Rising greenhouse gas (GHG) emissions, as well as insufficient policies and enforcement have widened the emissions gap to achieve the Paris Agreement goal.
Strict enforcement like costly penalties may lead to carbon leakages. As such, carbon offset projects should be a better alternative for preventing such leakages and incentivising project developers.
RHB Regional Thematic Research looks at opportunities in developing carbon offset projects in Indonesia, Malaysia, Thailand, and Singapore – particularly in forestry and renewable energy (RE).
It highlied that there is an abundant offset potential from Indonesia’s forests. This may have a value of up to USD2.6bn (from reforestation projects in non-forested areas) and USD10.1bn (from mangrove and peatland projects).
As Indonesia has the third largest tropical forest in the world (total area of about 120m ha), it has significant carbon offset potential. Currently, 69m ha of forests have been designated for production purposes, while 25.5m ha are non-forested areas.
The non-forested area that can be reforested could generate 255m tonnes of carbon dioxide equivalent (tCO2e) in carbon credits. Additionally, 3.4m ha of its mangrove forests and 13.4m ha peatland would be valuable, as they could generate c.1bn tCO2e in carbon credits.
Malaysia’s adoption of a Voluntary Carbon Market (VCM) should trigger domestic project development. The Bursa Carbon Exchange (BCX), launched on Dec 2022, marks Malaysia’s first VCM scheme which is aligned to the standards set by Verra.
Despite the absence of domestic carbon credits in the inaugural auction, the participation of 15 local buyers in transactions involving 150,000 carbon credits points towards the eagerness for ESG compliance and could further spur demand for carbon credits in the country.
Singapore: Using carbon pricing to incentivise the move towards net zero by 2050. In 2019, Singapore implemented a carbon tax of SGD5/tCO2e (for emissions >25k tCO2e). Its carbon tax covers 80% of the country’s total GHG emissions.
The tax will increase to SGD25/tCO2e in 2024-2025, SGD45/tCO2e in 2026-2027, and SGD80/tCO2e by 2030. From 2024 onwards, Singapore will allow companies to use international carbon credits to offset c.5% of its taxable emissions.
These policies and transition support for the highest GHG-emitting sectors should encourage companies to migrate towards low-carbon technologies. With the option to voluntarily trade carbon credits on newly formed local exchanges, Singapore should also see the increased trading of international carbon credits.
Thailand triggers voluntary emissions reduction through tax exemptions. Enviliance Asia reported that, on Feb 2021, Thailand granted corporate income tax exemptions on net incomes from carbon credit sales for three consecutive financial years.
Despite its lower carbon credit prices compared to global market rates, trading volume grew 4.2x in 2022. This voluntary carbon trading could pave the way for a mandatory emissions trading system (ETS) in the future.
In the short term, the Thai Government plans to impose carbon taxes on three sectors: Energy, transportation, and industry. · Carbon trading stock ideas. Our actionable ideas are divided into two categories: Forestry and energy.
In forestry, RHB Investment Bank placed emphasis on Integra Indocabinet (WOOD) and SLJ Global (SULI) while in the energy space, they have cited Pertamina Geothermal (PGEO), Kencana Energy (KEEN), Solarvest (SOLAR), Samaiden (SAMAIDEN), Sembcorp Industries (SCI), Sermsang Power (SSP), and PTT Exploration & Production (PTTEP) that develop carbon capture and storage (CCS) projects, a viable stock counters.
PTT will reduce its emissions through carbon capture (energy) and reforestation projects.
