Scale carbon market, private capital for trillion-dollar climate finance: experts

Government action to scale up carbon markets and ramp up private finance are critical to meeting the need for trillions of dollars in climate finance essential for energy transition, experts said June 9 at Singapore's Ecosperity Week 2022.

The need for a mature carbon market comes amid slow development of various compliance markets in Asia, uncertainty around government backing for carbon pricing amid the global macroeconomic situation and high energy prices, and a more recent slowdown in carbon trading activity.

The developing countries need an extra trillion dollars a year by the latter half of this decade, in order to enable their transition and ensure that the transition is just, Mark Carney, UN Special Envoy on Climate Action and Finance, said at the event.

Despite that, the actual progress is far from satisfactory. The initial target of $100 billion, first aimed to be achieved by 2020 and was on the spotlight of COP26 in Glasgow last year, is yet to be accomplished.

"The $100 billion is due, as per agreement in Glasgow, to be delivered next year. This is not moving at a pace or at a scale that's necessary for the transition in the emerging and developing world," he said.

Carney chaired Glasgow Financial Alliance for Net Zero, or GFANZ, a coalition of some world's leading financial institutions, specialized in climate finance. GFANZ announced to anchor its Asia-Pacific office in Singapore on June 8, in order to boost the investments in climate activities and drive the region's decarbonization.

Carney pointed out "a huge element" in this transition is to phase down coal, which is still the primary energy source for many developing economies and generates large employment.

"We, as GFANZ, are driving that process. Public money and public interface have to do it, but we're providing significant resources in terms of expertise and personnel," he said.

"We're going to need private capital to play a significant role, but, in many of these economies, it's unrealistic to expect that private capital would play the exclusive role," he emphasized.

Carbon markets is "the only financial instrument that has the capability" to provide climate finance at the trillion-dollar scale, Renat Heuberger, CEO with South Pole, one of the world's largest carbon credit suppliers, said at the event.

"Sometimes the perfect is the enemy of the good. I ask governments to be brave, better to launch the rules than to think about the rules forever," Heuberger said.

Voluntary market to facilitate governments

Experts said, despite the differences, existing infrastructures developed by the voluntary carbon markets can also be utilized in regulated compliance markets, so as to scale up the carbon finance in an efficient manner.

"What we're starting to see is the developing, new regulated markets are using the infrastructures that have been created in the voluntary space," David Antonioli, CEO at the world's leading carbon standards body Verra, said at the event.

Earlier this year, Singapore government announced that companies, which are enrolled into the domestic compliance carbon tax scheme, will be allowed to surrender high quality international voluntary carbon credits to offset up to 5% of their taxable emissions, starting from 2024.

Similar practices have been seen in Colombia and South Africa nowadays, Antonioli shared, which indicated "a convergence of use of the frameworks" in regulatory-driven compliance markets and voluntary markets driven by commercial sectors.

"Let's be very clear. We are talking about the $1 trillion that needs to be unlocked by the end of the decade. Very obviously, voluntary alone is not enough," Heuberger with South Pole said.

"When you get to the jurisdiction approach, you run into the same problems that we've had for years ... government agencies tend to be somewhat inefficient," Antonioli disclosed.

"One thing that worries me a little bit personally is that I just feel there is a tendency, especially from governments, to try to reinvent the wheel," Heuberger highlighted, adding that "a lot of the infrastructures, methodologies, frameworks actually are already here."

Heuberger pointed out we are at "the halfway point" between the Paris Agreement and 2030, by when a trillion-dollar scale of capital needs to be unlocked.

"Let's be honest with each other: the first half has not been very good," he said.

"We don't have another half to think about everything from scratch," he emphasized, calling for "simplifying and using as far as possible what we already have, and scale, scale and scale."