Singapore’s new carbon exchange traded 12,000 tonnes of emissions on its first trading day, as the city-state bets on growth in an industry under fire for corporate greenwashing.
Chevron, Vitol, Standard Chartered and China’s CICC traded the Climate Impact X credits on Wednesday, hoping to challenge other global exchanges run by US-based CME Group and Xpansiv to set a benchmark price for voluntary carbon trading.
Singapore is trying to leverage its status as an Asian business hub to become the region’s leading carbon trading platform. By winning enough liquidity from international carbon traders, it hopes to become the global pricer for carbon credits and lay the groundwork for an eventual futures market.
CIX, a joint venture between Singapore Exchange, state investor Temasek and DBS and Standard Chartered, said its initial price for physical carbon credits would be $5.36 per tonne, roughly four times the price of a similar nature-based contract at CBL, which is the world’s largest and leading carbon exchange. Volume was light on Wednesday, as expected.
Voluntary carbon trading is a system that directs financing to climate-related projects. By purchasing carbon credits — certificates representing the amount of greenhouse gases that are in or removed from the air — companies can offset their own emissions. These credits come from projects around the world that protect and support nature.
The industry is expected to grow as countries transition to a low-carbon economy. A key challenge in carbon offsetting is how to price credits, which is the reasoning behind efforts to introduce spot and futures markets.
But a series of credit scandals linked to projects of questionable quality dampened traders’ enthusiasm and weighed on volumes.
This has resulted in cheap prices on existing exchanges, with CBL credits trading at around $1.15 on exchanges. That value was well below the $5 to $10 price range the company believed to be fair value, holding back the deal.
CIX’s experiment has been to offer a contract with fewer but higher quality items to compete with CBL and CME. It hopes to eventually build steady trading volumes.
“It would be wrong to say (the scandal) has not weakened the market. The market is more volatile than before,” said CIX CEO Mikkel Larsen.
“We could have waited for better times, but we decided not to. Building a carbon center is not something that happens overnight. If Singapore stops and starts every time it encounters opposition, they will never get there.”
According to CIX, the credits covered by the contracts are generated through programs to protect forests that would otherwise be destroyed or degraded. The basket of 11 projects includes tropical rainforests and biodiversity reserves in Asia, Africa and South America.
“By excluding projects that traders don’t like or trust, the CIX is basically trying to create a Brent or similar carbon index to set a better benchmark,” said a Singapore-based carbon trader. Brent is the world’s most important crude oil benchmark.
There is another carbon trading platform in Singapore called AirCarbon, which is a blockchain-based platform, but it has not attracted much attention from traders.