Asia Will Grow in Importance as a Crucial Carbon Trading Hub
Eastspring Investments, the US$222 billion asset management subsidiary of Prudential plc, has published its annual outlook for 2023.
Titled “Navigating the global reset”, one of the key takeaways highlighted in the outlook is the growing significance of carbon offsetting in the region and Eastspring says Asia can play a significant role as a carbon trading hub.
The demand for carbon credits has increased as more companies make carbon neutral or net zero commitments. According to a McKinsey study, global carbon offset demand is set to grow 15x by 2030 and 100x by 2050.
Global initiatives to drive more transparency, standardisation, and detailed verification of carbon credit projects will further help develop more robust carbon markets.
At COP27, the Global Carbon Trust agreed to create standardised contracts for carbon credits, embed third-party monitoring and verification of project performance, as well as provide arbitration mechanisms for projects that fail to meet targets.
Asia a Key Supplier
There have been efforts to grow Asia’s carbon offset ecosystem with the establishment of Climate Impact X, a Singapore-based global carbon exchange and marketplace, in 2021.
Hong Kong also launched a carbon trading platform in October 2022, while Malaysia has expressed similar ambitions. The regulatory environment is also becoming more favourable for growing the carbon offset market with Singapore allowing 5% of carbon tax to be met by carbon offsets.
Meanwhile, Asia’s high quality natural ecosystems mean that more than 50% of nature-based carbon offset supply (using plants, trees, soil or the ocean to remove carbon from the atmosphere) resides in Asia, potentially making Asia a key supplier of nature-based carbon offsets.
The average price of carbon offsets rose by more than 50% from 2020 to 2021 with high-quality nature-based credits commanding more than a 200% premium at USD8/tCO2e.
Therefore, Asian companies that are able to supply high-quality offsets can benefit from offset price increases although specialised resources and knowledge will be needed to develop nature-based solutions (including conservation, afforestation, reforestation, forest management, and grasslands).
Only high-quality carbon offsets can help with offsetting residual emissions that cannot be reduced and enable companies to better meet their net-zero commitments. This may help to improve ESG ratings in the long term, although it is still early days, Eastspring says.
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