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How Will Carbon Markets Affect Singapore’s Sustainability Efforts?


The carbon markets play a crucial role in the decarbonization of the global economy by facilitating the conversion of emission reductions and/or removals into tradeable assets, known as carbon credits. This market incentivizes polluters to reduce and/or avoid their emissions, or to purchase carbon credits for retirement, where these credits allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. Once credits are used for emission compensation, it is retired and no longer tradeable. There are two main types of carbon credits – Compliance and Voluntary, differing in terms of regulation, impact, and market size.

Types of Carbon Markets

Compliance Carbon Market (CCM)

Commonly known as Emissions Trading Systems (ETS), CCM is regulated by government policies. ETS facilitates the trading of carbon credits by allowing better-performing polluters to sell their “extra” credits to those who fail to meet the emission regulations they are subjected to. This increases market liquidity and bridges the gaps between supply and demand. According to The World Bank, there are currently 28 national jurisdictions covered by CCM. Well known examples include the European Union’s Emissions Trading System (EU-ETS), California’s Cap & Trade System and China’s National ETS (Figure 1). While there are reports on the effectiveness of carbon tax on reducing CO2 emissions and alleviating its environmental impacts (Gupta, Bandyopadhyay, and Singh (2019); Mardones and Cabello (2019); Wolde-Rufael and Mulat-weldemeskel (2022)), other compelling evidence prove the outperformance of ETS as compared to other regulatory measures including carbon tax (Bakam, Balana, and Matthews (2012); Brink, Vollebergh, and van der Werf (2016)

Voluntary Carbon Market (VCM)

The VCM allows companies, non-profit organizations, governments, and individuals to voluntarily buy and sell carbon credits (Carbon Credits, n.d.). This market has grown rapidly in the last few years as evident by 86% growth in demand in 2021 compared to 2019 levels fuelled by increasing corporate net-zero commitments (Carbon Credits, 2024). Streck (2021) shows that VCM has grown as the response to the twin forces of government inaction on climate change combined with public pressure on corporations to do more to manage their emissions. The VCM market was valued at USD 2.4 billion in 2023 and is set to grow at a CAGR of 27% through 2032 (Global Market Insights, 2023). The recent COP28 also discussed the urgency for scaling VCMs, highlighting their crucial role in cross-border financing. Priority areas for financing include nature-based solutions, coal phaseout, and climate technologies. In this respect, Streck (2021) highlights the role of VCMs in promoting new technology to remove carbon. CME Group’s Nature-based Global Emissions Offset (N-GEO) futures and other nature-based futures require underlying projects to include additional labels that address the provision of co-benefits, such as Verra’s Climate, Community, and Biodiversity (CCB) label. The characteristics of the underlying carbon futures assets reflect the strong interest of market participants in ensuring high-quality, high-integrity projects.

Key stakeholders include those on the supply side, such as crediting standards like the Gold Standard and Verra, which are not governed by international or multilateral regulatory bodies.

As well as those on the demand side, including voluntary climate action by corporations, financial institutions, and individuals. Regulatory frameworks governing the carbon markets include Article 6 of the Paris Agreement, which was approved at COP26.


One of the main challenges in the VCM is the lack of standardization and transparency. Without clear standards for carbon credits, corporations may find it difficult to know whether they are truly reducing their emissions. For example, Verra (UNFCCC, 2023) was accused of overestimating their carbon impact through double selling credits to more than one party. Another instance found that over 90% of carbon credits lack measurable impacts, with some carbon projects found to cause harm to local communities and their environment. Chen et al. (2021) conducted an empirical study of market participants in the VCM by interviewing more than 30 stakeholders. They observe that transparency and quality are key issues for participants, yet the high cost of top-down protocols and compliance needed to improve quality also runs the risk of limiting the growth of the marketplace.

Another challenge faced by VCM is that carbon offsets that rely on land use in developing countries run the danger of transferring the burden of reducing emissions from wealthier countries to those already feeling climate impacts. For example, large-scale tree plantation can exacerbate soil degradation or pose biosecurity risks like cross-contaminations, which endanger the envisioned environmental benefits (Raji, 2023). Caney and Hepburn (2011) discuss that emissions trading allows the wealthy to evade their responsibilities. Similarly, Sandel (1998) argued that each state should shoulder ‘its’ burden and that high emitting countries should not pay others to discharge ‘their’ duty.

Efforts have been made by regulatory bodies and verification agencies such as the Integrity Council for the Voluntary Carbon Markets (ICVCM), to improve the integrity of VCM. Supply side stakeholders wish to define the quality of a good carbon credit and demand side stakeholders wish to know which claims can be made on carbon credits. Schneider and La Hoz Theuer (2019) identify and categorize environmental integrity risks of international carbon market mechanisms and ways to overcome them under the Paris Agreement. They show that the risks associated with environmental integrity are notable. The diverse scope, metrics, types, and timeframes of “Nationally Determined Contributions” (NDC) targets declared by each country pose challenges for robust accounting. The experience with existing carbon market mechanisms suggests that ensuring unit quality can be challenging. The diverse ambition and the limited scope of some NDCs reduces the incentives that countries have for ensuring unit quality. The literature also suggests that there is a material risk of countries choosing targets less ambitiously or more narrowly to sell more carbon market units. See Graichen et al. (2016), Theuer et al. (2017) and Höhne et al. (2018).

Pricing mechanisms regarding VCMs is still largely unclear, which includes pricing structures and floor prices. For instance, Conte and Kotchen (2010) documents a large variability in the price of voluntary carbon offsets. They find that the price of offsets located in Europe are approximately 30% higher than prices with providers located in either North America or Australasia. Moreover, they find that offset prices are generally 20% higher when projects are located in developing or least-developed nations, apart from forestry-based projects. Indeed, Conte and Kotchen (2010) provide evidence that forestry-based offsets sell at lower prices, and the result is particularly strong when projects are located in developing or least-developed nations. SGFC’s paper on VCM suggests that disclosing pricing information would establish reliable benchmarks and analytical insights, boosting market effectiveness.

In June 2023, GFANZ and the UAE COP28 Presidency co-hosted a high-level roundtable on VCMs where key outcomes include the recognition of challenges in building and scaling projects in emerging markets. GFANZ also seeks to build supply and demand-side standards to secure credibility, integrity, and transparency (GFANZ, 2023).

Outlook of VCM in Singapore

Launch of Voluntary Carbon Exchange

In the heart of Singapore, Climate Impact X (CIX) launched its voluntary carbon exchange in June 2023, in partnership with DBS, Standard Chartered, Singapore Exchange (SGX) and Temasek.

CIX offers a marketplace and exchange of carbon credits for companies looking to voluntarily offset their emissions. CIX represents a global exchange and marketplace for transparent, high-quality, and high-integrity carbon offset credits, which incorporates advanced technological back-up, including satellite monitoring and machine learning (Climate Impact X, 2022).

Projects include nature-based solutions by the LEAF coalition for tropical forests and mangroves, alongside blue carbon projects by Respira International. The firm also provides credits from technology-based carbon-removal methods, like sustainable cement and biochar, in partnership with Currently, CIX offers nearly 50 projects to its customers. David, Yoshino and Varun (2022) consider Singapore’s CIX as a case study in which marketplaces and exchanges allow producers and consumers to interact on sustainability metrics and impacts, facilitating sales of carbon credits, biodiversity offsets, and ethically sourced and labelled products.

CIX currently has 2 key digital platforms.

1. The Carbon Exchange – catering primarily to large-scale buyers, including multinational corporations and institutional investors and will provide the market with price transparency.

2. The Project Marketplace – catering to custom purchases directly from specific projects, with each project supported by risk and pricing data, well suited for small and midsized enterprises (SMEs).

Other solutions that CIX offers include auctions where buyers can access unique projects and newly issued credits globally and allow suppliers to price their projects competitively.

The Way Forward

As part of the Singapore Green Plan 2030, Singapore aims to establish itself as a carbon services hub and a leading centre for green finance and services in Asia. This objective creates opportunities for international partnerships, funding, and increased interest in the VCM market.

Aside from Singapore’s mandatory carbon tax, the introduction of CIX in Singapore represents a ground-breaking milestone, as Singapore is the first country in the ASEAN region to establish such infrastructure, providing Singapore with a significant first-mover advantage. Following the launch of CIX, the Tokyo Stock Exchange (TSE) launched Japan’s first exchange-based carbon credit market in October 2023 and Indonesia also launched its first carbon exchange market in October 2023.

Given the potentially high carbon tax prices in Singapore, carbon tax-liable companies may look towards the voluntary carbon markets space to reduce their tax obligations, further driving the demand for carbon credits. According to HFW, the changes to the carbon tax rates in the Singapore Carbon Pricing Act 2018, may create an arbitrage opportunity for Registered Persons. Registered Persons may procure and surrender eligible 'international carbon credits' at a price lower than the carbon tax rate for a given emissions year. If the price of these credits in the current spot market surpasses the carbon tax rate by a significant margin, they can sell the credits and utilize the earnings to cover the carbon tax instead (HFW, 2023).

Despite the challenges of transparency and lack of standardization for VCMs, Singapore is well positioned to tackle this, given its strong governance reputation and integrity. Singapore has published an Eligibility List under the International Carbon Credits (ICC) Framework (Figure 2). Effective 1 January 2024, this list specifies the international carbon credits eligible for companies to offset up to 5% of their carbon tax liability, which will be reviewed annually to maintain relevance and uphold high environmental integrity standards, compliant with Article 6 of the Paris Agreement (Figure 3). This 5% limit has been set to align with comparable jurisdictions with similar climate ambitions such as South Korea and California, to ensure that the industry continues to prioritise domestic emissions reduction while providing hard-to-abate sectors an additional decarbonisation pathway in the near to medium term (NCCS, n.d.).

This initiative not only contributes to the challenges of the existing VCM market but also motivates businesses to adopt sustainable practices in Singapore.

Key Takeaways

VCMs face multiple challenges such as transparency, standardization, clear pricing mechanisms, definition of high-quality carbon credits, where the Eligibility List by Singapore’s NEA and MSE governing bodies helps to address these key issues in line with Article 6 of the Paris Agreement. Carbon markets are an essential mechanism for accelerating global decarbonization, but stakeholders should collaborate to make them robust, transparent, and trustworthy.

Singapore’s carbon tax is soon to be priced competitively compared to international carbon taxes (Figure 4) at S$25/tCO2e in 2024 and 2025, and S$45/tCO2e in 2026 and 2027, with a view of reaching S$50-80/tCO2e by 2030 (Figure 5). This price is most likely significant for local companies to act and reduce their carbon emissions. If emissions are unavoidable, companies may seek the VCM market. Prices of the CIX carbon credits matched S&P Global’s Platts Carbon Credit Assessment in Dec 2023 of nature-based and technology-based carbon credits at approximately $3.50/mtCO2e and $6.10/mtCO2e respectively (Figure 6).

Singapore has the potential to establish itself as a carbon services hub with the Eligibility List in place for the VCM, further driving demand for carbon credits if prices continue to be set competitively with global market players. The success of VCM in Singapore also ties in closely with the progressive carbon tax approach.

In addition, emerging economies can learn from Singapore’s experience in establishing a carbon market. While carbon market infrastructures have rapidly evolved over the past years in emerging economies, they tend to be highly fragmented with several structural and operational challenges hampering progress, including a lack of trust in the environmental integrity, credibility, and additionality of carbon credits. Indeed, greater market integration would be an advantage for fragmented and isolated Asian emerging countries, which generally lack common standards, contract terminology, regulatory frameworks, and trade infrastructure. One of the key elements missing from VCMs in emerging economies is a platform that can aggregate and harmonize carbon credit market data collected from various project registries, which typically use their own private crediting standards.


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Figure 1: Current State of Compliance Markets (International Carbon Action Partnership, n.d.) 



Figure 2: Eligibility Criteria of ICCs (NEA, 2023) 

Project Category 

Project Type 

Technology-based solutions 

  • Methane capture and destruction from landfill 

  • Provision of biogas digesters that convert organic waste into clean energy for heating and cooking 

Nature-based solutions 

  • Jurisdictional and Nested Reducing Emissions from Deforestation and Forest Degradation (REDD/REDD+) 

  • Mangrove restoration 

Figure 3: Illustration of Carbon Credit Project Types Based on Eligible Methodologies (NEA, 2023) 


Figure 4: Comparison of International Carbon Tax Prices 2023 (The World Bank, n.d.) 



Figure 5: Singapore’s Carbon Tax (NCCS, 2023) 



Figure 6: Platts Carbon Credit Price Assessment 2023 (S&P Global, 2023) 


Nationally Determined Contributions (NDCs): NDCs embody efforts by each country to reduce national emissions and adapt to the impacts of climate change. The Paris Agreement requests each country to outline and communicate their post-2020 climate actions, known as their NDCs.

Nature-based solutions: actions to protect, conserve, restore, and sustainably use and manage ecosystems in a way that addresses social, economic, and environmental challenges while simultaneously benefiting human well-being and biodiversity.

Technology-based solutions: a wide variety of approaches, from satellite technology, supporting environmental monitoring and planning, renewable energy technology that helps to reduce environmental and carbon footprint, to industrial carbon capture.


This article was prepared by Singapore Management University’s Sustainable Investment Club and Singapore Green Finance Centre. The principal authors are:

The authors are very grateful for the insightful review and the expert input provided by Puar Si Liang (Genzero) in his personal capacity.


The article on SGFC’s platform can be found here.

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