The financial giants of Singapore are teaming up in an ambitious plan to offset greenhouse gas emissions through the establishment of Climate Impact X (CIX), a voluntary carbon marketplace bolstered by a public stock exchange. The joint venture will be led by four Singapore-based multinational companies with deep pockets and a demonstrable commitment to sustainability: DBS Group, Standard Chartered, Temasek, and Singapore Exchange.
Carbon offset exchanges face a litany of challenges, including low market participation, volatile and unpredictable prices, a lack of transparency, high susceptibility to market hegemons, and corrupt actors. However, Singapore brings several unique advantages to the table. Singapore’s location, embrace of green technologies, and reputation for transparent regulatory systems provide a stable foundation upon which a global carbon market might flourish in Southeast Asia.
In 2020, Singapore announced the launch of its Long-Term Low Emission Development Strategy, reflecting the government’s pledge to halve carbon emission from 2005 levels by 2030, and subsequently begin efforts to achieve net zero emissions. CIX’s two main components, a marketplace and a carbon exchange, will allow corporations and institutional investors to voluntarily buy, sell, and trade certified carbon credits through standardized contracts, providing an attractive solution for emission offsets. The first companies to jump on the carbon market bandwagon will have the opportunity to capitalize on high gains. Demand for carbon credits could grow considerably, and the overall market could be worth upward of $50 billion by 2030.
The challenges that accompany a carbon market are formidable. The greatest barriers to establishing a profitable marketplace are transparency, oversight, regulation, price volatility, and investor hesitancy. Although the history of carbon marketplaces is short, it has been plagued by low liquidity rates, scarce financing, inadequate risk management services, and limited data availability. Without resolute assurances on oversight and accreditation, meek investor trust can snowball into sporadic carbon reduction projects, substandard market liquidity, and nominal promises of future investment. Prone to experiencing mercurial price drops, carbon credits can be restrictive to investors that cannot afford to take on expensive risks.
Since carbon lacks an innate monetary value, carbon credits must be scrutinized and expertly regulated to avoid market collapse. New markets equate to new vulnerabilities, and companies will have incentives to find loopholes that allow them to signal their support for environmental conversation without a significant reduction in emissions.
Despite these difficulties, it is no coincidence that the world’s top technological enterprises are expressing their interest in CIX. Speculation about this initiative has garnered attention from businesses such as Google, Microsoft, Amazon, and Grab, which share an interest in finding innovative ways to neutralize and offset emissions. The companies behind CIX are betting that Singapore’s technical infrastructure will overpower initial skepticism in a carbon marketplace. As a global financial hub, Singapore has strong regulatory frameworks and substructures for trading and providing financial services across diverse sectors such as fintech, commodities, blockchain, and digital currencies.
Significantly, Singapore boasts a stable and predictable political leadership that frequently broadcasts its intention to further the country’s reputation as a progressive pioneer and financial powerhouse in the world of tech. The companies behind CIX remain confident that Singapore’s advantages are enough to dispel investor hesitancy and overcome fiscal obstacles. True to its reputation for technological innovation and security, CIX has promised to use Singapore’s advances in machine learning and blockchain technology to establish a marketplace that both effectively offsets greenhouse emissions and provides a template for future sustainable carbon trade in Southeast Asia.
Singapore’s foray into carbon reduction projects comes as talks of energy transitions emerge in Southeast Asia. ASEAN members have heavily relied on fossil fuels to advance their economic output. The current trajectory for greenhouse emissions in the region will lead to environmental disaster. Regional decarbonization is a viable solution for ASEAN to achieve the goals set out by the Paris Agreement and to mitigate the hazards associated with climate change.
Recognized for its profitable international trade and green innovation, Singapore is widely considered to be a leader for implementing new business models among ASEAN states. Some of the biggest carbon contributors in the region – Indonesia, Thailand, and the Philippines – have already taken steps toward establishing their own frameworks to trade carbon credits. Vietnam’s recently revised Law on Environmental Protection sets out to establish a carbon market as early as next year. Fellow ASEAN nations will have Singapore to look to as they build infrastructure for carbon credit trading.
Progress toward carbon neutrality has the potential to become a competitive advantage among states. With the advent of China’s national carbon market and its commitment to carbon neutrality by 2060, the race to decarbonize in Asia is picking up speed. Singapore’s global market will put international investors in a unique position to obtain a financial share in the region’s rapid decarbonization efforts.
As the largest foreign direct investor in Singapore, the United States has the potential to profit from the city-state’s push toward a green economy. The Biden administration has set itself up as a leader in combating climate change, pledging to become carbon neutral by 2050. Supporting international offsets could further the administration’s goal of global climate leadership. Climate Impact X has the potential to leverage Singapore’s powerful economy, technical infrastructure, and global trade ties with the U.S. and China to jump start global investment in Southeast Asia’s regional decarbonization efforts and create a sustainable countermeasure for carbon emissions.
This article was originally published on New Perspectives on Asia from the Center for Strategic and International Studies and is reprinted with permission.