SINGAPORE - Carbon credits can help to channel more finance to scale up the adoption of clean-energy technologies, which are costly but critical to getting the global energy sector to net zero by 2050, a new report has found.

These technologies, which need a “massive and urgent scale-up in deployment”, include sustainable aviation fuel, low-carbon hydrogen, and direct air capture, which helps to suck planet-warming carbon dioxide (CO2) from the atmosphere for permanent storage underground. 

According to a report launched by the International Energy Agency (IEA) and Temasek investment platform GenZero on April 16, investments in these three technologies will need to increase to nearly US$300 billion (S$409 billion) annually by the early 2030s, up from US$9 billion in 2023. This will be crucial in helping to cap global warming at 1.5 deg C. 

GenZero’s chief executive Frederick Teo, who was speaking at the Ecosperity conference at the Sands Expo and Convention Centre on April 16, said: “When we think about the technology projects (needed) to achieve monumental decarbonisation, we are often stuck in a little bit of a chicken-and-egg situation.  

“If the projects are too immature, where the technology risks are high, how do we actually deploy the tech... at scale? It is extremely risky. On the other hand, if we do not provide enough capital for some of these projects to mature, how then will we be able to see which ones will be promising?” he added.

Carbon credits can be an innovative way of attracting private capital to help bridge this funding gap, although the right regulatory environment must be in place to improve the investment conditions for these technologies, said the report.

More robust methodologies and rules must also be developed to help ensure that the carbon credits sold are of high quality, and can stand up to scrutiny.  

To create these enabling conditions for private sector investment, governments can pump in research and development funding to help scale up novel technologies, and develop road maps to provide clarity for these investments to take place, the report said. 

For instance, Singapore had in 2022 launched its National Hydrogen Strategy, which outlines how it will scale up viable hydrogen technologies and projects to bring them to commercialisation, along with establishing a supply chain for hydrogen and developing the necessary infrastructure for its mass deployment. 

Public procurement can also be used as a means to incentivise the scale-up of targeted technologies using carbon credits.  

For instance, national water agency PUB is looking to develop a new plant that will help to enhance the ocean’s ability to store CO2.  This will have the potential to capture some 3,650 tonnes of CO2 yearly when fully operational. 

As PUB, the National Research Foundation and the University of California, Los Angeles, had jointly funded the US$20 million plant, the carbon abatement from the project will be represented as carbon credits and allocated to the stakeholders based on each of their funding proportions.

To help create demand for these nascent technologies, groups of buyers can also band together to form buyer coalitions, where they provide an advance commitment to purchase future carbon credits, as a way of bridging this “chicken-and-egg problem” of demand and supply. 

“This helps to lower the costs of borrowing, and enables project developers to scale up deployment of the technology with enhanced predictability,” said the report.

Hydrogen is touted as a cleaner solution compared with fossil fuels as it does not produce any CO2 when burned. The gas can be considered a low-carbon energy source if it is produced using renewables, like solar. 

According to the IEA, hydrogen production needs to be scaled up to 70 million tonnes by 2030, up from one million tonnes currently, in order to help the global energy sector get to net zero. 

The use of sustainable aviation fuel will also need to increase from close to zero currently to around 11 per cent of energy consumption in aviation by 2030.  

According to the International Air Transport Association, sustainable aviation fuel accounted for only 0.15 per cent of global jet fuel volume in 2023.

Direct air capture and storage technologies will also need to reach 70 million tonnes by 2030.  According to an IEA report in July 2023, 27 direct air capture plants have been commissioned to date, capturing almost 10,000 tonnes of CO2 a year. 

But to ensure there is demand for carbon credits generated from the use of these technologies, more work is needed to ensure that suitable methodologies are in place to guarantee the credits are of high quality.  

These include ensuring additionality – which is proof that the emissions reductions would not have happened without the climate financing, quantifying the emissions reduced or avoided from these technologies, and preventing double counting – which ensures that the credit cannot be claimed by two entities at the same time.

More guidance, however, will be needed to account for the emissions of low-carbon hydrogen and sustainable aviation fuel through their production, transportation and eventual use, as these often have complex supply chains that span several countries and markets.  

Project developers will also need to measure the impact of low-carbon hydrogen potentially leaking into the atmosphere, and study its potential impact, the report added. Some studies have estimated that the global warming potential of hydrogen can be as high as 12 times that of CO2.