Singapore exchange aims to boost tainted carbon markets

A financial exchange offering carbon credits and investments in conservation projects is set to launch in Singapore, but it may struggle to convince sceptics of the value of controversial carbon offsets.

Climate Impact X (CIX), backed by the Singapore stock exchange, the city-state's main investment fund and biggest bank, aims to help the growing number of firms seeking to cut greenhouse gas emissions.

From oil majors to tech giants and airlines, companies are lining up to make net-zero pledges, but face challenges to hit their targets.

Firms sometimes turn to buying "carbon credits" -- which allow them to keep polluting in exchange for reductions made elsewhere or investing in projects like protecting rainforests -- to offset emissions.

But such methods are controversial as environmentalists accuse big business of paying for a quick fix rather than seeking to truly overhaul their operations, while some botched offset projects have failed to deliver.

Nevertheless demand for offsets is skyrocketing, leading to greater efforts to boost carbon markets -- and fix their poor reputation.

CIX, which is expected to launch by the end of the year, joins a small number of such exchanges that have sprung up in recent times.

But it is betting on Singapore's status as a leading financial hub, as well as its location in Asia, to boost its chances of success.

The region still relies heavily on coal for power, making a high-quality carbon market vital for emissions reductions, said Monetary Authority of Singapore managing director Ravi Menon, as the CIX was announced last month.

In addition, Southeast Asia is "fertile ground to harness the potential of nature-based solutions", with abundant mangroves, and large areas suitable for re-forestation, he added.

The exchange will offer investments in certain conservation projects, as well as trading in carbon credits -- one credit represents a reduction of one tonne of carbon dioxide emissions.

Mindful of criticism that it is notoriously difficult to police whether such transactions are getting carbon out of the atmosphere, CIX will use technology such as satellites and blockchain to monitor their system.

- Offset horror stories -

The exchange is part of the so-called "voluntary" carbon markets, as opposed to mandatory initiatives such as the EU's Emissions Trading Scheme, where caps are set on certain industries.

Voluntary markets have boomed in the past year, but industry figures say they will have to grow faster to support investment required to meet the goal in the Paris climate accord of capping global warming at 1.5 degrees Celsius.

A private-sector taskforce established last year to boost voluntary markets, unify them and strengthen oversight, estimates they will need to expand 15-fold by 2030.

But scepticism abounds, with critics questioning whether playing the financial markets can help.

"Trading a carbon credit back and forth does not benefit the climate," Gilles Dufrasne, policy officer from non-profit group Carbon Market Watch, told AFP.

"Speculating on carbon credits -- acquiring credits and holding them with the plan to sell them in the future -- does not benefit the climate."

Investing in conservation projects to offset emissions is also "far from ideal" as it can be "extremely difficult" to measure their true impact, he said.

Adding to concerns, there have been myriad horror stories of projects aimed at offsetting emissions that critics say ended up doing more harm than good.

These range from a Ugandan forest planting initiative that blocked villagers' access to vital land, to Latin American hydroelectricity projects that worsened conflicts over land rights, according to a study by Carbon Market Watch.

Still, some experts believe carbon offsets can contribute, particularly for polluting industries struggling to hit net-zero targets -- but only combined with serious efforts to overhaul business models.

Benjamin P. Horton, director of the Earth Observatory of Singapore at Nanyang Technological University, said investing in conservation projects could contribute to combating global warming.

But he warned this should be "not instead of, but in addition to, a lot of hard work that needs to happen to decarbonise energy, transportation, agriculture and other sectors of the economy".

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