Banking on nature to fight climate change

Byline: David Fogarty

The vision is grand, the outcome could be just what the planet needs: Investing billions into a market that promotes conservation and rewards investors with carbon credits to sell to big polluters.

The foundations of such a market already exist. Called the voluntary carbon market, it focuses on the ability of nature to soak up huge amounts of planet-warming carbon dioxide (CO2). Developers of conservation projects earn a return by selling carbon credits to buyers, usually big companies, to help them meet their climate goals.

Essentially, they are offsetting a portion of their own carbon emissions by paying someone else to do it for them.

The market, though still small, has shown it works. Scores of successful nature-based climate projects exist, which avoid or lock away millions of tonnes of CO2.

Now, faced with the twin emergencies of climate change and biodiversity loss, investors want to remodel the market and channel huge sums into protecting and rehabilitating rainforests, mangroves and grasslands, and greatly expand the volumes of carbon credits, or offsets, for sale.

By the end of the decade, the market could be worth billions of dollars a year and Singapore is aiming to be a regional carbon credit investment and trading hub.

Efforts are well under way in Singapore and around the globe to make the market more transparent, more efficient and improve the quality and verification of the nature-based climate projects to entice large-scale investment. If done well, it could be a win for the fight against climate change and curb the loss of nature.

Trust and transparency

To get there, the market must overcome questions about transparency and concerns over ensuring every project does what it claims: Reduces or locks away CO2 in a fully verifiable way.

And investors also need reassurance that the conservation or replanting projects are fully protected and not destroyed by fire or cleared for agriculture or logging. That’s where technology such as satellite monitoring comes in.

While existing projects have proved the model, the concern is whether vastly scaled-up investment will undermine the integrity of the market in the rush for carbon gold.

Carbon credits represent a tonne of CO2 reduced or locked away. It’s an attractive idea for customers such as car manufacturers, tech firms, banks and pension funds keen to hedge their future carbon costs.

A key focus, particularly in South-east Asia, is on saving natural ecosystems rich in carbon and with a high capacity for soaking up CO2, such as peat swamp forests. These forests and replanted areas need to be protected over the long term from logging, illegal clearing for palm oil and fires. Which is why well-run projects hire staff to monitor the project area on the ground, and in space, using satellites.

Ultimately, the idea is about putting a value on ecosystems, a value that helps them compete with mining, industrial agriculture and logging interests.

The higher the carbon price, the greater the return – and the incentive for investors to take the risk.

The Singapore connection

“Thanks to their rich forest, wetland and mangrove ecosystems, South-east Asia and Asia generally are set to become one of the largest suppliers of natural climate solutions (NCS) globally. The region houses a third of the cost-effective NCS supply potential from both the protection and restoration of natural ecosystems in countries like Indonesia, Malaysia and India,” said Mikkel Larsen, chief sustainability officer for DBS Bank.

That makes Singapore a natural centre for investing in these projects and trading the credits – this explains why Temasek, DBS and others are looking at ways for Singapore to capitalise on revamping the market.

The idea is to leverage Singapore’s long history in commodities trading and its well-regulated financial market. Singapore firms could use offsets as part of their emissions reduction strategies and, one day, carbon credits might be included in the nation’s carbon tax scheme.

Temasek has been helping to guide Singapore’s evolution into a carbon services hub and has bought offsets from two forest carbon projects to meet its internal emissions targets.

Investor interest is being driven by mounting pressure on companies and governments to meet stringent climate targets. Globally, there’s been a surge in pledges to reach net-zero emissions by mid-century.“Eliminating the 51 billion tonnes of greenhouse gases added to the atmosphere every year requires an enormous amount of global momentum and investment,” said Dharsono Hartono, co-founder of the Katingan-Mentaya forest preservation project in Central Kalimantan on Borneo island.

“This is going to involve entirely rethinking how we produce energy, how we travel and how societies operate. But it also means rethinking how we treat nature. To keep global warming well below 2°C, we must protect nature,” he added.

The Katingan-Mentaya project, comprising mostly carbon-rich deep peat swamp forest, is about twice the area of Singapore. Saving it from destruction by palm oil companies means about 7.5 million tonnes of CO2 are prevented from being emitted every year. Selling carbon offsets to big corporations, including VW Group, Shell and Bank of America, helps run the project and fund community programmes.

True potential

Dharsono’s project, though, represents a fraction of the true potential if huge investment is channelled into well-managed and well-funded projects.

South Pole, a Swiss firm that has developed more than 800 carbon offset projects globally, sees big opportunities for investment.

“Nature-based solutions – such as forest protection and restoration – can actually provide over a third of the climate mitigation needed between now and 2030 to stabilise warming to below 2°C very cost-effectively. So investing in a cost-effective solution that can mitigate over 30% of global greenhouse gas emissions seems like a no-brainer,” said Leah Wieczorek, South Pole’s business development lead for Asia, who is based in Singapore.

Under the 2015 Paris Climate Agreement, nearly 200 nations agreed to limit global warming to well below 2°C and aim for 1.5°C above pre-industrial levels if possible.

How to scale up

The existing voluntary carbon market has been around for about two decades and has strict standards for offset projects. But trading has always been small and opaque because it’s purely between buyer and seller and not on an open exchange. That needs to change, market players said.

The main standard-setting body that certifies offset projects, Washington-based Verra, has issued offsets representing 622 million tonnes of CO2 reduced from 1.697 projects to date. That’s the equivalent of taking 132 million cars off the road for a year.

And the market is growing. “We’ve seen that in terms of the volumes of the projects coming through the door. That’s definitely growing. We’ve seen in the past few years an increasing trend towards natural climate solutions,” said Verra CEO David Antonioli.

To scale things up, Prof Lian Pin Koh, who runs the Centre for Nature-Based Climate Solutions at the National University of Singapore, said the market must overcome ‘pain points’. “The market will grow with our ability to improve the quality of those nature-based credits, our ability to reduce the cost of validation, of certification, to improve the transparency of monitoring those projects.”

Genuine action?

Some conservation groups say offsets are just a dodge, allowing polluters to buy their way out of making deep emission cuts to their operations.

That is untrue, key players said.

“It is impossible right now for most companies to achieve climate neutrality, a key milestone on the journey to meet net-zero pledges, without the use of carbon credits,” said South Pole’s Wieczorek.

Offsets from well-run, fully verified projects can help firms that are already cutting emissions go the last mile.

* This story, first published by The Straits Times, Singapore, has been shared as part of World News Day 2021, a global campaign to highlight the critical role of fact-based journalism in providing trustworthy news and information in service of humanity. #JournalismMatters. WORLD NEWS DAY 2021