SPEECH BY MR S ISWARAN, SENIOR MINISTER OF STATE FOR TRADE AND INDUSTRY, AT THE OPENING CEREMONY OF CARBON ASIA FORUM (CFA) 2009 ON MONDAY, 26 OCTOBER 2008, 9AM AT RAFFLES CITY CONVENTION CENTRE, SINGAPORE
Mr Henry Derwent
President and CEO
International Emissions Trading Association
(IETA)
Mr Edwin Khew
Chairman of the Sustainable Energy Association of
Singapore (SEAS)
Distinguished guests
Ladies and Gentlemen
I am very pleased that IETA and Koelnmesse have
continued to partner SEAS in Singapore to host this annual
conference for the third time. Carbon Forum Asia is the leading
trade fair and conference on carbon markets in the Asia-Pacific
region.The UNFCCC Clean Development Mechanism (CDM) DNA (Designated
National Authority) Forum is being held in parallel with this
forum, and our Singapore International Energy Week will be held in
November. These initiatives and the support they have received are
a validation of Singapore’s position as a thought leader on energy
issues.I am particularly pleased to see the continuing strong
support for Carbon Forum Asia.
Beyond
Copenhagen
We have a collective interest to act together in an expedited and
sustained manner to combat climate change.Many countries have
already experienced the adverse effects of climate change such as
more frequent and intense weather-related disasters.As a low-lying
country, Singapore is not immune to the risks of climate change and
will do its fair share as part of a global deal.However, even as we
direct our negotiating efforts towards an outcome in Copenhagen,
let us not lose sight of the fact that this is a formidable and
unprecedented global challenge.Copenhagen is but the first step in
a long road as we adjust our mindsets and lifestyles to a new
carbon constrained world.
Challenges
and Opportunities
The past twelve months have been challenging,
especially so for the carbon markets as credit tightened and CDM
projects were put on the backburner.The economic slowdown and the
flight to safety have caused carbon prices to collapse by nearly
75% over a period of 7 to 8 months.(EUA prices fell from €28.73 in
July 2008 down to €7.96 on February 12,
2009)
The international carbon market has recovered
significantly since then.However, the next year or so will be
critical in ensuring that this momentum is sustainable.The pace of
CDMs has slowed somewhat, given the uncertainty as to how this
regime will function post 2012.There is little incentive for
companies to invest now and have the game change in 2 years’
time.Hence, there must be greater clarity on the direction and
prospects at the UNFCCC going into 2010.In particular, the way
forward for carbon markets will depend critically on the scale of
emissions targets for Annex I countries, and the structure and
scale of available international offset mechanisms.I understand
that the market is also seeking improvements to the current
processes.For example, there could be enhancements to further
streamline the assessment and approval process while continuing to
ensure environmental integrity.
While the CDM process may have its shortcomings, let us not lose
sight of the fact that the carbon and CDM markets have been
successful on many counts.They have helped provide a sound economic
basis for carbon reductions.The EU ETS has put carbon awareness
squarely on the agenda of the boards of many major companies.In
future, all Governments and companies will have to internalize and
optimize carbon, just like other conventional factors of production
such as land, labour and capital.Furthermore, carbon markets have
created a very clear economic incentive for private finance to work
actively in developing countries to develop domestic mitigation
measures.Having the mechanisms to monetize these measures will
prevent high carbon infrastructure lock-in and help developing
countries make the transition to lower carbon growth which would
otherwise have not taken place.The pipeline of potential projects
has slowed down but I expect this to pick up as the global economy
improves.
That
said, given the magnitude of the task ahead - the UNFCCC has
estimated the cost in the range of US$200 billion (US$100 billion
each for mitigation and adaptation) annually - we cannot rely
solely on private finance to effect change.While market-based
finance has an important complementary role, the developed
countries listed in Annex 2 of the Kyoto Protocol must meet their
obligations to provide the primary source of funds for mitigation
and adaptation.
I am sanguine about the prospects of the global
and regional carbon markets.It is encouraging that major Annex 1
countries are taking the lead.The successful passage of the US
climate change legislation with binding reduction targets will
significantly shape both the US domestic and international carbon
markets.According to a World Bank economist, if the U.S. bill is
passed, and the European Union increases its emissions reduction
target to 30% by 2020, future demand could well be in the range of
600 million tons of offset credits per year.Within the
Asia-Pacific, Australia and New Zealand have developed detailed
plans to implement domestic cap and trade systems. These are
tectonic shifts and will provide immense opportunities for players
in the carbon marketplace, even if a comprehensive global deal is
not reached at the UNFCCC.
On the supply side, Asia is poised to be the
largest supplier of Certified Emissions Reductions (CERs) to the
global carbon market.70% of CDM projects are located within the
Asia-Pacific.While China and India remain the world’s largest
suppliers of CERs, the rest of Asia, including the ASEAN countries,
also has immense potential to explore CDM
projects.
Taken together, we will see increasing depth and
liquidity in the international carbon market, paving the way for a
possible global carbon price in the future.These
are the initial steps towards the optimization of carbon on a
global basis – allowing for cost-effective reductions for the
activities of Annex 1 countries, while providing much-needed
finance for improvements in developing
countries.
Singapore
as
an Asia-Pacific Carbon Hub
Climate change is a long term global challenge, and I believe there
will be an enduring role for carbon markets to help the world meet
this challenge.Hence, we in Singapore are gearing ourselves up to
participate actively in this dynamic new sector.Given our strategic
location, Singapore can play an important role, particularly for
companies looking to expand their CDM activities into the region.We
have well-established legal, regulatory and financial institutions,
a business-friendly environment and modern infrastructure and
communications.
Despite the cautious economic
outlook, I am glad to say that in the last two years, Singapore has
seen an influx of new entrants in the carbon space, to serve both
Southeast Asia and the larger Asian region.Many of these companies
are involved in project development, consulting, professional
services, financing and trading. For instance, Caspervandertak
Consulting, one of the largest developers in the global CDM market,
has set up a regional office in Singapore to develop carbon
projects in South-East Asia.The Carbon Neutral Company (TCNC), a
carbon management consulting leader from UK, has recently
established a base in Singapore to work with clients in this region
to manage and reduce their carbon footprint.They have since
collaborated with local real estate developer, City Developments
Limited, on a commercial building project.As a result of that
collaboration, the Tampines Concourse building is now among the
first few carbon neutral buildings in
Asia.
In addition, Singapore has been able to leverage on our
strong commodities trading base to support carbon trading.We have
seen some progress since we granted concessionary tax rates
to companies with
carbon trading activities in Singapore under International
Enterprise Singapore’s Global Trader Programme.For example,
Sweden-based Tricorona, the second largest buyer of emission
allowances, set up its global trading hub in Singapore this year.It
will be using Singapore as a major hub to manage sales and marketing activities on
carbon credits, as well as its risk management
functions.
Similarly,
the scope of MAS’ incentive schemes for commodity derivatives
trading and fund management were expanded earlier this year.Where
previously these were limited to tangible commodities, such as oil,
metals and agri-commodities, these incentive schemes have since
been enhanced to include emissions derivatives.Also,
the
Financial Technologies Group's plans to establish the Singapore
Mercantile Exchange (SMX) are on track for launch at year-end. SMX
will offer an electronic trading platform for futures and options
trading on a diversified range of commodities including energy,
metals, agricultural commodities, currencies, commodity indices and
carbon credits.
We will continue to develop the entire carbon industry
ecosystem in Singapore, including carbon management services,
emission-reduction project development and financing, verification
services and other professional services with an interest in the
clean technology space.Given that carbon is a highly complex
subject, we will also continue to build professional
capabilities.In 2007, the
Singapore Management University (SMU), in collaboration with IE
Singapore and players from the trading industry, launched the
International Trading Institute (ITI) to further enhance sectoral
knowledge, capabilities and talent pool in the arena of
international trading.These are all a part of our effort to grow the Cleantech cluster as a new
growth industry for Singapore.
We have also set aside close
to S$700 million to build R&D and manpower capabilities in
various cleantech areas, including clean energy and environmental
and water technologies.Hence, we strongly encourage companies to
use Singapore as a test-bed for emerging technologies like smart
grids and green building technologies under our Urban Solutions
programme.
Conclusion
To conclude, the prospects for emissions trading
remain promising.Singapore is well-placed to exploit the
opportunities emerging from the Asia-Pacific region.All eyes will
be on the UNFCCC negotiations, countries’ domestic climate-related
legislations, and the response of industry incumbents to these
changes.As Asia’s premier carbon market event, Carbon Forum Asia
has an important role to play in this process, by bringing together
key representatives from the global carbon services sector,
industry players and government officials.
I understand that a fully-packed and exciting
two-day program lies ahead, and I wish you all a successful and
productive conference.
Thank you.