding of low-integrity carbon offsets can lead to dubious ‘carbon neutrality’ claims, a stated objective of ASEAN’s main strategy. The voluntary, non-binding nature of mechanisms that ASEAN countries prefer to rely on is the result of its consensus-based decision-making style; this feature of governance could potentially impede the further development of a robust regional carbon market. While soft harmonisation may be one way to approach this problem, the global carbon trading community eventually needs to aim for legally binding rules and regulations with a built-in dispute settlement mechanism, similar to the governance of international trade. The COP30 Presidency hopes to address this with a voluntary coalition of international carbon markets to strengthen market integrity, but the discussion needs to go beyond voluntary measures towards ones that are binding.

Without waiting for developments to mature at the international level, there are certain actions that the region can take to prepare for a regional carbon market. As the development of the ASEAN Carbon Credit Framework (ACCF) gains momentum, ASEAN should begin exploring ways to establish a robust Monitoring, Reporting, and Verification (MRV) infrastructure to enable seamless carbon trading across the region. A well-designed MRV system is foundational to ensuring environmental integrity and building trust among investors and stakeholders. Once an MRV system is established, the more mature carbon markets in ASEAN could begin to pilot carbon trading with greater confidence. Singapore and potentially Indonesia—once its ETS is fully operational—which are the two markets that are more mature, could take the lead by initiating bilateral pilot trading to develop mutual recognition of credits.

CONCLUSION

ASEAN’s broader climate governance architecture is fast evolving as the region intensifies its alignment with global climate goals. Initiatives such as the ASEAN Strategy for Carbon Neutrality, the ASEAN Taxonomy for Sustainable Finance, and the ASEAN Common Carbon Framework signal a shift toward more coordinated and integrated climate action. The convening of a Ministerial Interface Meeting between ASEAN energy, economic, and finance ministers and the central bank governors in August 2025, which aimed to plan for the coordination and implementation of the ASEAN Power Grid Financing Facility, is a demonstration of high-level attention paid to a project that holds significant importance for the region.

While these efforts are still in early stages, they reflect a growing commitment to cross-sectoral alignment, including harmonised standards, green industry development, and enhanced carbon market interoperability. The momentum for regional cooperation presents a significant opportunity for ASEAN to strengthen its role in global climate governance, advancing both environmental sustainability and economic resilience.

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This is an adapted version of ISEAS Perspective 2025/88 published on 4 November 2025. The paper and its references can be accessed at this link.