· 5 min read
Paris Agreement Article 6 and ASEAN
I’ve previously highlighted the imperative for ASEAN nations to progress an ambitious climate agenda. After all, these low to middle-income countries are growing at a rapid pace, and countries such as Indonesia are the world’s 8th biggest carbon emitter. It begs the question of how to build decarbonisation capacity in ASEAN countries, particularly among emerging economies such as Laos, Timor-Leste and Cambodia.
The finalisation of the Paris Agreement Article 6 rulebook at COP26 provides the foundation for both private and public actors to leverage carbon markets to meet their climate goals. It helps provide foundations for legtimising, verifying and evaluating carbon trading and carbon credits - internalising what has previously been an adverse market externality.
Southeast Asia possesses the highest density of carbon prospecting for nature-based climate solutions - one-quarter of global solutions to be precise. These include reforestation and blue carbon, given the extensive coastal ecosystems and forestation across the region. This positions ASEAN to provide services to originate, finance and trade carbon credits from and in the region - promoting enormous economic and environmental potential. This comes at a time when Thailand launched its first carbon credit exchange in 2022 and Malaysia launched its Bursa carbon exchange, creating a promising carbon market future for ASEAN.
Singapore’s potential for carbon servicing
Singapore has acted as a bastion of wealth and innovative prowess in the region, if not globally. Its development trajectory has been impressive, to say the least, and it is well positioned to be a ‘carbon servicing hub’ for ASEAN - not just being a climate leader, but a major capacity builder for the region.
Singapore can leverage its position as an established professional services, trading, and financial hub, as well as its proximity to Southeast Asia, to be one of the largest carbon credit sources. Just last year, KPMG opened its ASEAN Decarbonisation Hub in Singapore, focused on retiring coal-fired power plants, replacing diesel with renewable energy and assessing the potential of the hydrogen market in ASEAN.
It is estimated that this could create a projected gross value added (GVA) of US$1.8-5.6 billion, depending on the extent of future international climate change developments. Today, Singapore is home to more than 70 organisations providing carbon services, which is the highest concentration of service providers in South East Asia. Capacity amplifiers include the NUS Centre for Nature-based Climate Solutions - promoting environmental integrity and evaluation for the success of nature-based solutions in the region. Being an international aviation and shipping hub also makes Singapore an attractive carbon credits trading hub for schemes such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
Accompanying this, Singapore has incredibly robust and trusted institutions, deep capital markets and has been engaging in bilateral agreements for green economy arrangements. This includes a Memorandum of Cooperation (MoC) with Thailand that promotes cross-border carbon trading, and a Letter of Intent (LoI) with Vietnam also advocating for bilateral carbon trading.
This also comes at a time when ASEAN-EU commercial relations are informed through the prism of the Carbon Border Adjustment Mechanism (CBAM) - with ASEAN countries’ trade prospectively having to understand and conform to the European ESG landscape. Luckily, Singapore’s global and regional function as a trading and commerce thoroughfare places it in great stead to facilitate EU-ASEAN ESG discourse and cross-border understandings, promoting seamless carbon reporting and compliance.
Barriers to Singapore’s carbon servicing potential
However, there are still barriers to the uptake of carbon markets in ASEAN. For one, there is a lack of consistent regulation, integrity and verification for carbon credits, bringing into question their effectiveness in reducing emissions. This is indicative of broader issues of sustainable finance interoperability across the 11 ASEAN nationalities, hindering other aspects of sustainable finance across ASEAN as well.
Likewise, the instability and immaturity of some markets across ASEAN also demote it as an attractive investment option, which is a barrier to Singapore’s broader engagement with the region’s decarbonisation agenda. For example, criticism has been directed at Indonesia’s new Green Taxonomy and its questionable integrity and interoperability with more mature sustainable finance taxonomies. Being a major player in ASEAN, Indonesia’s questionable sustainable finance maturity is reading for concern for ASEAN as a whole.
This co-exists with broader market concerns of political stability, capital market maturity and corruption within other ASEAN countries. These concerns are not specific to sustainable finance, but nonetheless, present issues for Singapore’s carbon servicing engagement with ASEAN.
Conclusion
Singapore has promising potential as a carbon servicing hub for ASEAN, but its success depends on the ability of other regional markets to enact robust and mature regulatory and capital market behaviours. Regardless of the present and future risks, ASEAN’s decarbonisation is imperative for a sustainable and resilient Indo-Pacific, and more broadly, a more sustainable and resilient world.
As global economic prowess is increasingly intertwined with ESG maturity and alignment, this not only presents an opportunity for Singapore, but a necessity as the prime commercial actor for ASEAN.
Its success as a carbon servicing hub is yet to be clear, and only time will tell its level of success.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
