Carbon credits can ease the friction between economic growth and climate change

CLIMATE conference COP28 opens at the end of November, and signs are that it will be a rancorous affair. The 195 parties to the Paris Agreement, signed in 2015 and designed to limit greenhouse gas emissions and therefore keep global temperatures in check, will hear the results of the first global stocktake of national climate change commitments.

The outlook is not good. Analysis by Climate Action Tracker shows that not a single country is on track to limiting global warming to the agreed 1.5 degree Celcius target, and indications are that we are on course for a disastrous three degrees of warming. At the same time, many economies are grappling with inflation, fears of recession and fraying social cohesion.

This will, in all probability, mean that some governments may attempt to backslide on their commitments, judging that a weak promise kept is better than a bold promise broken. This approach is already underway in some countries; in the United Kingdom, for example, Prime Minister Rishi Sunak has delayed or halted policies designed to reduce domestic carbon emissions, notably in transportation. His “all-in” policy on North Sea oil will undo much of the work previous prime ministers had done to position the country at the forefront of fighting climate change.

As we face one of the most pivotal decades in human history, strong, decisive and innovative leadership, not political expediency, is required.

There is hope, however, and it comes from a mechanism often promised but not often delivered: effective collaboration between countries and companies. To that end, Singapore offers a glimpse of what is possible with enough will and determination.

Late in 2022, the Singapore government announced that it had joined the Paris Agreement Article 6 Implementation Partnership. Article 6 of the agreement allows the government to cooperate with other countries, financing carbon emission reductions that can be used to offset its own emissions.

Twelve months on and Singapore has become one of the world’s most active Article 6 players, securing deals with, among others, Sri Lanka, Ghana, Kenya, Mongolia, Cambodia and Vietnam. The carbon credits generated can be used by businesses – primarily in hard-to-abate sectors such as energy generation – to offset their pollution and keep Singapore on track to meet its Paris Agreement commitments.

The country’s carbon tax – which covers 80 per cent of its emissions – allows companies to meet their tax obligations in part through the use of carbon credits purchased in the international market.

In addition to accelerating the achievement of Singapore’s climate commitments, finance from the purchase of the carbon credits flows to developing countries to protect and restore forests, provide clean, reliable energy, reduce the waste going into landfills and provide safe cooking technologies.

Global cooperation supported by a local carbon tax are just two strands of a much wider strategy designed to position Singapore at the forefront of climate finance and carbon markets.

Through the creation of Climate Impact X, a trading platform for voluntary carbon credits, research programmes looking at diverse issues such as green finance and nature-based climate solutions, and incentives for relocation, Singapore is fast becoming an epicentre of regional and global carbon initiatives. This has seen dozens of carbon-focused organisations set up shop in the Republic in recent years, including the large US-based non-governmental organisations Conservation International and The Nature Conservancy.

Singapore has also been unafraid to walk the talk on climate finance. In 2022, the nation’s sovereign wealth manager Temasek allocated S$5 billion to establish GenZero, a wholly owned subsidiary with the goal of accelerating decarbonisation globally.

Climate change is a clear priority for the Singapore government. Like many low-lying countries, it has real cause for concern as the planet warms at an unprecedented rate. There is also the impact that a permanently changed climate could have on its economy, given that so many of its trading partners are also vulnerable. Its food and water supplies are also under threat as regional climate changes bring extreme weather events.

Ensuring a safe climate for future generations means all countries will need to raise their ambition, and Singapore is no exception. However, the country’s leadership in global cooperation, plus carbon pricing, knowledge transfer and investment stand the nation in good stead to deliver that increased ambition and set it apart from many Western governments.

Climate change is a global issue and leaders need to remember that as they prepare for the inevitable horse-trading at COP28. The world faces a pivotal moment and leaders of the major global economies would do well to take a leaf out of Singapore’s approach to climate finance and carbon markets – that now is the time for boldness, not backsliding.

The writer is CEO of Carbon Growth Partners