The year began with a scandal rocking the US$2 billion ($2.7 billion) voluntary carbon offsets market. British newspaper The Guardian conducted a nine-month investigation into Verra, the largest certifier of voluntary carbon credits globally, revealing that over 90% of their rainforest offset credits failed to deliver the promised emission cuts.
Verra issued over one billion carbon credits by January, approving 75% of voluntary offsets for clients like Disney and Gucci. The investigation exposed concerns about methodology, revealing companies’ overstatement of climate efforts, as purchased credits lacked tangible benefits. “According to two studies, only a handful of Verra’s rainforest projects showed evidence of deforestation reductions, with further analysis indicating that 94% of the credits had no benefit to the climate… The threat to forests had been overstated by about 400% on average for Verra projects, according to analysis of a 2022 University of Cambridge study,” says The Guardian.
In March, an exposé by investigative journalism platform Follow the Money revealed that leading Swiss carbon trading and consultancy firm South Pole’s biggest money-making project, a mega-forest conservation initiative in Zimbabwe called Kariba, had generated fewer credits than reported. Carbon rating firm Renoster estimated that the Kariba project claimed 30 times more carbon credits than it should have.
A month ago, allegations arose regarding South Pole’s Bachu carbon project, accusing it of using forced labour from the Uighur community in Xinjiang, China. BP and Spotify were among the companies that had purchased credits from this project.
Verra and South Pole’s CEOs, David Antonioli and Renat Heuberger, resigned in the weeks after their respective scandals. Replaced with interim CEOs, the two carbon companies have issued similar statements saying they will strengthen their governance, risk and quality controls.
Under scrutiny
The collapse of the carbon credit ecosystem has led to a crisis of confidence in the market. The industry was already under scrutiny for greenwashing and oversupply of carbon credits. The exposé on Verra and the South Pole has further undermined trust in the voluntary carbon markets (VCMs).
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Still, VCMs represent one of the most direct ways to finance emissions reduction and removal projects that might not otherwise receive financial support. Governments and industry experts are working urgently to establish safeguards to protect the ecosystem.
At COP28 in Dubai, numerous collaborations between credit entities and governments were unveiled. On Dec 11, Singapore’s National Climate Change Secretariat (NCCS) announced a partnership with Verra and Gold Standard, the world’s largest independent carbon crediting program.
The three parties will collaborate on developing a playbook that outlines “consistent and streamlined standard operating procedures” for countries to enhance their use of carbon crediting programs by mid-2024. Similarly, six of the world’s leading carbon crediting standards — Verra included — announced a collaboration on Dec 4 to increase the “positive impact of carbon markets” through aligning principles for accounting of removal and reductions.
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“Carbon markets have been a critical driver of private sector investment in tangible climate action in developing countries for over 20 years,” says the coalition. “Under this collaboration, we have a shared commitment to steps that will accelerate countries’ mitigation efforts and assist them in achieving their nationally determined contributions (NDCs) and the Paris goals.”
The coalition underscores a transformative use of carbon credits, aiming to rebuild VCM’s credibility. Research suggests companies employing carbon credits achieve double the decarbonisation rate compared to those without.
Managing the fallout
Two days before the start of COP28, the Voluntary Carbon Markets Integrity Initiative (VCMI) released additional guidance for its claims code of practice, which allows companies to make claims about their use of high-quality carbon credits. This builds on the launch of their claims code in June. Using a monitoring, reporting and assurance (MRA) framework, companies can make “silver”, “gold” or “platinum” claims for their offsets.
According to the independent non-profit, these companies can now make claims using high-quality carbon credits, direct finance to initiatives that mitigate climate change and demonstrate that they are going above and beyond science-aligned emissions cuts. “High-integrity voluntary carbon markets are critical to increasing the flow of private sector climate finance,” they add.
Meanwhile, Singapore’s response to managing the reputational fallout of VCM took a slightly different flavour. State investor Temasek’s decarbonisation-focused investment subsidiary GenZero, an investor in the South Pole, launched a whitepaper on Dec 2 addressing “misconceptions” around carbon markets.
“After a rapid phase of growth in recent years, the carbon market has been buffeted by macroeconomic conditions and heightened scrutiny and is experiencing multiple headwinds,” says the company, which was launched in June 2022 with $5 billion from Temasek. “Questions around the integrity of the carbon markets, especially regarding the quality of carbon credits and their legitimate use as part of corporate decarbonisation efforts, have also emerged.”
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The 30-page report includes eight recommendations to “unleash the full potential of carbon markets”, including refining carbon credit taxonomies and incentivising corporate participation.
South Pole’s interim CEO John Davis: We’ve had ups and downs… What we’re about now [is] building where the carbon market needs to be going, and that has to include much bigger investment from governments. Photo: COP28 Singapore Pavillion
The COP28 Singapore Pavilion also included a panel featuring GenZero’s CEO, Frederick Teo and South Pole’s interim CEO, John Davis. While no direct questions were addressed to Davis regarding South Pole’s controversies, an audience member asked if VCMs would benefit from a floor price.
Davis thinks a “well-functioning market” should not require one. “We’ve had ups and downs; we’ve seen these curves. I think what we’re about now [is] building where the carbon market needs to be going, which has to include much bigger investment from governments”.
He adds that the financial players are “ready to go, “ and the “mechanisms” of the carbon markets are in place. “You will see prices move in the right direction; I’m very positive about that. The question is getting the market operating correctly.”
In comes the Lion City
Singapore has been actively pursuing carbon deals with other countries independently, apart from participating in the global intergovernmental discussions at COP28. On Dec 3, the city-state managed to “substantively conclude” separate negotiations with Bhutan and Paraguay, which will pave the way for carbon credit trading aligned with Article 6, which aims to prevent double-counting so sellers and buyers cannot claim reductions or removals on the same amount of credits.
Despite none having been signed, Singapore also concluded negotiations on Article 6 implementation agreements with four countries, including Ghana and Vietnam. This adds to the memorandum of understanding (MOU) signed with Rwanda and Fiji for collaboration on carbon credits, making the total number of MOUs signed 13. Cambodia, Chile, Colombia, the Dominican Republic, Indonesia, Kenya, Mongolia, Morocco, Papua New Guinea, Peru and Sri Lanka are other countries involved.
The MOUs pave the way for companies in Singapore to utilise international carbon credits, shortlisted by the government, to offset up to 5% of their taxable emissions. The carbon tax rate in Singapore is slated to increase from $5 per tonne of emissions to $25 per tonne in 2024.
In mid-October, Singapore revealed the eligibility criteria for these carbon credits. The carbon tax covers 80% of the nation’s total greenhouse gas (GHG) emissions, originating from approximately 50 manufacturing, power, waste and water facilities, as outlined by Singapore’s NCCS.
Additionally, Senior Minister Teo Chee Hean — who delivered Singapore’s national statement at COP28 on Dec 2 — stated that Singapore is ready to purchase a new category of carbon credits called transition credits. These credits result from the early retirement of coal-fired power plants, provided they adhere to environmental standards. This initiative aims to assist Singapore in achieving its national climate targets, or NDCs.
Carbon hub
Singapore, aspiring to be the premier carbon hub in the region since 2019, seeks to facilitate companies in purchasing high-quality carbon credits from Asia and beyond to offset emissions. A few notable carbon credit entities have been birthed since. AirCarbon Exchange (ACX) was founded in 2019 and offers a marketplace for transportation industry stakeholders to trade securitised carbon credits using blockchain technology.
However, a story from the British newspaper Financial Times from June claimed ACX saw little traction from traders. In response, its co-founders Thomas McMahon and William Pazos said in a letter that ACX has seen transactions representing over 16 million tonnes of carbon dioxide equivalent since it went live in 2021. “Our platform is seeing strong interest from carbon traders not only in Singapore but increasingly around the world as we build partnerships in a wide range of countries, most notably with the recent creation of the world’s first fully regulated carbon exchange in Abu Dhabi.”
Carbon credit marketplace Climate Impact X (CIX) — a joint venture between DBS, Standard Chartered, Singapore Exchange S68 and Temasek — was launched in December 2021.
CIX offers nature-based carbon removal projects, including credits from the Lowering Emissions by Accelerating Forest Finance (Leaf) Coalition, a public-private partnership aimed at protecting tropical forests and those from mangroves and other blue carbon projects offered by London-headquartered Respira International.
CIX offers credits from technology-based carbon-removal projects, including sustainable cement and biochar, with just under 50 projects available for customers.
The same Financial Times report from June said CIX traded 12,000 tonnes of emissions on its first trading day. That may have moderated since. DBS group head of institutional banking Tan Su Shan said on a Dec 3 panel at the COP28 Singapore Pavilion that “liquidity hasn’t been great” on CIX.
But there are changes: Climate Action Data Trust (CAD Trust), a platform to share information about carbon credits and projects, was launched in December 2022. The independent entity, launched by the International Emissions Trading Association (IETA), the World Bank and the Singapore government, will share information about carbon credits and projects across digital platforms, integrating multiple registries.
About a year after its formation, CAD Trust declared Bhutan its inaugural national registry. On Dec 12, CAD Trust unveiled datasets from Bhutan and those from four major carbon market standards — Verra, Global Carbon Council, EcoRegistry and BioCarbon Registry.
Adding to recent developments, Singapore established the Asia Carbon Institute (ACI), a non-profit organisation dedicated to certifying and issuing carbon credits in Asia. Unlike a conventional exchange, ACI is a registry for certifying and issuing carbon credits.
GenZero’s CEO Teo closed his Dec 2 panel with the South Pole and other players with a sobering view of the VCMs. “I think all of us are into the carbon markets not just purely to monetise the assets.
The VCMs are “a mechanism and a platform” to catalyse finance into supporting local communities and decarbonisation solutions “that today are perhaps too expensive to scale and too expensive to be adopted”, Teo adds.
“If we didn’t have the pressure of time, a 2030 [or] 2050 target, we could let the solutions mature and let the market sort itself out,” he says. “But because we don’t have the luxury of time, that’s why we need to supercharge this move of carbon finance into solutions, into communities that need help — faster and better than they otherwise would.”
Revisit The Edge Singapore’s coverage of COP28 here.
