Singapore and Japan Set New Rules for Carbon Credits and How They Shape Asia’s VCM

Governments in Asia are making big changes to how companies can use carbon credits to fight climate change. This month, both Singapore and Japan released new rules to make sure carbon credits are used in a fair and honest way.

Carbon credits allow companies to pay to cancel out some of their emissions, often by funding tree planting or clean energy projects in other places. But these credits only work if they are real, high-quality, and not counted twice. That’s why Singapore and Japan are setting clearer rules for companies and investors.

Singapore’s New Guidance Brings Transparency to Voluntary Carbon Credits

Singapore has issued draft guidance to help companies use voluntary carbon credits responsibly in their climate plans. The guidance, released on June 20, 2025, states that firms should use credits only after they focus on practical emissions reductions. This includes improving energy efficiency and switching to cleaner fuels. 

The guidance offers clear criteria to judge credit quality and integrity. Credits must be real and additional. This means emissions reduction wouldn’t have happened without them.

Moreover, they should be permanent, free of leakage, and independently verified. They also must not lead to double counting, and must align with international frameworks like Article 6 of the Paris Agreement.

Also, companies should share details on credit volumes, project types, registries, and any third-party ratings they use. All these are part of the Asian nation’s goal of reaching net zero by 2050.

The Singapore government is exploring ways to reduce risks associated with the use of carbon credits. They are looking into portfolio approaches and insurance to manage credit risks. Singapore has teamed up with the UK and Kenya in a Coalition to Grow Carbon Markets. This collaboration aims to establish common principles for corporate credit use before COP30.

Singapore will let businesses offset up to 5% of taxable emissions using Article 6 credits. They are also launching a Carbon Project Development Grant. This grant will support projects that generate credits. Public consultation on the draft runs until 20 July 2025.

In another Asian country, the same work is being done to boost voluntary carbon markets (VCM).

• RELEVANT: Singapore’s $1 Billion Carbon Credit Push: A New Path to Net Zero?

Japan’s FSA Advances Transparent Carbon Credit Trading Infrastructure

Japan’s Financial Services Agency (FSA) has introduced a framework for the carbon credit market and emphasizes voluntary credits. It sets out high-level principles to promote transparent, financially sound, and investor-protective transactions.

These principles come from the FSA’s Working Group on Financial Infrastructure for Carbon Credit Transactions. This group has met since May 2024. The working group looked at legal designs, disclosure standards, and technologies like blockchain. These help ensure credit traceability.

Japan plans to launch a mandatory emissions trading system in April 2026. The FSA framework will run alongside current J-Credits and voluntary systems. This dual approach builds market trust and attracts ESG investors. It also uses consistent global standards for sustainability reporting.

The country aims to achieve carbon neutrality in 2050 as shown in its energy roadmap below.

The FSA’s draft shows a wider move to prepare for the 2025 change to Japan’s GX Promotion Act. This change will provide legal support for emissions trading and voluntary credits. The FSA stresses the need for regular consultation and clear disclosure standards. This aligns with global frameworks like the ISSB and other G20 disclosures.

• RELATED: Japan Steps Up as Carbon Credit Leader with $70 Billion Push for Net Zero

Shared Goals and Regional Cooperation in ASEAN

In a report by Abatable, the ASEAN carbon markets could bring in $3 trillion by 2050. This money would come from cutting or removing 1.1 billion tons of CO2 every year, which is a big chance for the region to help the environment and grow its economy.

Both Singapore and Japan aim to build high-quality carbon markets by balancing flexibility with credibility. Singapore’s draft mentions Article 6. It also has a clear disclosure system for both the public and private sectors. Its approach includes regulatory support tools and financial incentives to promote early corporate adoption.

Japan focuses on market infrastructure and integrity. It aims to include voluntary credits in a stronger legal and tech framework. Its focus on emissions trading and voluntary credit systems matches OECD-style carbon market rules.

They also match regional efforts. For example, ASEAN is working on a Common Carbon Framework (ACCF). The Malaysia Carbon Market Association leads ACCF. It seeks to bring together carbon markets in Southeast Asia. It also helps the region reach its carbon neutrality goals.

The initiative supports a clear, effective, and connected carbon market. It promotes high-quality carbon credits, boosts tech and nature projects, and aligns with national policies. These efforts aim to boost sustainable investment and speed up ASEAN’s shift to a low-carbon future.

Meanwhile, the UK‑Kenya‑Singapore coalition aims for shared corporate principles before COP30.

Why These Frameworks Are Crucial for Climate Goals

High-integrity carbon markets are considered key tools in fighting climate change. They help shift money toward real decarbonization, especially in emerging economies.

However, multinational firms in these markets face rising expectations. They need to use carbon credits in a way that is strategic, transparent, and credible. Thus, the new guidance and framework will help address this concern. 

Looking Ahead: Toward Trustworthy and Effective Carbon Markets

Singapore and Japan are taking concrete steps to build trusted carbon credit markets in Asia. Regional coordination, like the coalition for COP30 and the ASEAN framework, can help with cross-border credit recognition. This may also lower compliance costs in the region.

Singapore’s draft guidance focuses on three key points:

• Environmental integrity
• Clear credit use
• Trustworthy disclosure

Meanwhile, Japan’s FSA is building a strong, transparent trading system.

These frameworks help companies reach net-zero by making sure carbon credits are used responsibly and transparently. They also ensure that these credits truly support climate goals.

As both countries shift from draft to action, they provide a model for others. This helps economies tap into voluntary carbon markets while keeping environmental integrity intact.

• READ MORE: Global Carbon Pricing and Revenues: How Carbon Markets Hit Over $100 Billion

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