Asia’s carbon market struggles with fragmentation, lack of integrity: panel

[SINGAPORE] Efforts to standardise the carbon market in Asia have faced challenges as the system is fragmented and involves multiple standards, noted Choo Oi-Yee, chief executive officer at local carbon exchange Climate Impact X (CIX).

“As an exchange, when you are trying to advocate for moving capital, simplifying and making it frictionless, it is quite difficult,” she said at a panel titled Carbon Capital: Asia’s Leadership in Carbon Credits, Climate Finance, and Impact on Thursday (Oct 2). This was part of the Milken Institute’s three-day Asia Summit held at the Four Seasons Hotel Singapore.

Choo was responding to moderator Audrey Tan, assistant news editor at The Straits Times, on how CIX is addressing fragmentation and transparency challenges in Asia’s carbon markets.

CIX started trading in June 2023, following its set-up in May 2021 as a joint venture between DBS, Standard Chartered, Singapore Exchange and Temasek. Choo said that such a collaboration is “clearly the representation of financial institutions with the willingness to create an entity to mobilise capital into carbon projects”.

On a national level, Singapore has illustrated its intent to buy carbon credits to meet its climate-change targets under the Paris Agreement. The country is focusing on two specific types of carbon credits: nature-based and energy-based.

Panellist Benedict Chia, director-general of climate change at the Strategy Group, Prime Minister’s Office Singapore, said these two classes of credits offer key opportunities in Asia.

The region faces developmental pressures, with many relatively young coal-fired power plants. Transitioning away from coal is essential to preserve the carbon budget needed to limit global warming to 1.5 to 2 degrees Celsius. He also emphasised the importance of nature-based credits due to their large carbon sinks.

“Our key challenge is to identify and demonstrate that our efforts in the carbon markets represent high-quality units, additional investment flows that would not have occurred otherwise itself,” said Chia.

For Asia, Choo highlighted that standardising carbon markets remains challenging due to the varied capabilities of participating companies. While larger corporates often have dedicated teams to manage the complexity, smaller firms may lack the resources and expertise, making the process overwhelming. “We advocate a lot within the region to try and standardise it, (but) it has not been easy, partly because Asia is not homogenous,” she noted.

Fellow panellists also pointed to the complexity of the region.

Rishi Kalra, executive director and group chief financial officer at agri-business giant Olam Food Ingredients (ofi), said: “Asia is too diverse, too big, too complex. There is no one-shoe-fits-all, but (creating) the right impact at scale with smallholder farmers helps us in creating what we are talking about today.”

He added that while there is significant focus on the “front end” of carbon markets, such as credit creation and trading, ofi operates on the “back end”, working directly with farmers.

The company has set bold and ambitious climate targets, which Kalra said have enabled it to generate high-quality carbon credits for its own use or for customers.

For instance, at its cocoa farm in Indonesia, ofi is investing in regenerative agriculture, working to restore previously unusable land and bring it back into productive use. It takes a lot of investment, added Kalra.

However, challenges remain in attracting international capital to carbon markets at scale.

Hiromichi Mizuno, founder and CEO of Good Steward Partners, pointed to a lack of integrity in the carbon credit market. He said that concerns over greenwashing and credibility are often cited as reasons investors hesitate. “The mindset of investors (is) blocking the actual capital flow; so we need to change the professionals’ mindset on how to use (carbon credits).”