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RR RUEHAST RUEHCHI RUEHDH RUEHDT RUEHHM RUEHLN RUEHMA RUEHNH RUEHPB
RUEHPOD RUEHSL RUEHTM RUEHTRO
DE RUEHGP #1142/01 3351015
ZNR UUUUU ZZH
R 011015Z DEC 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 7476
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 001142 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EINV ECON KGHG SN
 
SUBJECT:  SINGAPORE POSITIONS TO BE CARBON TRADING CENTER 
 
¶1. (U) SUMMARY:  Singapore hosted an October conference on emissions 
trading and carbon finance, highlighting the role Asia, and 
potentially Singapore, can play as a center for carbon trading. 
Speakers at the Carbon Forum Asia conference voiced concerns about 
the lack of carbon credit supply and acknowledged the tremendous 
influence that passage of U.S. cap-and-trade legislation will likely 
have on the size and direction of the carbon market, noting that 
much also depends on the outcome of the climate talks in Copenhagen. 
 Singapore aims to capitalize on its position as a financial 
services and commodities trading hub to become a carbon trading 
center.  Progress to date has been slow, but the Singapore 
Mercantile Exchange (SMX) may launch carbon product trading in the 
second half of 2010.  Even as the market continues to expand, doubts 
remain among energy experts that carbon trading will actually lead 
to emissions reduction.  End Summary. 
 
Carbon Forum Asia 
----------------- 
 
¶2.  (U) Singapore hosted the fourth annual Carbon Forum Asia October 
26-27.  The International Emissions Trading Association (IETA) 
helped organize the Forum with support from the Sustainable Energy 
Association of Singapore (SEAS), the Economic Development Board, and 
the National Environment Agency, among others.  The conference 
brought in speakers from the private and public sector to discuss a 
range of topics, such as: changes in the global carbon market; 
opportunities for growth in Asia; the implications of the upcoming 
climate change talks in Copenhagen; and the political situation 
surrounding carbon trading in the United States.  Exhibitors at the 
concurrent trade fair ranged from multinational corporations like 
Bunge and Sumitomo Corporation to investment banks and 
representatives from the United Nations Framework Convention on 
Climate Change (UNFCCC) secretariat.  The 8th UNFCCC Clean 
Development Mechanism (CDM) Designated National Authorities (DNA) 
Forum followed Carbon Forum Asia on October 28. 
 
¶3.  (U) During a panel regarding the global carbon market and the 
impact on the Asia-Pacific region, speakers highlighted the current 
challenges created by political uncertainty leading into climate 
talks in Copenhagen and concerns about carbon credit standards that 
result in low carbon credit supply.  Panelists predicted that the 
future source of most carbon projects will likely be developing 
countries in Asia, while demand for credits will come from the 
United States, EU, Canada, Japan and Australia.  One speaker 
cautioned against boosting supply by moving too rapidly to using 
voluntary carbon credit standards, because credit buyers will demand 
a level of quality, transparency and verifiability that voluntary 
credit standards may not ensure.  However, more stringent standards 
reduce the supply of offsets available for countries to meet their 
emissions goals, he added.  Independent groups like The Carbon 
Rating Agency pitched their services and advocated for a global 
trading system that uses regulated and voluntary standards that can 
be independently verified and enforced. 
 
¶4. (U) Discussion on the quality and supply of carbon credits 
continued in a panel focused on the U.S. political environment. 
World Resources Institute provided an overview of the U.S. House of 
Representatives bill (H.R. 2454) and Senate cap-and-trade bill, 
noting that each sets different limits on the proportion of 
international offsets that can be used in the United States.  One 
panelist estimated that the 50 U.S. states would need to purchase 
$15 billion in international offsets to help close the gap between 
their shares of emissions caps under H.R. 2454 by 2012.  Passage of 
U.S. legislation could lead to a huge increase in the overall carbon 
trading market and price increases for credits from offset projects 
in Asia, said Philippe Rosier, the President of carbon-trading firm 
Orbeo.  There is only an up side for the price of offsets going 
forward, he continued. 
 
¶5.  (U) Margret Kim of the California Air Resources Board provided 
an overview of California's CDM projects in Asia, and echoed 
concerns about the lack of carbon credit supplies.  Kim emphasized 
that the focus for developing a global carbon market should be on 
transparency, and she suggested that U.S. federal legislation should 
not be designed to assume that international credits are not as 
credible or valuable as domestic credits.  Initially, it may be 
necessary to consider limited project-based voluntary credits in 
order to meet emissions goals.  CDM projects in least developed 
countries could help fill a short-term gap in offset supplies and 
have the added benefit of local capacity building, Kim continued. 
Eventually, such project-based voluntary credits could be phased out 
for sectoral carbon crediting (e.g., credits for the cement sector). 
 
 
Building Singapore's Carbon Market 
--------------------------------- 
 
¶6.  (SBU) Singapore aims to establish itself as a carbon-trading 
 
SINGAPORE 00001142  002 OF 002 
 
 
center, but Singapore's carbon market is unlikely to take off before 
2011, Kavita Gandhi Executive Director at SEAS told Econoff. 
Singapore does not yet have a carbon exchange or a carbon trading 
regulator.  However, Singapore is home to major banks like HSBC and 
Standard Chartered, which finance renewable energy projects, and CDM 
project managers like EcoSecurities.  Singapore is already a major 
financial services and commodities trading hub and is geographically 
near to a range of CDM projects in Asia, Ghandi added.  Hong Kong 
would be another likely contender but it is no closer to having a 
working exchange, she asserted.  Reports indicate that to date only 
one Singapore environment solutions provider has been granted 
international approval to engage in carbon trading, but six other 
local firms have since applied.  Carbon trading by local firms is 
currently done through Europe, Ghandi said. 
 
SMX May Trade Carbon Products in 2010 
------------------------------------- 
 
¶7.  (U) Press reports in late October stated that the Singapore 
Mercantile Exchange (SMX) may launch carbon product trading in the 
second half of 2010.  The SMX was established in Singapore in July 
2008 as an international commodity derivatives exchange for trading 
in various commodities, including options and futures contracts on 
agricultural commodities, base and precious metals, currencies and 
commodity indices.  Reports stated that SMX would trade seven carbon 
products initially, but details about the products were not 
released.  The SMX would compete with the European Climate Exchange 
(ECX), which dominates the European and international carbon market 
and trades EU Allowances (EUAs) and Certified Emissions Reductions 
(CERs). 
 
Mixed Outlook for Carbon Trading Results 
---------------------------------------- 
 
¶8.  (SBU) Local views differ on how effectively the carbon market 
will actually reduce carbon emissions.  Carbon credits can help 
encourage investment in renewable energy projects that can be three 
times as expensive as traditional fossil fuel projects, William I. 
¶Y. Bunn, Managing Director at Asia Renewables Pte Ltd, said during a 
recent seminar on renewable energy projects in Southeast Asia.  Bunn 
said that he supports carbon markets but acknowledged that the 
market is not perfect.  There is no real "punishment" in place if 
companies or countries miss their emissions targets, and they can 
just "loosen their belts" by relaxing targets they do not reach. 
SEAS's Ghandi acknowledged that at this stage, the secondary carbon 
market is actually growing faster than the primary market.  Dr. 
Elspeth Thomson, a senior fellow at the Energy Studies Institute in 
Singapore, expressed her concerns about the potential for financial 
market problems caused by "sub-prime" carbon credits.  Thomson said 
she was skeptical about how emissions reductions would be accounted 
for, especially as trading in the primary and secondary markets 
expand, and she suggested that there was some irony in the 
enthusiasm about carbon trading following the financial crisis 
caused by sub-prime mortgages.  In her view, there is the potential 
for trading of poorly regulated carbon securities to go "very wrong" 
as it did with sub-prime mortgage-backed securities. 
 
SHIELDS