Australia and Singapore are leading Asia-Pacific's carbon markets drive, particularly with nature-based solutions, delegates at Carbon Market Institute's Singapore Carbon Market and Investor Forum heard on 17 October.
Singapore announced last month that it will pay S$76mn ($58.6mn) to buy 2.17mn nature-based carbon credits from projects in Ghana, Peru and Paraguay under its Paris article 6.2 deals with these countries.
This is the first signal that nature will have an important role in the article 6 market, climate group WWF's global carbon finance and markets taskforce lead, Rueban Manokara, said during a panel discussion. Singapore's announcement comes at a time when there are "real doubts" as to whether nature-based projects will be part of the Paris Agreement Crediting Mechanism, given the strictness of proposed rules on the permanence of mitigation.
Singapore has been playing an important role in setting a demand signal for nature-based carbon projects, Manokara noted.
Such moves by Singapore and other countries mean markets are developing a parallel mechanism that "may leave article 6.4 behind", investment firm New Forests' senior managing director, Geoffrey Seeto, said at the panel.
"I've always had faith that article 6.4 would become a unifying standard, but what you're seeing now with the implementation agreements out there is governments going alone and regulating and giving back government-guaranteed integrity," Seeto said. The UN Framework Convention on Climate Change will have "a problem" if those parallel markets develop further, he added.
Investment in compliance markets
But while countries including Singapore and Japan have taken a lead in signing bilateral agreements, others are waiting on the sidelines.
"We're watching, but we're not doing anything because we can't participate in a market that isn't actually a market yet," trading firm Hartree's head of carbon origination for Asia-Pacific, Cheryl Bowler, told delegates.
Hartree used to have a 25-strong carbon team, but this has shrunk to seven, of which four are based in Singapore and looking "fairly exclusively" at Australia and New Zealand's compliance markets, Bowler said.
"I'm focusing on compliance markets where there are real demand signals, real rules — I can invest in those markets, and I have mostly certainty about the next 10 years," she added.
While development of new Australian carbon credit unit methodologies has progressed very slowly in recent years, investment has been picking up, especially in projects deemed to have greater integrity, such as plantation forestry and environmental plantings, climate solutions and markets firm Core Markets' head of carbon and renewable markets, Marco Stella, said during another panel.
Recent environmental plantings investment announcements have been made by UK-based Cibus Capital and Australian state-owned Clean Energy Finance, following a move last year by the Silva Carbon Origination Fund, which is backed by mining companies Rio Tinto and BHP, and airline Qantas.
Competition to spark investment
But even Australia and Singapore could do better, market participants noted.
Hartree was close to participating in Singapore's first tender, but concluded that certain conditions — such as securing guaranteed internationally transferred mitigation outcomes — were difficult to achieve, Bowler said.
"As a developer of a project in Paraguay, we're looking at it very closely for round two, which hopefully is a little bit more friendly to the developers... round one had very strict rules which were almost too onerous," she noted.
In Australia, meanwhile, the long-delayed integrated farm and land management method has been a source of frustration for carbon farming developers and foreign investors for years.
"It has taken a very long time for that to come through, and there's a whole suite of project proponents ready to get started who have been waiting," Core Market's Stella said.
While participants wait for changes, other Asia-Pacific countries have been expediting decisions to unlock investment.
Indonesia earlier this month signed an agreement with registry Verra to unlock supply of nature-based carbon credits. This was followed by an agreement with the International Emissions Trading Association to work on carbon market implementation. Last week, Indonesia confirmed that credits produced in the country will be made available to international buyers again.
This should spark competition among Asian countries, New Forests' Seeto said.
"We were just talking with the Thai authorities, and the environment ministry told us: ‘We do not want to get left behind, because we know you're putting your money in Indonesia'," he added.
