Key insights from industry leaders on the seismic shift from voluntary to compliance-driven carbon markets across Singapore, UK, Kenya, and France.
Reducing Market Confusion Through Clear Rules
One of the most critical challenges facing carbon markets today is the blurred lines between compliance and voluntary markets. As Benedict Chia from Singapore's National Climate Change Secretariat emphasised during his presentation, establishing clear rules for both compliance and voluntary markets is essential to reduce market confusion and drive meaningful climate action.
The regulatory landscape is rapidly evolving across key jurisdictions—Singapore, the UK, Kenya, and France—each developing frameworks that will fundamentally reshape how carbon credits are created, traded, and utilised.
Article 6: A Political Compromise with Real Impact
Article 6 of the Paris Agreement represents what Chia characterized as "a political compromise"—but one with profound implications for global carbon markets. The framework establishes international cooperation mechanisms that are now being operationalized through bilateral agreements between countries.
Currently, there are 103 agreements under Article 6 between countries, creating a web of international cooperation that will drive standardization and scale in carbon credit markets.
The Historic Market Shift
Perhaps the most striking insight from the session was the prediction of a complete market inversion. Historically, carbon credits have been 80% voluntary market-driven. According to industry projections, this ratio will "flip on its head" as regulatory mechanisms take precedence.
Hannah Hauman from Trafigura highlighted that regulatory demand will be the primary growth driver, with expectations for 800 million tons of regulatory demand, largely driven by EU requirements. This represents a massive shift from voluntary corporate commitments to mandatory compliance mechanisms.
From CDM to PACM: The Evolution of Standards
The transition from the Clean Development Mechanism (CDM) to the Paris Agreement Cooperative Mechanism (PACM) signals a new era of standards, particularly around critical issues like:
Permanence standards - ensuring long-term carbon storage and avoiding temporary solutions
Reversal protocols - addressing what happens when carbon storage is compromised
Regulatory guarantors - providing institutional backing for credit quality
Addressing Integrity Through Regulation
Hauman acknowledged the "tremendous integrity concerns" that have plagued voluntary carbon markets. The development of regulatory mechanisms with regulatory guarantors represents a fundamental shift toward institutional quality assurance. Importantly, voluntary markets will be able to "pull from" these higher-standard regulatory mechanisms, potentially raising the bar across all market segments.
Incorporation at Source: A Game Changer
One of the most significant developments is the move toward "incorporation of credits at source"—integrating carbon accounting directly into production processes and regulatory frameworks rather than treating credits as separate, tradeable commodities. This approach promises greater transparency and reduces opportunities for double counting or questionable additionality.
The Singapore Model: CAT Trust Leadership
Singapore's Climate Action Data Trust (CAT) continues to position itself at the forefront of market infrastructure development, providing transparency and verification mechanisms that other jurisdictions are watching closely.
Implications for Market Participants
This regulatory shift has profound implications:
For Companies: The transition from voluntary to mandatory compliance means carbon strategies must evolve from CSR initiatives to core business requirements.
For Investors: Regulatory demand provides more predictable, long-term revenue streams compared to voluntary market volatility.
For Project Developers: Higher standards and regulatory backing may reduce volumes but should improve pricing and certainty.
For Governments: The opportunity to lead in setting standards that other jurisdictions will follow, creating competitive advantages for domestic players.
Looking Forward
The carbon market is entering a new phase characterized by regulatory certainty, higher integrity standards, and massive scale. The 800 million ton regulatory demand projection represents just the beginning—as more jurisdictions implement mandatory frameworks, this number will only grow.
The question isn't whether this shift will happen, but how quickly market participants can adapt to the new regulatory reality.
As regulatory frameworks solidify across Singapore, UK, Kenya, and France, the carbon market is poised for its most significant transformation since inception. The winners will be those who embrace higher standards and regulatory certainty over the chaos of fragmented voluntary markets.
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Team Photo: Harmaan Madon and Bertrand Deleuse
