Effective tool

The report, which was co-authored by Dr Marwa Elnahass at Newcastle University Business School and led by Dr Raúl Rosales at the Centre for Climate Finance & Investment at Imperial College Business School, examines the rationale for trading carbon credits and the role of institutional investors in developing voluntary carbon markets (VCMs) in the Southeast Asia region.

The report ‘Voluntary Carbon Markets in ASEAN: Challenges and Opportunities for Scaling Up’ addresses how VCMs are an effective tool in lowering net greenhouse gas emissions in the region, sets out policy considerations and reviews the current accounting practice applied to carbon finance.

It also identifies opportunities and innovation gaps in the context of VCMs that present investment opportunities to help countries shift towards a low-carbon economy whilst maintaining economic sustainability for a clean energy transition.

Voluntary carbon markets refer to the trading of voluntary carbon credits, usually by private institutions, which offset emissions elsewhere, and can be used to help companies meet their corporate climate targets in support of the low-carbon transition.

Dr Elnahass led Part Three of the report, which addresses new insights and discussions related to carbon accounting and the new frontier in VCMs. “Well-designed voluntary carbon markets can reduce costs for emerging technology, achieving more significant decarbonisation,” Dr Elnahass explained. “Our research highlighted that there is a clear role for policymakers and industry to agree a set of common standards and consistent, accurate criteria for VCMs in Southeast Asia. Without this, accounting for voluntary credit trading markets will become vague and complex.

“Under the UK's Presidency of COP26, future policy recommendations can assist in engaging global policy makers and ASEAN member states to deliver strong regulatory actions for enhancing carbon accounting and promoting harmonized practices for financial reporting.”

Low carbon economy

The report is part of an overarching project developed in collaboration with the COP26 Universities Network and commissioned by the British High Commission in Singapore with the objective of identifying innovation gaps and challenges related to achieving a shift towards a low carbon and sustainable economy in Southeast Asia.

In this first ever collaboration of its kind, the network has brought together researchers and academics from the UK and Singapore to publish a series of four reports aimed at supporting policy development and the UK’s international COP26 objectives in Singapore and across Southeast Asia.

Southeast Asia is one of most vulnerable regions exposed to the adverse impacts of climate change, and there has been significant momentum for VCMs among private sector actors in the region.

This first report is a collaboration between researchers, practitioners, government, and industry, with a contribution from the Singapore Green Finance Centre. Its findings are particularly relevant to Singapore, as it plans its future as a regional carbon service and trading hub. The report analyses the case to scale up the carbon finance market in Southeast Asian countries, focusing on VCMs.

According to the report, the key to scaling up VCMs in Southeast Asia and reducing greenhouse-gas emissions is to secure high-quality carbon offsets based on transparency, liquidity and pricing, which are the drivers for capital markets, and institutional investors.

The authors argue that building up the market efficiency of carbon finance should be a gradual process and should happen after these markets have secured credibility. Accountants, auditors, and other stakeholders should expect standardised carbon accounting measures and financial disclosure alongside the latest cutting-edge technology.

Commenting on the report's findings, Dr Rosales said: “With its richness in biodiversity, forests, and renewable energy sources, the Southeast Asian region has great potential to become a more carbon-friendly economy. However, success depends on investors, governments and businesses establishing robust financial procedures to help bring down greenhouse gas emissions further.  Our report shows that carbon offsets should be tackled by implementing high-quality and trusted carbon credits which serve as effective financial tools to mitigate climate-related risks.”

Newcastle University is committed to working across national borders and academic disciplines to help address the challenges facing the world today. Read more about how we are focussing our research to find ways to create a sustainable future for our planet: https://www.ncl.ac.uk/who-we-are/cop26/sustainable-future/

Press release adapted with thanks to Imperial College.