Singapore players anticipate resurgence in voluntary carbon market activity

VOLUNTARY carbon markets (VCM) spent much of 2023 defending forest conservation credits – the kind making up the largest swathe of carbon credits available on the markets. But, going into 2024, the mood is not as sullen.

Singapore’s VCM players are even anticipating a resurgence of investment and use of carbon credits, on the back of renewed confidence still oozing from last month’s United Nations Climate Change Conference (COP28) in Dubai.

Sharing the optimism was Climate Impact X chief executive officer Mikkel Larsen, who noted COP28 as a pivotal moment for carbon markets; there was clear recognition of the markets’ necessity if the world was to make a “material dent” in climate change, he said.

Among world figures who endorsed the role of carbon markets at COP28 was US special climate envoy John Kerry, World Bank president Ajay Banga, and United Nations climate chief Simon Stiell, Larsen pointed out. 

Kerry had said: “I have become a firm believer in the power of carbon markets to drive increased climate ambition and action, and the VCM is a vital tool to keep 1.5 degrees Celcius in reach. Let’s not waste any more time or let the perfect be the enemy of the good.”

Banga said: “Developing countries should get paid for the climate benefits they provide... We have to get this market done.”

Stiell called carbon markets a tool that “can be deployed quickly and potentially at scale”. He added: “We need new project types, in agriculture, for power storage, for retiring fossil fuel assets, for green hydrogen, for green buildings and electric mobility – projects that will help us to reach our goals, grow our economies, and prosper.”

Global alignment

The morale boost came amid a global alignment of frameworks to ensure integrity in carbon markets.

At COP28, the Integrity Council for the Voluntary Carbon Market (ICVCM), Voluntary Carbon Markets Integrity  Initiative (VCMI), Science Based Targets initiative (SBTi) and the Greenhouse Gas (GHG) Protocol said they will work together to set up an end-to-end integrity framework. 

The organisations were previously working in their own corners: SBTi helps companies set ambitious, science-based emissions reduction targets; GHG Protocol standardises the way emissions from private and public-sector operations, value chains and mitigation actions are reported; ICVCM focuses on the integrity of carbon projects; while VCMI focuses on the integrity of the claims made by individuals and businesses buying carbon credits.

When the end-to-end framework materialises, it will cover both the demand and supply-side that provides consistent guidance on the use of carbon credits, they said.

The six carbon crediting programmes – responsible for 90 per cent of certified carbon credits – also announced a collaboration to establish consistent quantification and verification standards.

“More than anything, we are encouraged by early signs that market participants are starting to align on the fact that collaboration is key to creating efficient and well-functioning carbon markets,” Larsen said. 

“We need to stop throwing stones at each other and instead learn to work together and be more inclusive. By collaborating, everybody can win.”

Larsen said 2024 will be a year of implementation for the VCM, given that a lot of groundwork has been laid to unlock high-integrity carbon markets hitherto.

The groundwork includes the firming up of ICVCM’s Core Carbon Principles (CCP) framework, which sets a global benchmark for high-integrity carbon credits. 

The first issuances of CCP-labelled credits – intended to provide buyers with an easy way to identify such high quality credits – are expected in the first quarter of 2024, so the framework’s impact on the scaling of VCMs might still take some time.

“In time to come, we expect to see price differentials in credits with a CCP label compared to those without. These high-integrity credits are projected to trade at a premium,” Larsen said.

While Larsen said he is cognisant that much remains to be done, the positive developments coming out of COP28 are encouraging. “Collectively, we believe these developments will help to reduce frictions for companies looking to use carbon credits as part of a holistic decarbonisation strategy, and ultimately enable carbon markets to massively scale,” he said.

Openess and desire

Meanwhile, Frederick Teo, chief executive of Temasek-owned decarbonisation investment platform GenZero, is witnessing greater openness and desire among VCM players for some degree of regulatory oversight.

“This will add further credibility and rigour to the application of rules and standards. Hopefully, this will bring the needed confidence to scale the market and catalyse capital towards climate solutions,” he said.

Teo anticipates greater convergence between the VCM and Article 6 carbon market in 2024. 

Article 6 sets out the rules for global trade in emissions reductions under the Paris Agreement to prevent double counting, so that both seller and buyer cannot claim reductions or removals on the same amount of credits. 

The safeguard will come in the form of negotiated country-to-country deals. Under these deals, the country selling a carbon credit makes a “corresponding adjustment” to its inventory to give up its claim to the offset in favour of the buying entity. 

Several countries that have inked such country-to-country deals will utilise VCM standards such as Verra and Gold Standard for projects, Teo noted.

Thus, the “white-listing” of project types under such bilateral agreements will confer a greater sense of legitimacy and acceptance that would have an impact on perceptions on their quality in the VCM, Teo said.

GenZero is currently actively exploring opportunities in several markets, including Ghana, Paraguay and Vietnam, Teo revealed. These are countries the Singapore government has “substantively concluded” negotiations with on an Article 6 implementation agreement.

Calling these countries “progressive leaders in advancing climate readiness”, Teo said the firm looks forward to partnering them to develop projects that will benefit their local communities while advancing climate action.