Keynote Speech by Singapore's Ambassador for Climate Action at the Carbon Finance Summit

14 NOV 2024

Keynote Speech by Singapore's Ambassador for Climate Action & Senior Adviser (National Climate Change Secretariat) Ravi Menon at the Carbon Finance Summit, WWF Pavilion, Blue Zone, 14 November 2024

Financing the Climate Transition

Ladies and gentlemen, good afternoon.

The transition to net zero will require significant financing.

  • The bad news is that financial flows into climate action are still sorely inadequate.

    • According to the 2023 UN Global Stocktake, annual global climate finance flows have increased and crossed 800 billion US dollars.

    • But this is only about 30% of the 2.5 trillion US dollars needed each year until 2030 to meet the Paris Agreement Goals.

  • The good news is that the capital is available.

    • The private sector and institutional investors collectively control vast amounts of capital that could help fund the transition to net zero.

    • The challenge is unlocking and directing this capital effectively.

 

There are two key enablers to unlock this private capital: blended finance and carbon credits.

I will say a few words on blended finance before focusing the rest of my remarks on carbon credits.

Blended finance is about using a combination of concessional capital, technical assistance, and de-risking mechanisms to catalyse private commercial capital.

  • Concessional capital could be in the form of grants, guarantees, or financing at below-market rates.  By helping to absorb first-loss risk, it improves project bankability, thereby attracting private commercial capital.

  • Technical assistance - in the form of project development expertise, capacity building, and institutional support – can also help to reduce risk, strengthen confidence, and improve bankability.

 

Singapore has launched a blended finance initiative called the Financing Asia’s Transition Partnership or FAST-P which aims to mobilise up to 5 billion US dollars.

The Singapore Government will contribute up to 500 million US dollars in concessional capital to FAST-P on a matching basis.

  • This means that if FAST-P can attract an equal amount of concessional capital from other sources, we can build up a pool of concessional capital of up to 1 billion US dollars.

  • The combined pool of concessional capital will be used to crowd in up to 4 billion US dollars of commercial capital, to support transition projects in Asia.

Next, carbon credits.

Carbon credits offer a market-driven solution to bridge the financing gap, particularly when policy and economic incentives are lacking. 

  • On the supply side, carbon credits are generated by mitigation activities that reduce or remove carbon emissions. Revenue generated from these credits is meant to enable the mitigation activity from happening, which would not have occurred otherwise.

  • On the demand side, entities may want to purchase such credits to help offset their hard-to-abate residual emissions.

  • This convergence of demand and supply creates a win-win situation.

    • For developing countries where financing needs far outpace available resources, carbon credits create an additional pathway to fund mitigation projects.

    • For sovereign and corporate buyers, they offer a transparent and credible solution to meet emissions reduction targets.

To unlock the full potential of carbon credits, we need well-functioning carbon markets.

  • But the carbon markets are in a bad state today, suffering from a serious trust deficit.

  • Transaction volumes have collapsed, so have prices.

  • To restore trust and revive the markets, some critical bottlenecks must be addressed in both the compliance and voluntary carbon markets.

In the compliance carbon market, further guidance on Article 6 is important so that markets can work more efficiently.

  • At COP this year, Singapore’s Minister for Sustainability and the Environment will be co-facilitating Article 6 negotiations with her New Zealand counterpart.

  • The signs are promising. Just three days ago, countries welcomed the Article 6.4 Supervisory Body’s adoption of standards related to removals and methodologies. It is critical that this new Article 6.4 mechanism is operationalised.

In the voluntary carbon market, we need to take a comprehensive approach to addressing bottlenecks on the demand side, the supply side, and market infrastructure.

On the demand side, without clear guidelines on how they can use credits to achieve net zero, businesses are afraid of venturing into the voluntary carbon market.

  • The Science Based Targets Initiative (SBTi) is still reviewing its guidance on using credits to offset residual emissions.

  • The Voluntary Carbon Market Integrity Initiative (VCMI) has usefully set out a code of practice on how companies can make credible voluntary claims on carbon credit use. But it has yet to finalise guidance on Scope 3 claims.

  • Guidance from standard setters, while important, can only go so far.

  • We need progress on two fronts:

    • greater coordination among standard setters and harmonisation of guidelines; and

    • guidance from governments on businesses’ use of carbon credits in line with national policies.

On the supply side, there are concerns about the integrity of carbon credits.

  • Some of these concerns are valid and public scrutiny is not a bad thing. Carbon crediting projects that violate environmental integrity should be held to account.

  • But the bigger risk is that we throw the baby out with the bathwater through overly stringent or prescriptive requirements.   We need stronger guidance but also smart guidance.

  • The work of the Integrity Council for the Voluntary Carbon Market to establish globally-accepted standards for what constitutes a high-integrity credit is a good start.

  • Here too, national governments have a role to play in supporting this work.

 

On the market infrastructure side, there is a lack of harmonisation and transparency.

  • There is little consistency in how information is recorded and tracked, even the terminologies used across different markets.

  • There is little or no price transparency, which hinders price discovery and liquidity.

 

Singapore is actively working with partners in the ecosystem to shape a well-functioning global carbon market.

 

First, Singapore is supporting the generation of high-integrity carbon credits.

We are providing clear demand signals through our Implementation Agreements on Article 6 cooperation.

  • To date, we have signed bilateral agreements with Papua New Guinea and Ghana.

  • These agreements provide clarity on how both countries can generate credits to finance emissions reduction or removal projects.

  • Credits generated need to align with high-integrity carbon crediting methodologies from credible offset programmes.

  • More Implementation Agreements will follow – we are in active discussions with countries such as Bhutan, Cambodia, Kenya, Mongolia and Peru.

  • In October this year, the Singapore Government issued an open request for proposals to supply high-integrity Article 6-aligned nature-based solutions credits. This request underscores Singapore’s support for such credits that are aligned with Article 6 of the Paris Agreement.

 

We are sharing our experience to guide other countries that wish to use voluntary standards in their Article 6 approaches.

  • Singapore has been working with Gold Standard and Verra to develop an “Article 6 Crediting Protocol”. 

  • We have just published, together with our partners, the initial recommendations of the Article 6 Crediting Protocol, incorporating feedback through consultations with countries, international organisations, and carbon markets experts. 

  • The Article 6 Crediting Protocol will be published early next year, taking into account discussions at COP29.

 

Second, Singapore has been working to promote high standards of integrity for different types of carbon credits.

 

We are piloting the use of transition credits as a credible financing instrument for transition projects.

  • A good use case is coal phase-out in Asia.

    • Credits are generated from the emissions reductions attributed to the early retirement of coal plants and their replacement with cleaner energy sources.

  • To develop transition credits into a viable market solution, we have formed the Transition Credits Coalition, or TRACTION, with over 30 ecosystem players. TRACTION identifies system-wide barriers and solutions to develop high-integrity supply and build up buyer confidence in transition credits.

  • We are also consulting the Integrity Council for the Voluntary Carbon Market to ensure that these credits align with the Core Carbon Principles and Article 6 integrity requirements.

     

We are working to strengthen standards for ensuring that nature-based credits lead to actual emissions reduction.

  • Singapore has launched the Carbon Market Integrity Research and Development Programme, or Carbon Integrity SG.

  • Carbon Integrity SG aims to develop and improve internationally-recognised standards and methodologies for measurement, reporting, and verification of nature-based projects.

  • This will help strengthen the integrity of nature-based credits, enhancing the confidence in the credibility of these projects.

 

Third, Singapore is supporting the development of a harmonised carbon data platform to address transparency concerns.

  • In collaboration with the International Emissions Trading Association and the World Bank, we launched the Climate Action Data Trust, or CAD Trust.

  • CAD Trust uses blockchain to link, aggregate, and harmonise data across carbon credit registries.

  • CAD Trust reduces the risk that the same carbon credit is counted twice, injecting much-needed transparency and accountability in the markets.

  • To-date, CAD Trust has grown to include six registries covering 85% of all credits issued globally. It provides an interactive data dashboard that allows users to track the flows and transactions of credits from over 17,300 carbon offset projects worldwide.

 

Let me conclude.

There is no pathway to net-zero without well-functioning carbon markets based on high-quality carbon credits which unlock much needed financing for decarbonisation projects in the developing world.

We must strengthen integrity, build trust, and restore confidence in carbon markets.  I hope this Summit will contribute meaningfully to that process.

Thank you.