Speech by Singapore's Ambassador for Climate Action at Unlocking Capital for Sustainability 2024

12 SEP 2024

Speech by Singapore's Ambassador for Climate Action & Senior Adviser (National Climate Change Secretariat) Ravi Menon at Unlocking Capital for Sustainability 2024

Three Priorities and Three Enablers for Asia's Climate Transition

Ladies and gentlemen, good morning.

Climate change is already happening and will only get worse in the coming decades.

Global temperatures are already 1.1 degrees Celsius higher than pre-industrial levels and continuing to rise¹. 2023 was the hottest year on record. 2024 will likely break that record.
We are already seeing the effects of global warming. Storms, floods, heatwaves, and droughts are becoming more frequent and more intense.

Meanwhile, global greenhouse gas emissions are still on the rise.

Emissions today are about 40% higher than they were 20 years ago, climbing from 41 gigatonnes in 2000 to 57 gigatonnes in 2022².
Given the stock of emissions already in the atmosphere and emissions continuing to rise, we must prepare for a climate-impaired world.

The effects on lives and livelihoods will be devastating.

South and Southeast Asia will be most vulnerable to climate change.
- By 2080, about 1 billion people in South and Southeast Asia³could be affected by extreme heat.
- Coastal cities in South and Southeast Asia are particularly vulnerable to rising sea levels and coastal flooding⁴.
Globally, it is estimated that damage due to climate change will cost an annual 38 trillion US dollars by 2050⁵. That is about 28% of projected global GDP in 2050⁶.

Singapore takes climate change seriously and is undertaking a triple transition towards a low-carbon future.

I spoke about this at length last week⁷. But today, I want to talk about Asia and what Singapore is doing in partnership with others to facilitate Asia’s transition.

It is in Asia that the battle against climate change will be won or lost.

Asia accounts for more than half of global emissions today.
The pressures are for Asia’s emissions to continue growing.
- Energy demand in Asia is growing by 2.9% annually⁸, the highest of any region around the world.
- And Asia is expected to account for 90% of the world’s future growth in energy demand⁹, driven by industrialisation, urbanisation, a growing middle class, and the provision of electricity to rural villages.
- If emissions in Asia are not abated, the result will be catastrophic climate change globally.

Asia should not have to choose between sustaining growth and reducing emissions.

Asia will have to work towards decoupling economic growth from emissions.
It will not be easy. It requires Asia to chart a transition pathway contextualised to its own unique challenges.
But there can be no compromise on the eventual goal: close to net zero emissions around the middle of the century.
That timeline is set not by politics or economics, but by nature – if we want to avert the worst impacts of climate change.

PRIORITIES FOR ASIA’S TRANSITION

There are three priorities for an effective transition in Asia.

Coal Phase-Out – transition away from coal and replace with cleaner energy to meet Asia’s growing energy needs.
Grid Infrastructure – build reliable electricity grids and energy storage systems to ensure population centres across Asia can access clean energy.
Carbon Sinks – stop deforestation and restore peatlands and mangroves to grow Asia’s natural carbon sinks.

Coal Phase-Out

Phasing out coal in Asia will be critical for reducing global emissions.

Coal-fired power plants in Asia contribute to approximately 7.6 gigatonnes of carbon dioxide annually¹⁰. In other words, one out of every seven tonnes of global emissions comes from a coal plant in Asia.
If left operational, Asia’s existing coal-fired power plants will exhaust about two-thirds of the carbon budget remaining to keep global temperatures below 1.5 degrees Celsius.

But simply shutting down the coal plants is not an option.

First, more than one-third of Asia’s energy needs today is met by coal.
Second, the coal economy is a key source of employment. More than 5.3 million people in Asia are employed across the coal value chain¹¹.
Third, it is not commercially viable. Most of Asia’s coal-fired power plants are young and still have an operational lifetime of at least 30 years.
Fourth, Asia’s energy demand is still rising. More than 150 million people in Asia still do not have access to electricity¹².

We must transition away from coal progressively, consistent with a Paris-aligned pathway and in an inclusive manner.

This means finding innovative solutions to accelerate the retirement of existing coal plants and replacing them with renewable energy.
It will not be cheap. Just to retire a coal plant five years earlier, we will need 70 million US dollars¹³ per gigawatt of capacity.

Grid Infrastructure

Expanding renewable energy production is a necessary complement to coal phase-out.

Solar and wind are now more cost-competitive than fossil fuels in many places.
- In 2022, the global weighted average cost of both solar and wind was at least one-third lower than that of the cheapest fossil fuel option¹⁴.
There is strong momentum in Asia towards renewables.
- Since 2004, Asia’s investments into renewables have been growing by 23% annually¹⁵.
- Today, Asia accounts for more than half of total installed global solar and wind capacity¹⁶.

To make renewable energy a viable option, we need more than cheap renewables, we need grid connectivity and capacity.

Renewable energy poses two problems that we need to solve for.
First, transmission.
- Renewable energy facilities are highly location specific – we need large plots of land, or high wind speeds, or access to large fast-flowing rivers.
- But areas with high renewable capacity often do not correspond to areas of high electricity demand.
- We need to invest in grid connectivity – to bring the renewable energy to where the demand is located.
Second problem, storage.
- Renewables are inherently intermittent. We do not always get clear skies or stable winds for renewable energy generation.
- Grid reliability will get worse as we integrate more intermittent sources of electricity such as solar and wind into the grid.
- We need to invest in grid capacity – for storage and reliability.

We must step up efforts toward an ASEAN Power Grid.

Just as air and sea links have enhanced trade within the region, an interconnected power grid across ASEAN will enhance electricity trade across borders.
And just as cross-border trade has benefitted both exporters and importers, cross-border trade in clean electricity benefits all parties.
- Regions without renewable capacity can have access to clean energy.
- Electricity providers can expand their markets beyond domestic buyers.
- Countries can enhance energy security by diversifying their supply sources.

Achieving an ASEAN Power Grid or an interconnected Asian Power Grid will not be easy.

There are many obstacles to overcome.
- The power infrastructure and standards vary across countries in Asia.
- There is insufficient capacity in research and development of clean technologies.
- Not to mention the cost. Building transmission lines and energy storage across Asia will cost almost 2.4 trillion US dollars over the next 10 years¹⁷.
We will require significant cross-border collaboration and innovative financing structures to realise the vision of an integrated grid infrastructure across ASEAN.

Carbon Sinks

The third big challenge that Asia faces is deforestation and loss of its natural carbon sinks.

Southeast Asia has one of the highest rates of tropical deforestation in the world, losing 1.2% of its forests each year¹⁸.
Based on current projections, Southeast Asia is expected to lose three quarters of its original forests by 2100¹⁹, driven by agricultural expansion and infrastructure development.

Deforestation has serious implications for our planet.

It impedes the effectiveness of forests as carbon sinks.
- In Southeast Asia alone, deforestation is estimated to generate over 400 megatonnes of carbon emissions annually²⁰.
It also has an adverse impact on the availability of essential ecosystem services such as access to food, clean air, and water, that our forests provide.

We need to stop deforestation in Asia.

Local communities, governments, and the private sector must work together to develop comprehensive strategies to combat deforestation.
These include sustainable land management practices, reforestation programmes, and stricter enforcement of environmental regulations.
Compared to other mitigation strategies, reducing deforestation is not costly.
- It is estimated that at a price of just 20 US dollars per tonne of carbon dioxide, the rate of deforestation in Southeast Asia can be halved²¹.

But forest conservation is not just about cost, it is also about integrity.

The methodologies for measuring, reporting, and verifying actual carbon abatement in many conservation projects may not be accurate.
The actual reduction in deforestation across projects has sometimes been lower than claimed.
We need to set out standards to ensure the integrity of forest conservation projects.

We also need to restore Asia’s mangroves and peatlands.

Mangroves and peatlands store more than twice the amount of carbon that tropical forests do^{22, 23}. But we are losing these carbon sinks in Asia.
We need to restore these ecosystems and develop more sustainable agriculture and aquaculture methods.
Coupled with sound policies and strategies, technology and finance can be key enablers for such restoration efforts.

ENABLERS FOR ASIA'S TRANSITION

An effective transition in Asia will require significant financing.

At least 1.1 trillion US dollars is needed annually to meet climate mitigation and adaptation needs across Asia²⁴.
However, actual investment falls short by at least 815 billion US dollars²⁵.
Public financing alone cannot plug this gap. We must mobilise private capital.

Three key enablers can help bridge the financing gap.

Blended Finance. We need to synergise public and private capital to close the funding gap.
Carbon Credits. We need to promote high-integrity carbon credits, supported by well-functioning carbon markets.
Sectoral Pathways. We need credible standards and definitions contextualised to Asia, to attract transition finance for sectoral decarbonisation.

Blended Finance

Let me start with blended finance. Asia’s transition financing needs are large. Yet, why is private capital not flowing to decarbonisation projects in Asia?

One, there is not enough expertise to prepare and develop projects to a bankable stage.
Two, the projects entail high capital outlays that may be beyond what many individual players can bear.
Three, the risks are higher: uncertainties in technology and regulations, not to mention foreign exchange risk.
Four, payback periods are long. Transactions may face long lead times to start construction, with challenges in securing the necessary permits.

To mobilise private capital for transition projects in Asia, we need blended finance to synergise across multiple players.

Governments, development finance institutions, and philanthropies could provide concessional or risk capital – in the form of grants, limited guarantees, and debt or equity at rates of return that are not determined purely by commercial considerations.
Multilateral development banks can provide technical assistance – in the form of project development expertise, capacity building, and institutional support.
Financial institutions, such as insurance players, can also provide innovative risk mitigation solutions at the project development stage.
This combination of concessional capital, technical assistance, and de-risking mechanisms will improve bankability and help to mobilise multiples of private commercial capital to these projects.

Singapore has launched a blended finance platform called Financing Asia’s Transition Partnership, or FAST-P for short, with a target fund size of US$5 billion.

In December last year, at COP28, the Singapore Government pledged to contribute towards a base of concessional capital for this platform, alongside other partners.
Since then, we have had expressions of support from a few other sovereign governments, multilateral development banks, development finance institutions, and philanthropies to similarly contribute concessional capital.
On the basis of the concessional capital being put together, we are reaching out to banks and institutional investors to bring in commercial capital.
Some of the contributing partners of concessional or commercial capital include the Asian Development Bank, International Finance Corporation, Allied Climate Partners, the Global Energy Alliance for People and Planet, and Temasek Holdings.

FAST-P will target three key areas that are most pertinent to Asia’s transition.

The Energy Transition Acceleration theme will cover energy transition projects such as coal phase-out, renewable energy replacement, and grid infrastructure.
The Green Investments theme will invest in decarbonisation projects such as electric vehicles, batteries, waste and water management, and circular economy.
We are also developing an Industry Transformation theme which will focus on hard-to-abate sectors such as aviation, shipping, steel and cement as well as emerging low-carbon fuels such as hydrogen and ammonia.
Each investment theme will take the form of a fund comprising both concessional and commercial capital and managed by a respective asset manager.

We will be announcing at COP29 more details about the fund programmes, the contributing partners, the asset managers, and capital mobilised to-date.

Carbon Credits

The second key enabler for Asia’s transition is access to high-quality carbon credits, supported by well-functioning carbon markets.

On the supply side, carbon credits are generated on the basis of emissions reduced or removed through mitigation activities.
On the demand side, there are entities which want to purchase such credits to help offset their hard-to-abate residual emissions and thereby meet their carbon reduction targets.
This congruence of demand and supply helps to generate new revenue streams, to enable decarbonisation projects which would otherwise not have been implemented.

However, global carbon markets are not functioning well.

There is a lack of data and systematic tracking of the generation, transfer, and use of carbon credits. This raises concerns of double counting credits.
There is also a lack of well-defined standards and guidelines on environmental integrity. This raises doubts about whether carbon credits correspond to actual emissions reductions.
These limitations have undermined confidence in global carbon markets

We need to develop strategies to promote high-integrity carbon markets.

This requires many ecosystem players across the world to come together and develop solutions. Singapore has been engaged in these discussions.

Singapore has also been doing its part to promote sound carbon markets through three initiatives.

First, Singapore has been signalling demand for high-quality carbon credits through carbon credit agreements with other countries.

We have signed Implementation Agreements with Papua New Guinea and Ghana,
And have also concluded negotiations on Implementation Agreements with Bhutan, Vietnam, and Paraguay.
With these agreements, both countries will be able to generate credits to help finance much-needed emissions reduction or removal projects.
- We ensure that the credits generated are of high quality, using high-integrity carbon crediting methodologies from credible offset programmes.
- When Singapore and carbon tax-liable companies purchase these credits for offsets, they would be contributing to decarbonisation efforts in our partner countries.

Second, Singapore has been working to promote high standards of integrity for different types of carbon credits.

We are piloting the use of transition credits, a new class of credits to channel finance towards transition projects.

A good use case of transition credits is coal phase-out in Asia.
- Credits are generated from the emissions reductions attributed to the early closure of a coal plant and replacement with cleaner energy sources.
To develop transition credits into a viable market solution, Singapore has brought together 30 ecosystem players to form the Transition Credits Coalition, or TRACTION.
We are consulting the Integrity Council of Voluntary Carbon Markets to ensure that transition credits meet the Core Carbon Principles and Article 6 integrity requirements.

We are working to strengthen standards for ensuring that nature-based credits lead to actual emissions reduction.

Singapore has launched the Carbon Market Integrity Research and Development Programme, or Carbon Integrity SG.
Carbon Integrity SG seeks to develop and improve internationally-recognised standards and methodologies for measurement, reporting, and verification of nature-based projects.
The aim is to strengthen the integrity of nature-based credits and thereby confidence in the credibility of nature-based projects.

Third, Singapore is supporting the development of a harmonised carbon data platform to address transparency concerns.

We worked with the International Emissions Trading Association and World Bank to launch Climate Action Data Trust, or CAD Trust.
CAD Trust uses blockchain to link, aggregate, and harmonise data across carbon crediting registries to improve transparency.
It has also developed an interactive data dashboard which allows users to track carbon offsets generated by more than 17,300 projects.
To-date, CAD Trust has grown to include six registries covering 85% of all credits issued globally.

Sectoral Pathways

The third enabler for Asia’s transition is clear standards on what constitutes a credible sectoral decarbonisation pathway.

It is not difficult to identify and invest in pure ‘green’ activities like clean energy and electric mobility.
But most of Asia’s activities are transition activities - of progressively ‘greening the brown’ rather than switching colours at one go. But how do we ensure that ‘greening the brown’ will eventually lead to ‘green’ and is not ‘greenwashing’ in disguise?
We need robust and objective definitions of ‘transition’ activities so as to build confidence that investments in these activities will result in desired climate outcomes.
These standards and definitions need to be:
- science-based and take reference to a 1.5 degree Celsius-aligned pathway;
- contextualised to Asia’s circumstances and challenges; and
- granular at the level of the activity.
If decarbonisation projects adhere to such objective standards, they stand a better chance of attracting private financing.

The Singapore-Asia Taxonomy for Sustainable Finance is the first taxonomy in the world to define transition projects.

It sets out science-based thresholds and criteria for defining green and transition activities that contribute to climate mitigation.
Take for example, the early retirement of coal-fired power plants. The Singapore-Asia Taxonomy lays out both entity- and facility-level criteria which are aligned to a 1.5°Celsius scenario.
The Singapore-Asia Taxonomy covers activities across eight focus sectors, which are responsible for 90% of Asia’s emissions.

Let me conclude.

Asia’s transition to net zero will not be easy. But it is essential if the world is to avoid catastrophic climate change. As I said at the start, the battle against climate change will be won or lost in Asia.

It is not enough that Europe and America – or Singapore for that matter – reach net zero. The rest of Asia must also get there, so that the planet that we all share is safe from climate disaster.

The world has a vested interest in Asia’s decarbonisation. Singapore will do its part, in collaboration with others, to facilitate Asia’s transition to a greener and brighter future.

Thank you, and I wish you a fruitful day.

¹ https://earthobservatory.nasa.gov/world-of-change/global-temperatures

²UNEP (2023) Emissions Gap Report 2023: Broken Record – Temperatures hit new highs, yet world fails to cut emissions (again).

³ IPCC AR6 WGII C10

⁴IPCC AR6 WGII C10

⁵Kotz, M., Levermann, A., & Wenz, L. (2024). The economic commitment of climate change. Nature, 628(8008), 551-557. https://doi.org/10.1038/s41586-024-07219-0.

⁶The World Bank. (2006). The Road to 2050: Sustainable Development for the 21^st Century.

⁷Menon, R. (2024). Singapore’s Triple Transition to a Low-Carbon Future. https://www.nccs.gov.sg/speech-by-singapore-s-ambassador-for-climate-action-at-the-international-built-environment-week/

⁸https://www.energyinst.org/statistical-review

⁹https://www.mckinsey.com/mgi/our-research/asia-on-the-cusp-of-a-new-era

¹⁰https://www.oxfordenergy.org/publications/can-hydrogen-and-carbon-capture-and-storage-ccs-help-decarbonize-the-coal-power-plants-in-asia/

¹¹International Energy Agency. (2022). Coal in Net Zero Transitions: Strategies for rapid, secure, and people-centred change.

¹² https://www.adb.org/what-we-do/topics/energy/overview

¹³MAS and McKinsey & Company (2023, September). Accelerating the early retirement of coal-fired power plants through carbon credits.

¹⁴https://www.irena.org/News/pressreleases/2023/Aug/Renewables-Competitiveness-Accelerates-Despite-Cost-Inflation

¹⁵https://zerocarbon-analytics.org/wp-content/uploads/2023/11/Report_-Asia-leads-global-race-in-renewables.pdf

¹⁶https://zerocarbon-analytics.org/wp-content/uploads/2023/11/Report_-Asia-leads-global-race-in-renewables.pdf

¹⁷https://www.woodmac.com/news/opinion/asias-renewables-need-massive-grid-investment/