Singapore to Launch Test Bed for Trading Carbon Offsets

(Bloomberg) -- Singapore is launching a pilot project to trade carbon offsets, a move that could encourage more companies to buy certificates to cancel out their greenhouse gas emissions.

The new platform, known as Climate Impact and backed by the island nation’s state investment firm, stock exchange and largest bank, will host a marketplace of nature conservancy projects that companies can invest in. It will also function as an exchange where offset credits can be freely traded.

To be successful, it will have to prove that the projects are actually effective at soaking up carbon dioxide from the atmosphere instead of offering companies a cheap way to keep polluting, a challenge that climate scientists have wrestled with for decades.

The pilot platform follows efforts by some private companies to offer trading in carbon offset products, but there is concern over whether these can be policed and standardized.

“There’s a degree of distrust in these markets as there’s a gray area around the verifiability of these projects,” Piyush Gupta, chief executive officer of DBS Group Holdings Ltd., said at a press conference in Singapore Thursday. “On the other side, the opportunity is very real too. This is going to be a hugebillion dollars opportunity.”

In addition to DBS, Temasek Holdings Pte., Singapore Exchange Ltd. and Standard Chartered Plc are also behind the effort. They plan to launch the platform by the end of this year.

Climate experts argue that offsets should be used as a last resort. For example, if a company can’t reduce their emissions with existing technology, it can pay to reduce someone else’s or fund a project that soaks up greenhouse gases from the atmosphere.

Without the right regulations, a carbon offset exchange could enable companies to buy their way to net-zero instead of changing their activity to reduce emissions. It’s also been tricky to prove projects are legitimate. Even highly respected groups like the Nature Conservancy have been criticized for selling credits for preserving trees that are in no danger of destruction.

Climate Impact plans to use satellites, artificial intelligence and blockchain technology to verify the integrity of projects. It will also be guided by an independent international advisory council that will include non-governmental organizations, multinational companies, business groups and academics.

Monetary Authority of Singapore Managing Director Ravi Menon said the platform will be a “test bed,” and if it’s successful it will prove the concept of using market forces to direct money from companies that want to reduce their climate impact toward worthwhile projects.

The platform will support nature-based conservancy projects such as restoring mangroves in flood-prone Southeast Asia. Elsewhere globally, renewable energy assets, forest management programs or efforts to capture methane emissions from landfill sites are among other types of projects used in carbon offsetting.

“Singapore is one of the most important commodities centers in the world,” SGX Chief Executive Officer Loh Boon Chye said. “We should take the lead in helping companies in their carbon reduction efforts.”

(Updates with project details in penultimate paragraph.)

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