Southeast Asia and Emissions Reduction: Two Paths to Consider

As climate change takes centre stage in global discussions, policymakers and scholars are increasingly focused on finding the most effective ways to reduce carbon emissions. Two prominent and often debated approaches are implementing carbon taxes on major emitters and removing fossil fuel subsidies. While these policies have been extensively studied, their specific impact on Southeast Asia remains underexamined. A recent climate awareness survey by the ISEAS – Yusof Ishak Institute, reflecting the views of nearly 3,000 Southeast Asian citizens, offers valuable insights to advance the dialogue on these critical policies.

Carbon taxes impose a direct cost on carbon-emitting activities, incentivising companies and consumers to reduce emissions. They offer precise control over carbon reduction goals while generating government revenue that can be reinvested in renewable energy projects or used to mitigate the social costs of climate change.

According to the ISEAS survey, support for national carbon taxes is growing across Southeast Asia, with 70.4 per cent of respondents in favour, up from 68 per cent the previous year (Chart 1). Support is particularly strong in Vietnam (75 per cent), Indonesia (73.5 per cent), and the Philippines (72.1 per cent). However, 20.1 per cent of respondents remain unsure, particularly in Brunei (46.6 per cent) and Laos (44.8 per cent). Age and income also play a role in shaping opinions — older and more affluent respondents tend to be more supportive of carbon tax policies.

Chart 1. Would You Support a National Carbon Tax?

Despite growing public support, carbon tax policies remain underutilised in Southeast Asia. Singapore is the only Southeast Asian country with a direct carbon tax on companies, initially set at S$5 per tonne of CO₂-equivalent in 2019. The tax has increased to S$25 in 2024 and will rise to S$45 by 2026, with the possibility of reaching S$80 by 2030 to align with its climate goals. Indonesia has plans to impose a carbon tax on its coal-fired power plants, priced at US$4.50  tonne of CO₂-equivalent, but implementation has been delayed due to the spike in global energy prices following the Russia-Ukraine conflict.

In addition to carbon taxes, Southeast Asia is making strides in voluntary carbon markets. Singapore, Indonesia, Malaysia, and Thailand have established markets where companies can trade carbon permits. Firms that emit less than their stipulated caps can sell their surplus permits to others, creating financial incentives for them to reduce their emissions further. In 2021, Asia’s voluntary carbon market was valued at US$2 billion, with projections suggesting it could grow to US$50 billion by 2030. Southeast Asia stands to capture a significant share of this market if emissions trading systems in the region become more robust.

As Southeast Asia faces the dual challenge of reducing emissions while maintaining economic growth, both carbon taxes and the removal of fossil fuel subsidies offer viable paths towards more progressive climate action.

A complementary approach to carbon taxes is the removal of fossil fuel subsidies. These subsidies artificially lower energy prices and encourage overconsumption. Eliminating them makes renewable energy more competitive, speeding up the transition to cleaner sources. Fossil fuel subsidies generally fall into two categories: consumer subsidies, which lower gasoline prices or electricity bills, and producer subsidies, which offer financial incentives or tax breaks to fossil fuel companies for extraction and production.

While support for carbon taxes is on the rise, the removal of fossil fuel subsidies remains more politically sensitive. The survey shows only 46.8 per cent of respondents in Southeast Asia favour removing subsidies, with the strongest support in Thailand, Vietnam, and the Philippines (Chart 2). Additionally, 34.1 per cent of respondents expressed uncertainty, revealing a lack of public understanding about the positive impact of fossil fuel subsidy removals.  

Chart 2. Fossil fuel subsidies can hinder clean energy transition. Should fossil fuel subsidies be cut in your countries?

Most Southeast Asian countries still maintain some form of fossil fuel subsidies. Estimates indicate that these subsidies average US$32 billion annually in the region, with Indonesia ranking among the world’s top ten in subsidy spending. Even Singapore, which does not provide blanket consumer subsidies (universal support applied to all consumers) and has a competitive energy market, occasionally implements targeted and temporary energy subsidies in the form of rebates to help households adjust to rising energy prices.

As Southeast Asia faces the dual challenge of reducing emissions while maintaining economic growth, both carbon taxes and the removal of fossil fuel subsidies offer viable paths towards more progressive climate action. Some studies argue that carbon taxes are more effective as they directly target large emitters. However, in the Southeast Asian context, significant gaps remain to further implement these policies. Many countries still lack robust Measurement, Reporting, and Verification (MRV) systems to ensure the accuracy, transparency, and integrity of emissions reduction. This is especially true when quantifying emissions reduction is necessary to meet climate goals. Additionally, some countries struggle with institutional capacity, hindering their ability to efficiently collect carbon tax revenue and channel funds into meaningful climate transition programmes.

Others assert that both carbon taxes and fossil fuel subsidy removal are critical. Removing subsidies will level the playing field, allowing cleaner sources to compete fairly. Nonetheless, eliminating subsidies remains politically challenging even though policies that better target subsidies to poorer households or redirect funds towards social programmes have shown success in the past, making such transitions more socially acceptable. Recently, Malaysia has taken steps to rationalise its fuel subsidies by transitioning from blanket diesel subsidies to targeted subsidies. This more focused approach is expected to help the country save nearly US$1 billion annually from its budget.

With growing momentum behind carbon taxes and the ongoing debate over fossil fuel subsidy removal, Southeast Asia is poised for a major shift in climate governance. The path ahead is clear: policymakers must build on this momentum, focusing on public discussions and making the case that these tough choices today will pay dividends for regional sustainability tomorrow.

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