The Case For Carbon Taxes In Southeast Asia – Analysis
By Subhramit Das
Southeast Asia’s climate crisis is hardly a new phenomenon, with extreme weather events disproportionately affecting its populations and economies. But as public support for carbon taxes grows, governments in the region have a rare opportunity to implement effective carbon pricing policies that curb emissions while addressing economic and social concerns.
The Asian Development Bank’s 2024 climate change perception survey of 14 Asian economies found that there is widespread public support for introducing carbon taxes as a measure to limit emissions. Another 2024 survey by the ISEAS–Yusof Ishak Institute indicated that over 70 per cent of the respondents from across Southeast Asia supported a national carbon tax, and 93 per cent of that segment were willing to bear the personal costs that might arise from a carbon tax. These survey results lend urgency to Asian governments to explore the effectiveness of carbon taxes.
The ‘polluter pays’ principle in economics argues that those responsible for creating pollution are responsible for managing it. Greenhouse gas emissions are a by-product of economic activity that impact society as they contribute to climate change, reduce quality of life and can be lethal, causing an estimated 4.2 million associated deaths worldwide in 2019. By imposing a price on emissions through a carbon tax, polluters are forced to internalise this cost.
The key benefit of a carbon tax is that it provides businesses with a predictable path for controlling emissions, which helps them plan their shift to low-carbon technologies. In 2025, Singapore’s carbon tax rate is S$25 (US$18.4) per tonne of emissions. This will increase to between S$50–80 (US$37–59) per tonne by 2030. Singapore’s polluters are paying a low price initially while they develop and implement low-carbon technologies.
The primary objection to a carbon tax regime has been its regressive nature — it disproportionately impacts lower-income households.
Some countries have tried to get around this by introducing tax breaks, credits and targeted public spending that make the carbon tax revenue neutral. Canada’s British Columbia province introduced a carbon tax in 2008 and has been distributing the revenues as tax benefits for low-income households, as well as introducing tax cuts for small businesses to ensure they are not disproportionately affected by the carbon tax. Norway’s carbon tax revenue goes toward its Government Pension Fund Global.
As of 2024, 39 countries have implemented a carbon tax. Most of the Nordic countries have had carbon taxation in place since the early 1990s. Carbon tax has directly caused a reduction in emissions in these countries. In 2015, Sweden reported a 30 per cent drop in emissions as a direct result of the tax scheme. The United Kingdom introduced a carbon tax on the power sector in 2013, which reduced electricity-related emissions by 26 per cent in just three years.
Asia is facing headwinds from the European Union with the imposition of its Carbon Border Adjustment Mechanism (CBAM) from 2026, which puts a price on carbon emitted during production of goods that enter the European Union. As the European Union is the ASEAN region’s third largest trading partner, it is imperative for the region’s governments to implement carbon pricing.
But Asian policymakers must tread carefully as introducing any new tax is often a political minefield. The failure of carbon taxes in Australia is a cautionary tale, but there are ways to counterpublic dissatisfaction.
Phasing in carbon taxes, as seen in Singapore, lets the public experience the costs and benefits of the taxation without being immediately onerous. Spending the tax revenues on initiatives that mitigate climate change seems to increase support for a carbon tax among voters. Japan — the first Asian country to implement a carbon tax — uses the revenues to support renewable energy projects and develop energy-saving technologies.
Redistributing carbon tax revenue to support those disproportionately affected, especially as the taxes ramp up over time, will also help soften the blow. A 2022 study by the German Institute of Development and Sustainability estimated that a carbon tax of US$50 per tonne of emissions would increase poverty by 20 per cent in South Asia without revenue redistribution. But through revenue redistribution, carbon tax could alleviate poverty and reduce inequality worldwide.
The key to winning support for carbon taxes is effective communication with stakeholders well ahead of implementation through public consultations. Governments should focus on the benefits of carbon taxes for society at large, such as improved atmospheric visibility and quality of life, neutralising the effects on low-income households and the overall economic impact of the green transition.
While countries have the option of achieving carbon pricing through an emissions trading system, a carbon tax regime yields the greatest benefits for developing countries in Asia. To ensure enforcement, governments should impose the carbon tax upstream on fossil fuels. Developing nations typically have large informal sectors with limited enforcement capacity, so an upstream carbon tax is a necessary safeguard. With greater institutional knowledge and experience in carbon pricing, developing countries can move toward a hybrid approach with carbon taxes for some sectors and emissions trading systems for others.
CBAM is a wake-up call for governments in the ASEAN region to urgently review incoming external carbon pricing mechanisms and counter their economic impacts. Developing nations are disproportionately impacted by extreme weather events, so their populations know well how important it is to rein in emissions. Given the region’s broad support for a carbon tax, this might be an opportune time to test its feasibility.
- About the author: Subhramit Das is a financial sector professional, Singapore.The views expressed in this article are those of the author and do not necessarily reflect the views of any organisation he is affiliated with.
- Source: This article was published by East Asia Forum
