Carbon market players to focus on driving up demand of credits in 2026: CIX

[SINGAPORE] After two years trying to address integrity issues surrounding carbon credits and rebuild confidence in its supply, the focus is now turning towards driving demand of these credits, said Choo Oi-Yee, chief executive officer of carbon exchange Climate Impact X.

“We need to, collectively as an industry, focus on demand. How do we help companies build their business rationale for carbon credits. And how do we help build confidence in the procurement,” said Choo in an interview with The Business Times.

“Given the work that we are doing, we should see momentum in demand signalling and building confidence for demand in the early part of next year,” she added.

Several things have been in motion to lay the groundwork for buyers of carbon credits, especially for corporates.

The Singapore Sustainable Finance Association – an industry group backed by the Monetary Authority of Singapore – launched a draft guidance on how corporates can claim carbon credits last month at the United Nations climate change conference (COP30) at Belem, Brazil.

Plans are in place for the full set of guidance to be released by the first half of next year. Choo co-leads the carbon markets workstream under the association.

The Singapore government published a guidance in October on how companies can voluntarily use carbon credits as part of a credible transition. It is also one of the founding countries of a global coalition on developing carbon markets.

Known as the Coalition to Grow Carbon Markets, the government-led group also published a set of shared principles meant to be consistent across jurisdictions to guide companies interested in voluntarily purchasing carbon credits to offset their emissions.

Tepid demand

The voluntary carbon market has been struggling to take off ever since it was rocked by several scandals questioning the integrity of carbon credits that have already been sold, leading to a slump in prices and trading volumes as fears of greenwashing accusations kept buyers at bay.

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Since then, several organisations have tried to address this issue. The Integrity Council for the Voluntary Carbon Market – a global standard-setting body for carbon credits – has developed the core carbon principles, while major carbon registries such as Verra have updated their methodologies.

However, despite these developments, the market remains tepid.

Choo said that CIX has observed its trading volume increasing from last year, though she hesitated to say if this was an indication that the market has grown significantly.

The growth has generally been from corporates who have always been buying credits, and are now buying more through over-the-counter transactions. It is not so much that there are new groups of buyers that have emerged.

Even though efforts have been made to address supply concerns, one reason corporates are still not jumping into the market is that they are simply not equipped with the know-how.

While carbon credits is one of the tools they could use in their decarbonisation journey, many are still figuring out their overall strategies.

“In the corporate lens, there is a much bigger story than just carbon credits. It is decarbonisation, transition – all of these are bigger issues that exist, and the pathways to that are still being developed,” said Choo.

“So when you talk to corporates who are just coming up the learning curve, they are still fixing the reporting and the mechanics of reporting. Then they are figuring out what is their decarbonisation plan and road map,” she added.

So the carbon exchange has instead, chosen to double down its efforts on corporates who are already sophisticated buyers and understand what they need to do to be on a net-zero pathway.

Nonetheless, Choo noted that the ecosystem is growing, even though that has not yet been translated into transaction volumes. Companies that are not yet buyers have started setting up teams to build up capacity in carbon markets, and the actions they need to undertake to be on a net-zero pathway.

“The work, I think, is starting now for a lot of corporates, but they’re not transacting... There’s a lot of interest. And I think corporates are interested to understand what is happening and how do they then build their own thinking and strategy around it,” she added.

Enabling factors

That being said, Choo said there needs to be other enabling factors to shore up demand, chief of which is greater harmonisation of standards in the space.

Currently, each jurisdiction is coming up with their own framework and methodologies around carbon credits, which would only serve to confuse buyers even more.

“The stakeholders have not really come together to agree on what are the mechanics, or the schematics of what a carbon market should look like. Then the tendency is for each jurisdiction, each region, each country, to try and build their own,” she said.

“And in some countries, carbon is seen to be an environmental asset, or something that they want to export. So all the more, every country would desire to have their own scheme and make sure that the mechanisms that they build or design are very specific to that region or that country,” she added.

The United Nations Framework Convention on Climate Change has been trying to operationalise Article 6.4 of the Paris Agreement – which governs the development of a global carbon markets – since it was adopted at COP29. The standards and rules surrounding carbon trading developed by the UN is widely seen to be the meta-standard in the future.

To scale carbon markets, Choo believes that there needs to greater alignment between the UN mechanism and the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) – a mandatory offsetting scheme for airlines.

Another inhibiting factor is the lack of regulation, as that results in a lack of price transparency and liquidity, said Choo.

The lack of liquidity also then means investors of carbon projects are reliant on offtake agreements.

“Investors also want to be very clear. Where are the carbon credits going to be sold? Do they have an offtake now? Right now, everybody looks at offtakes, because there’s no liquid exchange to provide that second layer of confidence of the demand for carbon credits,” said Choo.

“So for a fully-fledged market, you need all of that to happen, and that is, in my mind, the next development phase for the market structure to evolve. So we’re obviously very clear that we want to be a key position for that growth,” she added.

To facilitate greater price transparency, CIX recently launched its first standardised physical spot contract for Corsia-eligible credits earlier this month.

It had said in a press release then that bids and offers during the pricing session on day one converged and narrowed to a spread of 10 per cent, which offers “early improvements to market transparency and price discovery”.

Choo said that such credits are scalable as it helps bring price transparency and liquidity.

“So we do hope to see more traders trade the product over time, but right now, because a lot of the products are stuck in forwards and over-the-counter transactions. We hope that it will shift towards more exchange, a more liquid trading type of product,” she added.