Uncertainty over the credibility of carbon credits in reducing greenhouse gas emissions could be curtailing their trade in Singapore, one of Asia’s key markets for carbon trading.
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A study of energy executives in Southeast Asia found that about half would not buy carbon credits due to credibility issues, while 39 per cent say there are insufficient verifiable carbon credits available under Singapore’s carbon tax scheme. Carbon credits enable buyers, typically big polluters, to offset a certain amount of their emissions.
The survey by Sustainable Energy Association of Singapore (SEAS), a non-profit that represents clean energy interests in Singapore, also found that more than 40 per cent of energy executives think that a lack of understanding of carbon trading is a barrier to adoption. Only a small percentage said that the cost of carbon credits was a reason to not purchase them.
The voluntary carbon market has tanked following investigations into the integrity of forest carbon projects, which have hurt nature-based carbon prices on Climate Impact X (CIX), Singapore’s carbon credit exchange. The rolling back of a plan by corporate decarbonisation standards body Science Based Targets initiative (SBTi) to allow the use of carbon credits to offset Scope 3 value chain emissions has also reflected doubts over their credibility in meeting climate goals.
Commenting on the survey findings, Kavita Gandhi, executive director, SEAS, said credibility concerns hang over carbon credits globally, not just in Singapore. Companies that have not purchased carbon credits before are particularly reluctant to participate in the voluntary carbon market, which she said was seeing limited activity in Singapore.
Mikkel Larsen, executive director of CIX, said the lack of recognition of carbon credits by SBTi has disincentivised adoption. “This presents a challenge for companies that have no viable (technologically or economically) alternatives to mitigate their unabatable emissions,” he said.
Singapore’s carbon hub ambitions
According to SEAS’s survey, Singapore must establish reliable carbon accounting systems if it is to realise its ambition to be a regional carbon hub.
There is limited public data on the growth of the voluntary carbon market in Singapore, although the city-state’s Economic Development Board has estimated that Singapore’s ambitions to be a carbon hub for the region could generate US$5.6 billion in gross value to its economy by 2050.
Gandhi noted that information on the size of the voluntary carbon market in Singapore is locked in various private carbon exchanges. Singapore is home to a growing carbon services sector partly built off the back of a carbon tax on the country’s biggest polluters, introduced in 2019.
Establishing transparent regulatory frameworks for the carbon market is another key condition that will support Singapore’s claim to be a carbon hub, the survey found.
Energy executives also think that “competitive and attractive” carbon pricing mechanisms are needed, while robust infrastructure for carbon trading transactions and market liquidity and accessibility would address weak market participation.
The industry perception of how well Singapore’s carbon infrastructure is working is mixed. A majority of survey respondants (42 per cent) think that Singapore’s carbon tax regime and trading mechanisms are “moderately effective”, with a quarter believing them to be effective.
A small percentage (6 per cent) view Singapore’s carbon tax regime and trading mechanisms to be “very effective”, as one of the world’s biggest oil refining hubs balances sustaining its economy with achieving net-zero emissions by 2050.
However, 68 per cent of respondents believe a carbon trading system would be effective in bringing about a low-carbon economy, reflecting broad support for carbon trading as a tool to cut emissions.
In July, Singapore set up an alliance to boost the supply of approved carbon credits for companies looking to offset their carbon tax obligations or work towards net-zero targets. Singapore has deals in place with Papua New Guinea and Ghana to source carbon credits under Article 6 of the Paris Agreement, which lays out the rules for countries to meet their climate targets through carbon trading. However, these countries have yet to deliver any credits deemed eligible for trade.
Singapore is reportedly looking into the potential of trading blue carbon and transition credits.
The survey by SEAS found that among companies that had purchased carbon credits, close to 40 per cent believe that Singapore’s exposure to recognised carbon credits under the tax regime is restricted with limited availability of suitable, verifiable carbon credits.
Larsen commented that the findings related to Singapore’s carbon tax regime are “unsurprising” and reflect the current landscape. “While the International Carbon Credit (ICC) eligibility criteria have been published, no projects have made it to the whitelist and issue credits today. However, this is more an effect of time than excessive restrictions,” he said.
Gandhi said there was also a need for Singapore to build carbon finance capacity as it eyes carbon hub status. The country’s banks are lacking in knowledge and experience in how to finance carbon projects, capacity that has waned amid the carbon market wobble, she suggested.
She added that the government could be more transparent about its plans to grow the carbon market in Singapore. “Information [from the government] comes in dribs and drabs. We need to see the bigger picture of where we are going,” Gandhi said.
Meanwhile, Singapore’s neighbours are mounting their own claims to be carbon market hubs. In August, Malaysia launched an association to galvanise support from the private sector in the carbon market and speed up its development. Trade on Malaysia’s carbon exchange, launched earlier this year, has been sluggish.
Malaysia has also proposed an Asean standard for carbon projects, which a Malaysian minister suggested could ensure the credibility of carbon credits.
The SEAS survey covered the potential for regional carbon trading in Asean. It found that regional carbon trading is complicated by a lack of uniform regulations across member countries, as well as inconsistent enforcement and compliance mechanisms.
Information and understanding deficits are also key barriers, with 60 per cent of respondents citing insufficient data and monitoring capabilities as obstacles to regional carbon trading.
To make cross-border carbon trading work, survey respondents cited the standardisation of carbon trading practices as pivotal. Greater investment in renewable projects and increased market liquidity with access to a larger pool of carbon credits were also listed as key opportunities to grow a “more integrated and efficient market”.
