Singapore launches carbon exchange despite market’s greenwashing scandals

Singapore’s new carbon exchange traded 12,000 tonnes of emissions on its first trading day as the city-state bets on the growth of an industry that has been slammed for corporate greenwashing.

Chevron, Vitol, Standard Chartered and China’s CICC on Wednesday traded credits on Climate Impact X, which is hoping to challenge other global exchanges run by US-based CME Group and Xpansiv in establishing a benchmark price for voluntary carbon trading.

Singapore is trying to leverage its status as a business hub in Asia to be the main carbon trading platform in the region. By winning enough liquidity from international carbon traders, it hopes to become a global price setter for carbon credits and lay the groundwork for an eventual futures market.

CIX, a joint venture among Singapore Exchange, state investor Temasek and banks DBS and Standard Chartered, said the initial price established for its physical carbon credits was $5.36 per tonne, about four times that for a similar nature-based contract at CBL, the world’s leading carbon exchange. Volumes on Wednesday were small as expected.

Voluntary carbon trading is a system that directs financing to climate-related projects. In buying carbon credits — certificates that represent quantities of greenhouse gases kept out of the air or removed from it — companies can offset their own emissions. The credits come from projects around the world that protect and support nature.

The industry is expected to grow as countries transition to low-carbon economies. A key challenge in carbon offsetting is how to price the credits, which is behind the efforts to launch spot and futures markets.

But a series of scandals related to credits linked to projects of questionable quality has dented enthusiasm among traders and hit volumes.

This has led to low prices on established exchanges, with CBL’s credits trading at about $1.15 on the exchange. That value is much less than the $5-$10 price range companies believe is their fair value, discouraging trade.

CIX’s experiment has been to provide a contract with fewer but higher-quality projects to compete with CBL and CME. It hopes to eventually establish stable trading volumes.

“It would be wrong to say [the scandals] have not put a dent in the market. Right now the market is a little bit more choppy than it was before” said Mikkel Larsen, chief executive at CIX.

“We could have waited for better times, but we decided not to. Building a carbon hub is not something you do overnight. If Singapore stopped and started every time something pushes against this, they will never get there.”

The credits covered by the contract are generated through schemes that protect forests which would otherwise be destroyed or degraded, according to CIX. The basket of 11 projects include rainforests and biodiversity reserves in Asia, Africa and South America.

“By excluding projects traders don’t like or trust, CIX are basically trying to create the Brent or similar index for carbon that sets a better benchmark,” said one carbon trader based in Singapore. Brent is the world’s most important crude oil benchmark.

Singapore has another carbon exchange called AirCarbon, a blockchain-based platform, but it has not had much traction with traders.

Letter in response to this article:

AirCarbon ‘sees strong interest from traders’ / From Thomas McMahon and William Pazos, Co-Founders, ACX, Singapore