As published on: reuters.com, Monday 6 November, 2023.
Singapore has long boasted a sterling reputation as a trading powerhouse, the go-to hub in Asia for those looking to trade oil, gas, minerals, metals and other commodities. But recently, a new product has crept onto its exchanges, one far less physically tangible but just as weighty: carbon.
In 2019, the island state announced its ambition of becoming the region’s premier carbon hub – a place where firms could purchase high-quality carbon credits from Asia and beyond to offset their greenhouse emissions. Additionally, it would offer related services such as carbon monitoring, credit verification and climate risk analysis. Today, it houses the highest concentration of carbon service providers (over 100) in south-east Asia.
“Participating in carbon markets is an opportunity to support emissions reduction globally,” says Zhi Hui Tang, who heads the climate change and sustainability division at Singapore’s Ministry of Trade and Industry. “Developing a robust and vibrant carbon services and trading hub will help to catalyse climate action both locally and for the region.”
Singapore laid the groundwork in 2019 by becoming the first south-east Asian country to introduce a carbon tax, covering 80% of domestic emissions. A year later the Monetary Authority of Singapore launched the Singapore Green Finance Centre, dedicated to green finance research and talent development, while the National University of Singapore opened a research centre for nature-based climate solutions.
Thomas Brzostowski, interim country director for The Nature Conservancy’s Singapore office, which opened in July, points out that Singapore is well-positioned as a carbon trading hub, as approximately a third of all nature-based solutions for carbon removal – protecting rainforests, restoring mangroves, adopting good agricultural practices, etc – are found in Asia.
With such solutions estimated to provide 37% of the reduction in carbon dioxide emissions the world needs to achieve by 2030 to keep global warming below 2 degrees Celsius, he says: “We see the voluntary carbon market as a real essential strategy for scaling up these solutions, in tandem with decarbonisation."
Office worker passes a logo of SGX in the financial district of Singapore
An office worker walks past a logo of the Singapore Stock Exchange. The country has the highest concentration of carbon service providers in south-east Asia. REUTERS/Edgar Su Acquire Licensing Rights
So far, 16 Asian nations have indicated a desire to supply carbon credits to the global market, as part of their nationally determined contributions (NDCs) or self-defined national climate pledges under the Paris Agreement.
Because of its close proximity, “Singapore is well-positioned to support and complement growth in these regional locations … and support investment in and the use of these credits,” reports its Economic Development Board (EDB).
Being an international aviation and shipping hub also makes Singapore an attractive carbon credits trading destination for schemes such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), says the EDB. From 2027, aircraft operators will be legally required to purchase carbon credits to remove emissions from all international flights, while other sectors, such as shipping, are expected to follow suit.
These developments will stand Singapore in good stead and help it transition as a player in the voluntary carbon market to the compliance one in coming years.
The EDB estimates that a carbon hub could generate as much as $5.6 billion in gross value to Singapore’s economy by 2050.
Singapore’s ambition to become a carbon hub was reinforced during COVID-19, when the government set up a taskforce to explore potential new growth areas that would help chart its post-pandemic recovery.
Locals use a wooden boat to transport the seeds of mangrove tree to be planted in Bebatu, a remote area near Tarakan, North Kalimantan province, Indonesia. About a third of all nature-based solutions for carbon removal are in Asia. REUTERS/Willy Kurniawan Acquire Licensing Rights
Mikkel Larsen, who was involved in the 2020 discussions as the chief sustainability officer of Singapore’s biggest bank, DBS, says: “We felt we could become the catalyst to help some of our neighbouring countries find a platform for their carbon credits to earn some income, while also generating some activities here in Singapore.”
In 2021 he was appointed the chief executive officer of the country’s first carbon exchange, Climate Impact X (CIX), a joint venture between DBS, Standard Chartered, Singapore Exchange and state investor Temasek.
What CIX offers is a marketplace and exchange of carbon credits for firms looking to voluntarily offset their emissions. The majority stem from nature-based carbon removal projects, including credits from the Lowering Emissions by Accelerating Forest finance (LEAF) coalition, a public-private partnership aimed at protecting tropical forests, and those from mangroves and other blue carbon projects offered by Respira International.
More recently, the firm began offering credits from technology-based carbon-removal methods, such as sustainable cement and biochar, announcing a partnership last June with Puro.earth, the world’s largest carbon crediting platform for engineered carbon removal. To date, CIX offers just under 50 projects to its customers, which number “several hundred companies”, says Larsen. “We’ve been quite selective in terms of the projects we’ve put up so far, but we’re looking to grow that to somewhere close to 250 because buyers want more variety.”
Singapore’s other carbon trading platform, AirCarbon Exchange (ACX), went live in 2021. While the firm’s initial focus was on the CORSIA market, it has “matured significantly beyond that”, says Wei Mei Hum, head of Asia Pacific at ACX.
Today, it offers voluntary carbon credits generated from a wide range of sources, including renewable energy projects and clean cookstoves, as well as nature-based solutions, issued through Gold Standard and Verra.
Singapore Airlines planes on the tarmac at Changi Airport in Singapore
Singapore Airlines planes at Changi Airport in Singapore. From 2027, aircraft operators will be legally required to purchase carbon credits to remove emissions from all international flights. REUTERS/Caroline Chia Acquire Licensing Rights
ACX says it’s the first global carbon exchange to employ blockchain technology and smart contracts for transparency and efficiency, lending it flexibility in its operations. “We have the capacity to play in all the different kinds of carbon markets, even the new international one coming out of the United Nations,” says Hum, referring to Article 6 of the Paris Agreement that allows countries to transfer carbon credits between one another to achieve their NDCs. More details on the trade of Article 6 credits are expected following the United Nations’ annual climate summit, COP28.
The newest player on Singapore’s carbon scene is Asia Carbon Institute (ACI). Launched in August, ACI is a registry that certifies and issues carbon credits, rather than an exchange per se. Its focus is on technology-based and urban-related carbon removal solutions, says founder John Lo, “because methodology related to these areas are less developed” compared with nature-based solutions.
“Asia is home to more than 60% of all megacities, and is also the hub for many carbon-intensive manufacturing industries,” he says. “Yet there is little focus on carbon credits that address these areas.”
“The entrance of new players such as AirCarbon Exchange and Asia Carbon Institute is a testament to the burgeoning potential of the carbon trading market in Singapore,” says Jeffrey Silverman, senior director for Asia Pacific at the global nonprofit Conservation International.
Carbon markets expert Pedro Barata at the U.S. nonprofit Environmental Defense Fund agrees. He points out that Asia is one of the fastest-growing regions in the world, in terms of CO2 emissions. “Even though the carbon market itself is relatively small right now in Asia, it’s about to get large very soon.”