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Market Outlook for the Singapore Carbon Exchange

Climate Impact X – the new Singapore carbon exchange

Carbon trading has gained much attention recently following the release of detail on the European Union’s Carbon Border Adjustment Mechanism (CBAM) in June 2021 followed by strong progress on Article 6 at COP26 in November. Asian carbon markets have also seen significant developments, with Singapore recently launching its Singapore carbon exchange Climate Impact X (CIX), a voluntary global carbon marketplace and exchange.

CIX is a joint venture between large financial institutions including the Development Bank of Singapore, Singapore Exchange, Standard Chartered Bank and Temasek Holdings. It will comprise an Exchange (platform for trading contracts backed by eligible credits) and a Project Marketplace (platform for natural-climate solution projects generating carbon credits.)

In a previous article, we explored Singapore’s carbon tax in relation to major trade partners and provided commentary on the trends we are seeing. Here we delve into the launch of the CIX in relation to carbon markets around the region, its implications on corporate climate action in Singapore, and draw on learnings from our experience in the Australian carbon market.

Regional carbon pricing mechanism trends

Asian countries are gearing up to achieve emissions reductions through a combination of methods; with market-based mechanisms proving crucial to meeting targets in a rapid and cost-effective manner. In the last year, South Korea, Japan and China have announced net zero commitments with carbon pricing as a key decarbonisation driver. South Korea’s Emissions Trading Scheme (ETS) has been in force since 2015, and Japan’s Saitama ETS since 2011; linked to Tokyo’s cap and trade programme. Indonesia and Vietnam are looking to implement an ETS by 2024 and 2027 respectively. Thailand is developing a possible future system based on a pilot, and the Philippines is considering legislation supporting emissions trading. China’s highly anticipated national ETS launched last year, building upon the regional pilots over the past years, and will be key for the decarbonisation of its power sector.

Learnings from the Australian carbon market

Despite the repeal of the Australian Government’s Carbon Pricing Mechanism in 2014, the carbon market in Australia has flourished, driven by both compliance and voluntary demands from a range of public and private actors; evidenced by the significant rise in ACCU prices observed recently. CIX is likewise anticipated to encourage strong public private partnerships, and we anticipate various supplementary schemes being developed by an ecosystem of new participants in the carbon market across the region. The demand for high quality carbon credits from companies seeking carbon neutrality will give rise to carbon verification and audit regimes; there will be new demand for project developers, advisors, project proponents, carbon brokers, among others. From Australia’s experience, credits from vegetation projects offer significant potential for expansion with compelling secondary benefits but will need robust controls to ensure sequestration and the resultant credits are additional and permanent.

Climate Impact X and the Singapore carbon tax

Similar to other national and regional carbon markets, CIX will complement increases in Singapore’s carbon tax, providing tax-liable organisations the ability to source alternative options for meeting carbon tax obligations. Singapore’s carbon tax is set to increase from the current S$5/tCO2-e to S$25 by 2024, S$45 by 2026, and between S$50-80 by 2030 as one of the initiatives to meet Singapore’s net zero by around 2050 target. To meet these increasingly ambitions targets, businesses will be allowed to purchase and retire international carbon credits to offset up to 5% of their taxable emissions. Companies with exports subjected to the CBAM may also be able to procure high quality credits to meet carbon-intensity requirements.

What strategic response are leading Singaporean businesses taking?

The past couple of years have seen a flurry of climate action in the corporate sphere, from ambitious targets; to increased transparency in reporting and disclosure; and substantial reduction efforts. Singapore is seeing a huge push for sustainability in the private sector. Real estate developer City Developments Limited and Frasers Property have announced net zero goals, and Southeast Asia’s biggest ride sharing companies Gojek and Grab have set their own decarbonisation targets. The region’s oil and gas multinationals are setting similar targets, with Malaysian Petronas aiming for net zero by 2050, and PetroChina aiming for near-zero around 2050. These developments are expected to spur competitors across all sectors to consider their own climate ambitions and targets. Amidst this race to set and announce emissions reduction targets, it will be important to take note of the strategic decarbonisation plans behind the targets.

The carbon tax alone will not be sufficient in meeting these targets but it will spur additional action. The launch of CIX’s carbon marketplace will reduce friction and provide a mechanism for corporates to achieve their goals. Singapore’s position as the headquarters for activities around Southeast Asia in particular mean that targets and strategies decided here will have a ripple effect throughout the region.

Future carbon market outlook for Singapore

The interplay between Australian mandatory and voluntary schemes has seen many entities purchase Australian and global carbon credits to meet compliance obligations and to obtain carbon neutral certification. While Singapore does not currently have a scheme to generate carbon credits from locally developed projects, we anticipate that the successful launch and operation of the Singapore carbon exchange may encourage the development of such schemes to incentivise local emissions reductions.

Singapore and Australia are both industry-heavy economies, with the petrochemical refinery sector in Singapore and the mining and materials sector in Australia key to both economies. Australia is seeing a significant increase in abatement from industry; we recently supported mining giant Orica in registering a facilities emissions reduction project, contracting an abatement of 3.72 MtCO2-e over the project’s lifetime. We anticipate Singapore’s industries similarly being prime for abatement from industrial energy efficiency, retrofitting and emissions reduction projects.

Ndevr Environmental has experts in carbon pricing, climate strategy and management with experience across Australia, Singapore and the broader Southeast Asian region. We’re ready to help Singaporean companies and businesses in the region, strategically decarbonise and prepare for a more prosperous, decarbonised Asian economy in the decade ahead. Reach out to our Singapore team lead Roohi Ghelani for more information or contact our team, we’d love to hear from you – environment@ndevr.com.a

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