carbon credits

Photo: Courtesy of Andrew Wilfred

Since Singapore in 2022 committed itself to a net-zero carbon emissions target by 2050, there have been discussions regarding how it might achieve this target. Almost certainly, after all other plans have been executed, the nation will have to rely on carbon credits to take it through the last kilometre on this net-zero journey.

Although we may be able to source carbon credits from verifiable sources all over the world, such as Colombia, Senegal, and Ghana, a rich source of potential credits may come from our nearby ASEAN neighbours.

Related: GetGo’s co-founder Toh Ting Feng makes driving more sustainable

An untapped potential

Trading carbon credits

While carbon markets have been around for a decade, they have only recently come to the fore since COP 26 in 2021, where parties agreed to a landmark deal that addresses international cooperation in carbon markets.

While carbon credits and carbon trading are relatively new among ASEAN nations, the potential for the global market has been estimated by some sources to be as small as US$600 billion (S$801 billion) or as large as US$2.5 trillion by 2050.

This would, however, depend largely on whether countries implement compliance schemes. If, globally, countries implemented compliance schemes, the internal credit market could potentially be smaller as a lot of credits may not be traded but instead be focused on fulfilling carbon compliance requirements.

Related: Cloversoft’s co-founders Lynn Yeo and Angela Sim prove sustainable paper products make good business

The carbon credits perspective

There are two general ways to look at carbon credits: avoidance, also known as reduction, and removal or sequestration.

Avoidance is achieved by avoiding nature loss and technology-based solutions. Newer technologies like green hydrogen or sustainable aviation fuels can serve as examples of technological avoidance. However, avoidance credits are not considered Internationally Transferred Mitigation Outcomes (ITMOs), which is increasingly important.

Sequestration involves the direct removal of carbon from the air and can be done through nature or technology.

A natural-based solution to sequestering carbon is to reforest, plant mangroves, restore soil and peatlands, and capture carbon in the biosphere. Technology-based removal takes carbon and stores it in the geosphere or other secure methods like concrete. The complexity and variety of project types, for both avoidance and removal, are likely to expand tremendously over time as new requirements, such as length of storage, are added.

It is likely that the creation and, ultimately, certification of carbon credits will likely be a complex endeavour in the near future. So, rather than worry about how the meat is made, companies, countries and individuals should focus on the carbon credit itself, which is rigorously verified, tradeable and listed internationally.

Related: The Peak Next Gen: For Kia Jiehui, business development at Ichi Seiki goes hand in hand with sustainability

Enhancing carbon credit verification

Carbon credits
Photo: Courtesy of Andrew Wilfred

For carbon credit markets to succeed, the public needs to trust that the credits are rigorously verified at the source.

The recent controversy around Verra’s carbon credits has negatively affected the institutional trust that Verra had been building in itself as a trusted verifier and for the voluntary carbon market as a whole. While Verra has stuck to its claim that the credits are indeed not worthless and that its current methodologies are the best in class, it has also announced that it will be changing to a new methodology in 2025.

At present, the verification of carbon credits is not regulated; this is a potential weakness that could be addressed through government oversight or oversight through an international body. It may be foolhardy to accept the current situation only to realise years later that we haven’t stored or saved as much carbon as we thought.

Related: Unravel Carbon co-founder Grace Sai helps firms achieve net-zero goals

ASEAN as a regional carbon credit powerhouse

Carbon credits create an opportunity for the ASEAN region to turn its forest cover into both an ecological net positive and a financial one. A Bain report placed the offset sales and resales at approximately US$9 billion by 2030.

This projection assumes, however, that ASEAN countries continue not to have a compliance or tax system for carbon. If that assumption does not hold, then it is likely that the offset market could be considerably larger as more companies will demand a ready supply of offsets, driving up the price of credits, which will make credit-generative projects more practical and enviable.

Of the 10 ASEAN countries, nine have already committed to a net-zero target. Still, whether all nine commitments will be met will depend on the country’s ability to coalesce around clear targets and achievements that will reduce its carbon envelope.

ASEAN has shown a commitment to decarbonise as a whole, and that should be viewed both as a first step and a wholly positive outcome. However, in the interim, it could mean that our neighbours may choose to keep all their carbon credits at home to achieve their self-declared targets.

This could potentially mean that businesses in Singapore may be forced to either pay higher prices or go further afield to buy credits. While this may be a negative for Singapore Inc, it may prove to be a boon to ASEAN in achieving its various net-zero targets.

The writer is an assistant director (sustainability) at the Singapore Institute of International Affairs.