Trading Biofuels and Carbon Credits: The Convergence of Energy Transition Commodities

As global emissions targets tighten, biofuels and carbon credits are both critical “energy transition” commodities. Biofuels – whether ethanol, biodiesel, renewable diesel or SAF – cut net CO₂ versus fossil fuels, while carbon credits let companies compensate for residual emissions. Governments and markets are increasingly linking the two. For example, McKinsey projects sustainable-fuel demand to triple by 2050 (to ~600 Mt) as countries seek low-carbon energy.

In parallel, Southeast Asia is rapidly building carbon markets – new exchanges in Singapore, Kuala Lumpur and Jakarta have “opened their doors”– reflecting a clear push for both green fuels and tradable credits. In practice, biofuel producers can earn extra income via carbon credits (and vice versa), while traders increasingly bundle fuel and carbon products in their portfolios. This blog unpacks the drivers, strategies, and opportunities in this emerging convergence, with a focus on Asia’s scene.

Regulatory Drivers

Global and regional regulations are forcing fossil fuel sectors to decarbonize and embrace lower-carbon fuels – often with a trading/credits component:

Aviation (CORSIA)

Under the ICAO Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), airlines must offset any growth in CO₂ above the baseline (85% of 2019 levels from 2024 onward). In effect, carriers must “purchase and cancel” carbon offset units for emissions growth. The easiest way to reduce offset need is to burn approved SAF, countries have certified various waste-based biofuels as CORSIA-eligible, so each tonne of SAF used cuts an airline’s offset obligation. Singapore Airlines, for example, reports “some demand” for SAF credits already emerging in the market. In short, CORSIA makes SAF and carbon credits substitutes in compliance, driving airlines to value both commodities.

Maritime (EU ETS and IMO)

In 2024 the EU began including shipping emissions in its Emissions Trading System. Large ships entering EU ports now must surrender CO₂ allowances (40% of 2024 emissions in 2025, rising to 100% by 2027). The EU ETS still uses allowances (not offsets), but it similarly incentivizes fuel switching, wich higher carbon prices mean biofuels or future e-fuels become more competitive for ship owners. At the same time, the IMO has set new GHG reduction targets and will adopt a “basket of measures” by 2025. Though details are pending, proposals include ship efficiency standards and possibly a shipping fuel levy, all of which favor low-carbon fuels.

Carbon Taxes & Trading in Asia

Many Asian governments are adopting carbon pricing. Singapore, for example, introduced a carbon tax in 2019 and has raised it to SGD 25/tCO₂ (USD 19/t) for 2024, with plans to reach SGD 50–80 by 2030. Importantly, Singapore allows firms to offset up to 5% of taxable emissions with internationally sourced credits, effectively tying global carbon prices to local fuel costs. Thailand and Malaysia are launching carbon taxes (on fuels, industry) from 2025–26, and Vietnam, Indonesia and the Philippines have ETS pilots planned. Critics note delays, but momentum is building.

Malaysia’s Sarawak state recently proposed an ASEAN-wide ETS to set uniform carbon prices (targeting ~$100–120/t, versus today’s ~$8–30 in the voluntary market). ASEAN has even approved a carbon-neutrality strategy calling for “interoperable carbon markets”. In other words, regional policy is gravitating toward market-based fuel decarbonization.

Voluntary Carbon Rules

Alongside compliance schemes, Asian regulators are strengthening voluntary credit rules. In June 2025, Singapore issued draft guidance mandating that companies use offsets only after pursuing real reductions (efficiency, fuel switching, etc). Credits must be “real and additional,” verified, permanent, and must not be double-counted. This mirrors global best practice (e.g. Article 6 of Paris). Japan likewise is overhauling its credit market: the Financial Services Agency has published a framework to integrate voluntary credits and plans to launch a mandatory ETS by 2026. These steps – from CORSIA and ETS to ASEAN cooperation – are directly creating demand (and supply) for low-carbon fuels and tradable carbon allowances/offsets.

Monetizing Carbon Benefits for Biofuel Producers

Biofuel producers can tap these regimes to earn extra revenue from the carbon savings they achieve. Key pathways include:

Low-Carbon Fuel Standard (LCFS) Credits

In markets with a fuel standard, low-CI fuels earn credits. For example, California’s LCFS requires refiners to cut the carbon intensity of transportation fuels 20% below 2010 levels by 2030. Under this scheme, fuels below the target generate credits which ethanol, biodiesel, renewable diesel and renewable natural gas all “generate credits” for their avoided emissions. Although no formal LCFS exists in Asia yet, the California example shows how fuel producers can be paid for carbon. Should Asia adopt similar schemes, local biofuel makers could see comparable credit income.

Voluntary Carbon Offsets

Producers of biofuel or bioenergy can register projects in the voluntary carbon market. For example, a biogas or biomass power project, or even co-processing of waste oils, can issue carbon credits for the avoided fossil CO₂. Advanced biofuels often qualify for removal credits, e.g. biochar (solid charcoal from biomass) is considered a carbon removal method. Asia’s biochar projects can command hefty prices (e.g. ~$140/tCO₂ in India), though high production costs (pyrolysis, feedstock) currently limit uptake. In practice, many buyers focus on cheaper “avoidance” credits (renewables, cookstoves), but as standards for low-carbon fuels tighten, more corporate buyers may pay premiums for biofuel-linked credits. Importantly, new regulations (e.g. Singapore’s guidance) stress high integrity. Credits must be not “double counted” and must align with international rules, so producers must ensure their carbon benefits are independently verified e.g. via recognized registries or Article 6 bilateral authorizations.

CORSIA-Eligible Fuel and Offsets

While not a credit sale per se, supplying CORSIA-eligible SAF gives a measurable carbon benefit. Because SAF has lower life-cycle CO₂, each ton of SAF burned (or saved by not burning jet A) reduces the airline’s required offset purchases. In effect, SAF producers earn value as airlines save on carbon credits. Similarly, Singapore’s ICAO national commitments allow some use of SAF and international offsets. In the future, if Asian countries join formal Article 6 credit trading (as Singapore and Japan are setting up), a biofuel project could potentially generate corresponding adjustments and sell CER-like units to overseas buyers.

In summary, biofuel players should examine both compliance and voluntary carbon markets for revenue. Just as California’s LCFS pays for low-CI fuel, Asian policies will likely reward lower carbon content. Producers can also seek offset buyers for waste-to-energy streams or “greenness” claims, provided their credits meet new quality standards. 

Cross-Commodity Trading Strategies

Traders and portfolios are adapting to the convergence of energy and carbon commodities. Key strategies include:

Integrated Portfolios

Big trading companies are no longer just focusing on oil or fuel—they’re building mixed portfolios that include fuels, renewable power, and carbon credits.

Take Mercuria as an example: the company now trades traditional fuels, sustainable aviation fuel (SAF), renewable energy deals, and carbon certificates all at once. This approach lets them “chase the margin”—moving from one product to another depending on which is more profitable at the time.

Cross-Product Arbitrage

Traders are finding arbitrage opportunities across related commodities. McKinsey advises that successful sustainable-fuel traders “explore which arbitrage plays exist across products” in a fast-evolving market. For example, a trader might compare the cost of buying palm oil for biodiesel vs. buying soy-based RIN credits (in the US), or the spread between jet fuel and SAF plus offset credits. In Asia, one could imagine hedging a long position in fossil bunker fuel with a long position in marine biofuel and short carbon allowances.

Bundles and Linked Contracts

Exchanges and platforms are starting to offer bundled environmental commodities. Singapore’s Climate Impact X (CIX) exchange offers standardized contracts covering a “suite of environmental commodities,” notably including airline emission reduction offset. This means a trader can buy a single contract tied to airline offsets or a portfolio of forestry and aviation credits. Likewise, Singapore’s ACX and Abaxx platforms list both spot and futures. Such innovations let portfolio managers mix biofuel and carbon-linked products more flexibly.

Supply-Chain Hedging

Cross-commodity thinking also extends to the supply chain. For example, a palm oil refiner might short palm futures while going long biodiesel and carbon credits. Baringa notes that traders seek to “create solutions that meet environmental goals but also align with economic realities,” requiring “knowledge of both energy and commodity markets”. In practice, this can mean joint trades: buy a Singapore jet fuel future, sell a CORSIA offset contract, and contract for a SAF offtake – netting out emissions exposure.

Overall, the message is clear.

Traders who can seamlessly move between fuel markets and carbon markets – whether for compliance (ETS credits) or voluntary offsets – will have an edge. By “building capabilities” across different fuels, technologies and region, and by using tools like renewable fuel indices and carbon price forecasts, they can exploit market imbalances and regulatory shifts faster than single-commodity players.

The Opportunities in Southeast Asia

Southeast Asia is rapidly emerging as a hotspot for the biofuel–carbon nexus. Governments here are heightening biofuel mandates even as carbon markets take shape:

Singapore – Carbon Trading Hub

Singapore aims to be Asia’s carbon-trading nexus. It already hosts three carbon exchanges (ACX, CIX, Abaxx) and more than 100 carbon service firms (verification, broking, etc). The government’s carbon tax (80% of domestic emissions) and 5% offset allowance, plus its role as a global aviation/shipping hub, attract buyers of offset credits (e.g. CORSIA units). Singapore also provides guidance to ensure credits are high-quality. As a result, firms trading in biofuels can plug into carbon service networks and offset pools easily.

Indonesia – Palm Biodiesel Leader

Indonesia is already the world’s largest biodiesel producer. Its B35 blending mandate (35% palm diesel) rolled out in 2023, with B40 planned by 2025. Production reached 12.5 million kl in 2024, 40% used domestically. Crucially, Indonesia also exports biodiesel. While the EU currently scrutinizes palm fuel on sustainability (land-use) grounds, mature Indonesian producers are moving into waste-based biofuels (green diesel from UCO/agri-waste by 2027). These projects could generate Article 6 carbon credits in future if recognized. Meanwhile, Indonesia’s domestic carbon trading pilot may eventually cover fuel refineries as well.

Malaysia – Scaling Blends and SAF

Malaysia is expanding its B20 mandate to industrial sectors in 2024 and B30 by 2026. With vast palm oil output, it sees low-carbon fuels as a strategic export. Kuala Lumpur is partnering with Japan and Korea on advanced biofuel and SAF projects. Notably, Malaysia aims to become a regional SAF hub by 2030, given its refinery and logistics infrastructure. This means Malaysian biojet producers may soon bid for offtake deals with airlines, and potentially sell associated carbon credits under CORSIA or future schemes.

Thailand – Mandates and Waste Fuels

Thailand has a diverse program which blends with ethanol (E10/E20 available, E85 specialty) and biodiesel (B7–B10). Its Alternative Energy Development Plan aims for 7.5 ML/day ethanol and 8 ML/day biodiesel by 2037. Thailand is also pushing second-generation biofuels (from rice straw, etc) under a “Bio-Circular-Green” economy model.

Cross-Border and Regional Markets

ASEAN integration creates further chances. Exchanges in Singapore, Kuala Lumpur (Bursa Carbon Exchange) and Jakarta (IDX) now offer spot trading of offsets. ASEAN countries also plan cross-border cooperation on carbon trading. With its combined population (~700M) and growing energy demand, the region stands to become a large credit supply base for global compliance. In practice, a fuel maker in Malaysia or Vietnam could sell low-carbon fuel domestically and simultaneously sell the CO₂ reduction as credits to, say, Singaporean or European buyers.

Summarize

In sum, Southeast Asia is taking the lead in marrying biofuels and carbon trading. National mandates ensure rising biofuel volumes, while a patchwork of carbon markets (taxes, exchanges, Article 6 deals) creates new buyers of “carbon credits.” For traders and investors, this convergence means biofuel projects increasingly carry a carbon-credits revenue stream, and carbon portfolios increasingly include fuel components.

As Asia’s energy sector pivots, biofuels and carbon credits are no longer separate assets. Producers that understand carbon finance – and traders who integrate environmental instruments – will capture more value. With supportive policies (CORSIA/Singapore guidance, ETS, CBAM) and innovative exchanges (CIX, ACX, IDX), the region offers fertile ground for the next wave of low-carbon commodity trading.

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