Net zero emissions by or around 2050 is a realistic, if challenging, target for Singapore. Building this low-carbon future will take many things, including audacity, new solutions, investment, and collaboration.

To help make this future a reality, we partner with organisations on various low-carbon energy projects. Some of our projects in Singapore include environmental, social and governance (ESG) strategies, deploying energy storage systems, hydrogen adoptions and integration, and feasibility assessment for importing green hydrogen.

However, they urgently need accelerated investment for these projects to live up to their full potential. Carbon markets are a powerful lever we can pull to support large-scale climate action and help Singapore take a giant leap in the race to net zero.

But what is a carbon market, what are the opportunities and challenges, and how can we get the balance right? I recently explored these questions and others at a round table event with leading industry experts in Singapore. Here are some of the insights we discussed:

What is a carbon market?

There are two carbon markets: mandatory compliance schemes and voluntary programmes. Mandatory carbon markets represent a market-based approach to reducing carbon emissions, such as the European Carbon Border Mechanism, which changes how we think of exports. Voluntary carbon markets are the voluntary trade of carbon credits, also known as offsets. Businesses drive voluntary carbon markets by purchasing carbon offsets voluntarily with no intended use for compliance purposes but only driven by net-zero goals. 

Article six of the Paris Agreement outlines the significance of carbon markets. After six years of negotiations, countries at COP26 agreed on new rules offering an international governance framework for deploying carbon markets. The article seeks to demystify some of the complexities around the new carbon market architecture and considers how new mechanisms can spur investment in clean energy and emissions reduction projects. 

While these rules impact compliance markets, they may also indirectly affect voluntary markets where private actors trade carbon credits to meet their climate targets.

Worldwide this has sparked questions and debate, including ‘What does this mean for business?’ and ‘Can carbon markets help us reach contributions at the heart of the Paris Agreement?’ For Singapore, we explore below how carbon markets could help us remain resilient and create new economic growth sources to accelerate the energy transition.

How can we leverage voluntary carbon markets?

To accelerate the energy transition, we need investment to build the necessary infrastructure and expertise to scale the supply of high-quality carbon neutralisation projects. If used responsibly, voluntary carbon markets can help provide this investment.

By making voluntary carbon markets available, we can create a marketplace for organisations, particularly the high emitters in the oil, gas and chemical sectors, to trade their carbon offsets for high-quality, low-carbon energy project investment.

Harnessing this marketplace has the potential to be a powerful tool to accelerate the energy transition while we move towards a net-zero future. It can empower organisations to be profitable during the transition and meet their sustainable development objectives. 

To make this successful long-term, we must design this marketplace to accelerate the energy transition, trading carbon as a commodity with benefits for high emitters to control where their investment goes rather than paying carbon taxes.

What about the loopholes?

In Singapore, voluntary carbon markets are still in their infancy. One challenge is the lack of governance and standards available in this space, and the private power entities will have in deciding the eligibility for their investments. 

Another challenge is carbon accounting. When organisations quantify their greenhouse gas emissions, how do they quantify their impact, and will organisations account for the same carbon offsets, doubling up on emissions data? Does this pose the question, ‘Could carbon markets create a massive loophole for the world’s largest emitters?’

These challenges expose the need for transparency and integrity while this marketplace evolves.

Singapore has recognised this need and supports efforts to build a high-quality, efficient, and transparent carbon market. Its key initiative involves setting up Climate Impact X, a platform for organisations to trade high-quality carbon credits. The platform is designed in line with global standards and guides investors in navigating this new marketplace.

Maintaining integrity

At the heart of Singapore’s energy transition should be environmental integrity. In the race to net zero, we must look at new ways to accelerate this change and ensure the transition is equitable to people and the environment.

Voluntary markets have an exciting role in our decarbonisation toolkit, emerging as a mutually beneficial strategy for businesses and the environment. They can accelerate renewable energy projects, generate additional emissions reduction revenues, and enhance projects’ commercial viability.

This marketplace can play an essential role in unlocking decarbonisation with the right investments enabling organisations like us to support low-carbon projects and build a sustainable future for Singapore.