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Climate Compliance and Carbon Opportunity: Asia’s Q2 Legal Outlook14 May 2025

In our previous article, we explored Asia’s 2025 energy trends, highlighting the region’s pursuit of a low-carbon transition through innovative technology and regulatory strategies.
In this update, we examine key climate policy and compliance developments across Asia in Q2—focussing on Thailand’s draft Climate Change Act, Vietnam’s phased carbon market rollout, Singapore’s carbon tax and disclosure regime and regulatory shifts in Indonesia, Hong Kong and Japan. These measures reveal both compliance challenges and opportunities to leverage carbon markets, green finance and sustainability reporting to achieve competitive advantage.

Thailand: New Draft Climate Change Act Sets the Tone

Thailand’s draft Climate Change Act (“Draft CCA”) represents a pivotal moment in the country’s climate and energy strategy. Currently under review by the Ministry of Finance, the Draft CCA will next be proposed to the Thai Cabinet. It introduces both voluntary and mandatory measures to reinforce sustainable and efficient greenhouse gas (“GHG”) emission reduction across all sectors to achieve the country’s commitments under the Paris Agreement. 

Key Measures:
GHG Emissions Database and Reporting Duty

Designated state authorities and private parties, including energy operators, manufacturers and owners of controlled factories or buildings, must report GHG emissions from activities across multiple sectors, such as:

  • energy;
  • transportation;
  • industrial processes;
  • agriculture;
  • forestry and land use; and
  • waste management.

Reported data will form a publicly accessible national GHG emissions database, supporting transparency and tracking progress toward national emissions targets.

Entities engaged in specified business activities, including the Regulated Entities (defined below), will be subject to carbon footprint annual tracking and reporting obligations for Emission Trading System (“ETS”) analysis.

Emissions Trading System (ETS)

"These reforms aim to position Thailand as a leader in Southeast Asia’s low-carbon transition, balancing regulatory discipline with market-driven innovation."

This mandatory cap-and-trade system limits GHG emissions by setting a cap for certain business entities that emit GHG directly and indirectly (the “Regulated Entities”). Regulated Entities receive allowances (measured in tonnes of carbon dioxide equivalent), through free allocation or auctioning schemes and must surrender allowances equal to their emissions annually. Unused allowances can be carried forward, transferred or traded directly between entities or through future exchanges, with all transfers and trades registered with the Department of Climate Change and Environment (the “DCCE”). The Draft CCA allows Regulated Entities to offset any carbon tax previously paid against the amount payable in allowances auctions.

Up to 15% of surrender obligations can be met through offset allowances derived from certified carbon credit projects by the Thailand Greenhouse Gas Management Organisation (“TGO”).

Carbon Border Adjustment Mechanism (“CBAM”)

The CBAM addresses carbon leakage which occurs when manufacturing shifts to jurisdictions with less stringent climate policies or when domestic carbon-intensive products are replaced by imports. It introduces the following obligations for importers:

  • register and report the GHG emissions amount embedded in imported products to the DCCE
  • purchase CBAM certificates corresponding to the emissions amount reported in the previous year; and
  • importers can apply for reductions in their CBAM certificate obligations if a carbon price was paid in the country of production

Carbon Tax

A carbon tax at a prescribed rate will apply to carbon-intensive products such as:

  • petroleum products;
  • liquefied gases; and
  • coal.

Manufacturers and importers will be taxed based on emissions. Deductions and refunds may apply in cases where tax has already been paid on materials used in production. Paid carbon tax may also be offset against ETS allowance auction costs.

Carbon Credits

Recognised as transferrable and tradable assets, carbon credits may be exchanged directly between parties or traded through designated exchanges, provided that the transactions are registered with the TGO.

Credits may be used to offset ETS obligations, creating incentives for private investment in emissions reduction projects and strengthening Thailand’s voluntary carbon market.

The proposed measures will significantly impact high-emission sectors such as energy, manufacturing and import-heavy industries. Controlled business operators should proactively prepare for these regulatory compliance measures to minimise disruptions. Whilst compliance obligations will raise operational costs, the Draft CCA also opens new avenues for:

  • accessing financial support from the Climate Change Fund for businesses involved in GHG emission reduction or climate-resilient technology development; and
  • the expansion of green finance and voluntary carbon markets.

These reforms aim to position Thailand as a leader in Southeast Asia’s low-carbon transition, balancing regulatory discipline with market-driven innovation.

Vietnam: Mandatory Emissions Reporting and Carbon Market Milestones

Vietnam is building a structured, phased carbon market framework that combines mandatory emissions reporting with a clearly staged rollout of trading mechanisms.

Mandatory GHG Inventory

Under Decree 06, the Prime Minister issues a biennial list of sectors and facilities required to conduct a GHG inventory (the “GHG Inventory List”). The current list, as detailed in Decision No. 13/2024/QD-TTg dated 13 August 2024, includes high-emission sectors such as:

  • power generation;
  • heavy industry (e.g. steel and cement);
  • transportation;
  • large buildings;
  • agriculture; and
  • waste management.

Reporting Obligations

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"Vietnam’s structured and phased approach aims to create a transparent, credible carbon market whilst strengthening GHG oversight in high-emitting sectors."

Entities identified as GHG Inventory Facilities must conduct a GHG inventory every two years. Reports are first submitted to the relevant Provincial People’s Committee (“PPC”) for appraisal and subsequently finalised for submission to the Ministry of Agriculture and Environment (“MAE”). Facilities that fail to comply may be subject to monetary penalties.

Development of a Domestic Carbon Market

The Law on Environmental Protection 2020 (LEP 2020) also establishes the legal foundation for Vietnam’s carbon market. Implementation is governed by Decision No. 232/QD-TTg dated 24 January 2025, which sets out milestones and administrative structures.

Implementation Timeline:
  • Preparation Phase (Pre-June 2025): Development of legal frameworks and infrastructure for carbon credit trading, along with capacity-building for regulators and businesses; and
  • Pilot Phase (June 2025 – December 2028): A pilot domestic carbon exchange will be launched. GHG quotas will be freely allocated to facilities in high-emission sectors.
Eligible carbon credits:
  • credits generated under Vietnam’s domestic mechanisms; and
  • credits from international programmes such as the Clean Development Mechanism (“CDM”), Joint Crediting Mechanism (“JCM”), and Article 6 of the Paris Agreement.
Entities permitted to trade include:
  • facilities listed in the GHG Inventory List that have received GHG quotas; and
  • other organisations and individuals that meet trading eligibility criteria.

The government will monitor the use of carbon credits to ensure proportionality with allocated GHG quotas.

Official Launch (from 2029): The carbon market will operate nationwide. Further measures may include:

  • expansion of sectors subject to GHG quotas;
  • introduction of auction-based allocation mechanisms; and
  • broader scope of tradable credits and eligible market participants.

Administrative Structure:

  • National Registration System: a digital platform overseen by the MAE will track and manage emissions quotas and carbon credit activity, including transfers, offsets, borrowing and repayments; and
  • Trading Platform: the carbon trading platform will be developed and operated by the Hanoi Stock Exchange, with operational and technical standards issued by the MAE in coordination with the Ministry of Finance and other relevant authorities.

Vietnam’s structured and phased approach aims to create a transparent, credible carbon market whilst strengthening GHG oversight in high-emitting sectors. Businesses subject to inventory or trading obligations should proactively engage with the new regulatory landscape to ensure timely compliance and take advantage of emerging carbon credit opportunities.

Singapore: Carbon Tax and Mandatory Climate Reporting Framework

In line with its national sustainable development agenda, Singapore has adopted a phased regulatory approach combining carbon taxation with mandatory climate-related disclosure obligations.

Carbon Tax

Singapore’s carbon tax regime is governed by the Carbon Pricing Act 2018, which applies to business facilities engaged in (i) manufacturing and related services; (ii) the supply of electricity, gas, steam, compressed air and chilled water for air conditioning; and (iii) water supply, sewage and waste management services. This essentially covers facilities that emit 25,000 tonnes or more of carbon dioxide equivalent (tome) of GHG emissions annually.

As of 2024 and 2025, the carbon tax is set at SGD$25 per tCO₂e and will increase to SGD$45 per tCO₂e in 2026 and 2027. The government has indicated a targeted range of SGD$50–80 per tCO₂e by 2030. Under the International Carbon Credit (“ICC”) Framework, carbon tax-liable facilities may use eligible ICCs to offset up to 5% of their taxable emissions.

Mandatory Climate Reporting

Beginning in FY2025, all listed companies in Singapore are required to disclose climate-related information in line with the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (“ISSB”).

From FY2027, this obligation will extend to large non-listed companies—defined as those with annual revenue of at least SG$1bn and total assets of at least SG$500m, based on the two preceding financial years—unless they qualify for an exemption.

"Singapore has adopted a phased regulatory approach combining carbon taxation with mandatory climate-related disclosure obligations."

Additional requirements include:

  • from FY2027, listed companies must obtain external limited assurance on their Scope 1 and Scope 2 GHG emissions from registered climate auditors; and
  • from FY2029, large non-listed companies will be subject to the same assurance requirements.

To support early compliance, the government has introduced a Sustainability Reporting Grant, which provides financial assistance for companies that produce sustainability reports ahead of their required reporting deadlines.

A formal review by the Accounting and Corporate Regulatory Authority (“ACRA”) is scheduled for 2027, which will assess whether climate-related reporting obligations should be expanded to apply to smaller non-listed companies Singapore’s regulatory framework reflects a clear and deliberate path toward climate accountability, combining fiscal measures with a robust carbon tax policy and rigorous disclosure obligations. The phased rollout allows businesses time to prepare, while positioning Singapore as a regional leader in transparent and market-based climate governance.

Indonesia: Carbon Tax Delayed, Climate Efforts Integrated

Indonesia is progressing toward climate goals through a decentralised legal framework, embedded mitigation and adaption measures across sector-specific regulations and existing environmental and energy laws. Whilst a standalone climate change law is not yet in place, the country continues to advance policy instruments such as a carbon tax.

Climate Policy Approach

Indonesia’s regulatory efforts are coordinated across various ministries and legal instruments, including the:

  • Ministry of Environment and Forestry (“MoEF”);
  • Ministry of Energy and Mineral Resources (“MEMR”); and
  • other lower-level instruments such as presidential decrees.

These provisions address mitigation and adaptation across sectors and share some similarities with those found in Thailand’s Draft Climate Change Act.

Carbon Tax as a Climate Policy Tool

Introduced through Law No. 7 of 2021 on Harmonisation of Tax Laws, the carbon tax is intended to:

"Indonesia’s carbon tax framework, once operational, is expected to play a significant role in transitioning the country toward a more sustainable and diversified energy mix."

  • incentivise a shift from fossil fuels to cleaner energy sources such as geothermal, solar and wind; and
  • apply primarily to targeted sectors with high emissions, with a particular focus on coal-fired power plants that emit more than 100,000 tonnes of CO₂ annually.

The initial tax rate is set at IDR 30,000 (approximately US$2) per kg of CO₂ equivalent emitted, with provisions for future increases anticipated to strengthen impact.

Revenue generated from the tax is earmarked for sustainable development initiatives, including:

  • green energy financing;
  • energy efficiency programmes; and
  • deployment of low-carbon technology.

Implementation Status

Despite its introduction in 2021, implementation of the carbon tax has been postponed due to concerns from high-emitting industries, particularly within the coal sector. Initially intended to apply starting 1 April 2022 for coal fired power plants, the enactment has since been further postponed to 2025. As of the date of this publication, the tax remains unimplemented.

Indonesia’s carbon tax framework, once operational, is expected to play a significant role in transitioning the country toward a more sustainable and diversified energy mix. Stakeholders in the power and industrial sectors should monitor developments closely to prepare for future compliance and potential market shifts.

ASEAN Region: Building Regional Climate Readiness

ASEAN is increasingly positioning itself to play a more coordinating role in addressing climate change, with member states advancing domestic climate policies that reflect global standards and regional aspirations. Whilst ASEAN does not yet have a unified climate change framework, collective momentum is building toward harmonising efforts across carbon pricing, emissions reporting and sustainable finance.

ASEAN member states are collaborating on carbon pricing initiatives through several key efforts:

"ASEAN is increasingly positioning itself to play a more coordinating role in addressing climate change, with member states advancing domestic climate policies that reflect global standards and regional aspirations."

  • Unified Carbon Market: there is growing interest in establishing a unified carbon market across ASEAN to boost carbon credit prices and address climate challenges more effectively. Malaysia’s Sarawak state has been particularly vocal in calling for such a market, highlighting the need for deeper regional cooperation;
  • Harmonised Emissions Reporting: ASEAN countries are actively exploring a harmonised approach to the measurement, reporting and verification (MRV) of greenhouse gas emissions. This alignment is crucial for ensuring transparency and consistency across regional carbon markets and for attracting international investment;
  • Regional Platforms: Member states are engaging with regional bodies such as the ASEAN Taxonomy Board and the ASEAN Centre for Energy to align ESG taxonomy, develop consistent carbon pricing strategies and promote sustainable energy transitions; and
  • International Collaboration: ASEAN countries are also working closely with international partners. For example, through Japan’s Joint Crediting Mechanism (JCM), ASEAN states are enhancing their technical capabilities for carbon trading, gaining access to new financing and promoting low-carbon technology.

Several countries in the region including Indonesia, Singapore, Thailand and Vietnam have begun implementing domestic carbon pricing mechanisms, ranging from carbon taxes and emissions trading schemes to voluntary carbon offset programmes. These diverse national approaching are converging through greater regional alignment and cooperation.ASEAN has clearly identified the low-carbon transition as a regional strategic priority, integrating climate resilience and energy security into broader cross-border cooperation. As international pressure for climate-aligned trade and finance grows, ASEAN is expected to deepen regional collaboration in support of a more resilient, low-emissions economy.

Hong Kong: Strengthening Disclosures, Exploring Carbon Markets

In 2021, the Hong Kong government announced its Climate Action Plan 2050, outlining its core strategies for achieving carbon neutrality before 2050. In line with the action plan, Hong Kong is aligning its climate reporting obligations with international standards while exploring its potential as a regional carbon trading hub. Though it does not yet impose mandatory carbon pricing, it is enhancing transparency and infrastructure for voluntary market participation.

Environmental Regulations

Hong Kong has enacted a series of laws and regulations relating to environmental protection, such as the Air Pollution Control Ordinance and Buildings Efficiency Ordinance. At the time of writing, such legislation is generally targeted by polluting source and there is no overarching legislation with respect to climate change.

New Mandatory Disclosure Requirements

Effective 1 January 2025, all main-board issuers on the Hong Kong Stock Exchange (“HKEX”) must disclose:

  • Scope 1 and Scope 2 GHG emissions (previously subject to a “comply or explain” regime); and
  • climate-related financial risks and opportunities, in line with International Sustainability Standards Board (“ISSB”) climate disclosure standards.

GHG reporting otherwise remains voluntary, but is strongly encouraged, particularly in the buildings industry which is estimated to account for approximately 60% of Hong Kong’s carbon emissions.

"Hong Kong is aligning its climate reporting obligations with international standards."

GHG Calculation Tools and Voluntary Reporting

Whilst Hong Kong does not maintain a mandatory GHG emissions database, there are several schemes which promote and facilitate the reporting of carbon emissions on a voluntary basis, including the Environmental Protection Department’s (“EPD”) guidelines for owners and managers of residential, commercial and industrial sites.

The Hong Kong Monetary Authority (“HKMA”) also provides tools for GHG calculation and estimation, which enable users to calculate emissions based on actual activity levels and to estimate the GHG footprint of investees or borrower companies.

Market Infrastructure and Trading Platforms
  • no mandatory emissions trading system (“ETS”), CBAM or carbon tax currently in place; and
  • voluntary carbon credits may be traded on HKEX’s Core Climate platform, the only marketplace in the region offering HKD and RMB settlement for international carbon credit transactions.

As China continues to operate the world’s largest ETS by covered emissions (launched in 2021), Hong Kong has reaffirmed its intention to develop into a carbon trading hub for the Asia-Pacific region. COP29 commitments may further accelerate development of its carbon finance ecosystem.

Japan: A Multi-Layered Framework Supporting Energy Transition and Carbon Trading System

Japan has been engaged in addressing climate change for over two decades and continues to strengthen its climate legislation through a layered approach focussed on energy security, economic efficiency and emissions reduction. It’s long-standing and evolving legal framework combines foundational climate policies with updated strategic energy plans and market-based mechanisms.

Core Climate Legislation
  • the Act on Promotion of Global Warming Countermeasures (1998) laid the foundation for Japan’s climate response. It mandates the government development national climate policies and encourages public and stakeholder involvement in mitigation efforts. This law has been amended multiple times since its introduction, with the latest iteration intended to enhance the “joint crediting mechanism” that supports the implementation of Japan’s decarbonisation goals for Japanese companies in partner countries overseas;
  • the Tax for Climate Change Mitigation introduced through the FY2012 Tax Reform legislation (2012) aims to reduce energy related carbon emissions by imposing a tax on fossil fuels at a rate corresponding to emissions.; and
  • the Act on the Promoting Transition to the Decarbonised Growth Economic Structure (“GX Promotion Act”) (2023) provides for a multifaceted approach to support energy transition including the issuance of economic transition bonds and a carbon pricing mechanism.

In addition, Japan has introduced multiple laws to support its broader energy policy and facilitate the ongoing transition toward a low-carbon economy.

"Japan continues to strengthen its climate legislation through a layered approach focused on energy security, economic efficiency, and emissions reduction."

Developing Carbon Trading System

Japan introduced carbon off-set initiatives as early as 2008 with multiple adjustments and updates since then. With the introduction of the GX Promotion Act, Japan is providing for the modernisation of its carbon pricing regime to incentivise decarbonisation. The “J-Credit” carbon credit system, first introduced in 2013 to certify greenhouse gas emissions reductions and removals, will be enhanced and the Tokyo Stock Exchange (“TSE”) initiated its Carbon Credit Market to facilitate voluntary trading in October of 2023. Japan continues to develop this system with the announcement in February 2025 of a new Bill for the Act for Partially Amending the Act on the Promoting Transition to the Decarbonised Growth Economic Structure, which will go before the Diet in the next session. If the bill is passed into law, it will allow for a more comprehensive carbon trading system and make it mandatory for companies responsible for high emissions to engage in carbon trading. The bill also provides for the introduction of levies on importers of fossil fuels and plans to auction emissions allowances for power companies in a number of years.

Updated Energy Transition Plan

The developing carbon trading system is complemented by the approval by Japan’s cabinet of three major policy updates that shape the current trajectory of its climate and energy agenda:

  • the seventh Strategic Energy Plan;
  • the GX2040 Vision: Revised Strategy for Promoting the Transition to a Carbon-Free Growth-Oriented Economic Structure; and
  • the Plan for Global Warming Countermeasures.

Together, these initiatives reaffirm the Japanese government’s commitment to addressing climate change through energy reform. The key objectives include:

  1. prioritising decarbonised power sources to meet rising electricity demands;
  2. ensuring a balanced and diversified energy mix;
  3. advancing the energy transition through new technology; and
  4. minimising the cost burden of decarbonisation wherever possible.

In short, Japan has developed a comprehensive legislative framework for climate change that seeks to ensure a stable energy supply whilst promoting economic efficiency and environmental sustainability.

Comparative Snapshot: Climate Policy Mechanisms in Asia 





	JurisdictionClimate LegislationCarbon TaxETS / Carbon MarketMandatory ReportingCBAMLead Authorities / Platform






	ThailandDraft Climate Change ActIn developmentETS + carbon credit in developmentNational GHG database in developmentIn developmentDCCE / TGO




	VietnamLEP 2020, Decree 06In developmentYes (full rollout by 2029)Yes (biennial inventory)NoMONRE / Hanoi Stock Exchange / MAE




	IndonesiaIntegrated (sectoral)Yes (2025)NoSome sectorsNoMoEF / MEMR




	SingaporeCarbon Pricing Act (2018)YesNo (ICC offset allowed)Yes (phased CRD rollout)NoNEA / SGX RegCo¹ / ACRA




	Hong KongAir Pollution Control Ordinance; multiple sectoral lawsNoYes (via Core Climate)Yes (HKEX main-board issuers only)NoEPD / HKEX / HKMA




	JapanMultiple sectoral lawsYesPartial (RE support)No (expected, but not yet in force)NoMETI / Ministry of Environment

Navigating Complexity: Key Challenges and Emerging Opportunities

Challenges
  • fragmented approaches to climate legislation in some jurisdictions may create uncertainty for cross-border investment;
  • carbon pricing mechanisms, whilst essential, remain politically sensitive and face implementation delays (e.g. Indonesia); and
  • varying reporting requirements and verification standards across jurisdictions create compliance complexity for multinational businesses.
Opportunities
  • emerging carbon markets, particularly in Vietnam and Thailand, offer new avenues for investment in emissions reduction and carbon credit trading
  • increasing regulatory clarity (especially in Singapore and Japan) provides a roadmap for private sector alignment with national climate goals; and
  • businesses that proactively invest in green technology and adopt transparent reporting practices can access climate finance, enhance reputation and gain competitive advantage.

Conclusion: Accelerating Toward a Low-Carbon Future

Asia’s major economies are forging ahead with climate policy reform, embedding emissions mandates into law, launching carbon markets and raising the bar for corporate transparency. Whilst the pace and pathways differ, the direction is clear: regulatory compliance is tightening and the cost of inaction is growing.

For energy, manufacturing and industrial players, this evolving landscape demands more than awareness, it calls for strategic action. Companies that move early to align with emerging frameworks, leverage green finance and adopt robust reporting practices won’t just mitigate risk, they’ll position themselves at the forefront of Asia’s low-carbon economy, unlocking both reputational and competitive advantage.

[1] National Environmental Agency and Singapore Exchange Regulation

Trainee Quynh Nguyen and Intern Ha Hoang also contributed to this article.

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