The future of voluntary carbon markets in Asia

Digital panel discussion with Benedict Chia, Director General, Climate Change, National Climate Change Secretariat, Singapore; Hum Wei Mei, Head of Asia Pacific and Head of Products, AirCarbon Exchange; Sandeep Roy Choudhury, Director, VNV Advisory Services; and hosted by Lorna Ritchie, GC’s Climate and Sustainability Practice Director, discussing the future of voluntary carbon markets in Asia.

The key discussion points from the event include:

• Additionality is not a binary characteristic, and it is insufficient to generalise about how additional a project is based on project type alone. “When it comes to additionality, people in the market tend to think of it as, ‘Do you have additionality, or don’t you?’,” said Hum Wei Mei. “But if you actually look at the additionality measures, it’s almost like a spectrum. There are at least five different kinds of additionality principles that you could appeal to. So the way I would approach additionality is similar to the way I would approach risk – there’s a degree of uncertainty, there’s a degree of risk.”
• Certain types of projects could also have very different additionality profiles, depending on which countries those projects are sited in. One reason for this is that policy additionality is never as black and white as it seems, noted Sandeep Roy Choudhury: “I operate in countries where policies are announced with the drop of a hat and it leads to absolutely nothing in the future... So to say that because you have announced a certain kind of policy, that it is not additional anymore to do that technology in that country in my opinion is wrong.” He also questioned the logic of those who argue that renewable energy projects are not additional, especially in countries where renewable energy projects are struggling to take off.
• The broad frameworks under Article 6 of the Paris Agreement allow VCMs to experiment with different approaches towards additionality, which will in turn inform the development of the various Article 6 mechanisms. Benedict Chia noted that convergence to a higher standard is already happening in the VCM: “If you look at how voluntary standards have evolved - look at Gold Standard, look at Verra - they have over the years been tightening some of the requirements on project types... renewable energy projects are becoming increasingly more difficult to justify and structure as crediting projects.” Chia added: “Over time, as all countries need to work towards net zero, as you exhaust some of the lower-hanging fruits, the bar that you need to set for additionality will increase. I think that’s something that everybody is prepared to accept.”
• Efficient markets are needed to support a carbon price that is linked to the actual cost of those emissions. Hum Wei Mei observed: “Carbon prices in compliance schemes in the world tend to cover just a portion of the country’s emissions or industries. I think what’s really needed is for the carbon price to cover more of the economy. Then you get a proper price signal that is across the economy and not just for carbon-intensive sectors.” Sandeep Roy Choudhury also encouraged corporates to “move closer” to the carbon projects that they are investing in, if they can: “You really need to support (each) project on the basis of a price that really makes sense for that project. In the VCM, it will boil down to understanding the project that you’re buying from.”
• To avoid a scenario where bad credits chase out good credits, the criticisms that have recently been raised about offset quality must be robustly addressed. “To me it’s an issue of legitimacy, it’s an issue of credibility,” said Benedict Chia: “If carbon credits are not seen as a legitimate way for countries to collaborate to meet their emissions goals and targets, and there is no broad support for that, then you will get what happened in the past, where EU ETS of certain jurisdictions restrict the use of carbon credits. Once you start doing that, there will be a huge fall in demand and you go back to a situation whereby prices are less than a dollar and you go on a downward spiral.”