The recent COP26 UN Climate Change Conference emphatically restated the need for global action to achieve net-zero emissions by 2050. Robust action in the decade ahead is particularly vital if we are to avoid the worst impact of climate change and maintain global temperatures within 1.5°C above pre-industrial levels.
Breaching this goal and maintaining the current trajectory would result in warming of 2.5°C above pre-industrial levels, severely affecting Southeast Asia. Sea-level rises are just one extreme example of the myriad impact, with low-lying coastal regions home to 48 million Southeast Asian citizens at risk of being flooded by daily high tides by 2050.
Despite essential climate ambitions, there is no silver bullet through which businesses can instantly eliminate their carbon footprint. It is estimated that 35 gigatons of CO2 equivalent (GtCO2e) need to be abated globally by 2030 to keep within the 1.5ºC pathway, with 70%-80% of that target possible with existing or emerging mitigation technologies, leaving a gap of about 7.5 GtCO2e.
While our hunt for further technological innovation continues, nature-based solutions (NBS) offer an immediately available solution to address the remaining emissions. Nature conservation, restoration and sustainable ecosystems enable carbon sequestration through natural means to compensate for man-made global emissions.
Every tonne of certified carbon equivalent removed in line with strict guidelines around additionality, leakage and permanence becomes a “carbon credit”, with credits sold or traded through a verified and voluntary carbon market.
Business potential of the carbon market
Southeast Asia holds roughly 30% of the world’s global NBS potential, with particular focus in Indonesia, Cambodia, Malaysia and Philippines. This natural wealth offers significant potential for Southeast Asia to contribute to the vital fight against climate change and offers a pathway to participation in the global voluntary carbon markets which BCG estimates will achieve a market value of US$22 billion-US$28 billion by 2030. To realise the full extent of this potential, Southeast Asia will need to foster an ecosystem of organisations to collectively develop and market NBS.
The first step will be to encourage more organisations to adopt NBS projects as owners and operators, especially those with experience handling and maintaining large areas of land in remote locations.
Second, greater investment in the sector will need to be nurtured, particularly in the early stages of NBS project development when NBS projects are yet to generate revenue. NBS projects typically take between six and eight years to break even, necessitating strong upfront capital support from investors who are able to take a longer-term view.
Third, a network of providers of related carbon support services needs to emerge to support the development and operation of NBS projects. These specialist services range from nature conservation, carbon accounting, certification and validation of carbon credits through to specialised legal services.
Finally, in order to build more trust in voluntary carbon markets, there needs to be more transparency and liquidity through the establishment of trusted carbon exchanges supported by robust price reporting.
Singapore’s potential to empower carbon economics in Southeast Asia
Singapore has limited ability to directly undertake NBS projects with its scarcity of available land, but it is uniquely positioned to support projects across Southeast Asia as a hub for carbon investment, services and trading. The Singapore government has already recognised this potential through the Green Economy pillar of the Singapore Green Plan 2030, which seeks to promote Singapore’s emergence as a carbon services hub.
Singapore’s extensive experience as a financial services and commodity services hub makes it well-positioned to evolve into a leading hub for carbon finance, services and trading, both regionally and globally. It benefits from an ecosystem of existing services in advisory, legal and financial industries, which can pivot to services in areas such as accounting, certification and validation of carbon credits.
Singapore’s emergence as a services hub for the natural resources industry offers a blueprint for how a nation can contribute to the development of positive NBS ecosystems despite a lack of domestic land to directly develop projects.
A strong trading history and stable regulatory environment offers an ideal launchpad to establish a trusted carbon trading hub in the country. This is evidenced by the recent launch of Climate Impact X — a global marketplace and exchange platform for high-quality carbon credits based in Singapore.
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This is further backed by emerging centres of thought leadership in the NBS arena, with institutions such as the National University Singapore’s Centre for Nature-Based Climate Solutions.
Finally, Singapore is strategically located at the heart of Southeast Asia, with easy access to key countries for NBS such as Indonesia, Cambodia, Malaysia and Philippines.
Embedding a climate of change
Tackling climate change is the most important domestic and global issue of our time, projected to far outweigh the potential threats of the Covid-19 pandemic. Addressing this challenge will require clear regional and global coordination, innovative solutions and strong investment commitment — all areas where Singapore has an established global reputation for delivering.
NBS and effective carbon markets will not solve this crisis alone, but they are a fundamental building block to achieving our climate ambitions. In order to realise the potential of NBS, Southeast Asia will need to establish clear access to investment for qualifying projects; strong support services; and open, transparent and liquid carbon markets.
Singapore can be a powerful enabler of this opportunity, contributing to the rapid scale-up of the Southeast Asian carbon ecosystem as a respected hub for investment, services and trading.
The time to act is now. NBS offers a pathway for Singapore and the wider Southeast Asian region to take control of its own climate destiny. If we deliver on this promise, we embrace the potential to boost economic opportunities through emerging carbon markets and provide a valuable contribution to our global battle against climate change.
Boston Consulting Group is the Consultancy Partner for the 2021 UN Climate Conference
Daniel Oehling is partner at Boston Consulting Group. Marc Schmidt is managing director and partner at Boston Consulting Group
Photo: The Edge Singapore