Ravi Menon on Singapore's Adaptation Efforts

Yes. Thanks, David. I think in many ways, the global economy, global financial markets are deeply entangled. It's a term I borrowed from quantum mechanics. And we've seen the effects of entanglement most dramatically with the Covid-19 pandemic, how supply chains were so connected. And we didn't expect disruptions on the scale that happened because of a pandemic. We've seen it more recently in the energy infrastructure, the Russia-Ukraine war and 2022 disruptions in energy and food supplies. And exactly the same thing happening now in the Straits of Hormuz being closed. We didn't expect so many multiple effects coming out of that single closure. And how interdependent various supply chains are. I think the mother of all supply chain disruptions will be the climate, because that is the deepest form of entanglement in that the global economy has set up. Supply chains are so intertwined. You take an El Niño effect. It has got multiple repercussions. If it hits the Mekong River system, you have food supply disruptions because of agricultural use coming down, excessive floods. It will affect hydroelectric power generation that has knock-on effects on energy. So again, the same story is being repeated. Energy disruption, food supply disruptions. And I think in the case of climate, the impact on livelihoods and labor productivity and a whole range of economic activities will all have knock-on effects down supply chains. And that's a way I think climate is the ultimate entanglement because we share one planetary system.

Yes and no. I wouldn't even argue that this is the biggest challenge. I mean, it really depends on the business you're running or the country that you're in. Priorities are manifold and with lots of things going on. Everything has to compete for attention. But this is going to be with us for a long while. I think that is what I would say of the climate crisis. We've got a lot of other things to worry about today. But five years from now, ten years from now, 15 years from now, I think this will be our central preoccupation. We'll all be talking about the weather in ways that are not so pleasant. And I think the sense of perspective is sometimes lost with the daily bombardment of news. I don't blame Bloomberg for it, of course, if you keep us informed. But I think there is just so much distraction. And if all our worldviews are formed by having to check on Truth Social every morning, that doesn't quite give us a picture of what is in the future. The big piece of news is the fact that 2024 global temperatures exceeded 1.5°C above pre-industrial levels. Last year was 1.4. It takes a few—the scientists would need a longer time period to assess whether it has crossed the Paris thresholds. But we are getting there. Every piece of news that's coming up on the climate front is worse than the climate scientists had predicted five, ten, or 15 years ago. Sea levels are rising faster than expected. Scientists were figuring out why they measured the melting of the soil and the ice caps. That is happening. They measured all kinds of things. It turns out the oceans—the oceans, by the way, absorb more than 90% of the heat that's generated. And the oceans are expanding. Volumes are expanding because it's hotter, and the carbon sinks in the world are declining. If you ask me, what is the single most important piece of news last year? That is it. Carbon sinks. Wildfires decimating carbon sinks and forests. Oceans less able to absorb heat. The global energy system is now in imbalance, not reflecting back as much of the heat as it is absorbing. So very many breaking points are being breached. I think the number of people who pay attention to this are still in the minority, but what is very encouraging is that the determination of these people to do something about it is undimmed. And I see this disparity here. I see this in London Climate Week, and I see this in many conferences like these. Businesses who are thinking about their business ten, 15 years from now, a country of policymakers who are thinking about the resilience of their economies of ten, 15 years from now are thinking hard about this. And so what we are seeing a lot more now of public-private partnerships. Coalition of the willing. Those who know this, those who understand these risks and those who want to do something about it but can't wait for the rest of the world to come together in a multilateral setting, are finding their own ways, and that is most encouraging. Plural coalitions, public-private partnerships, getting things done, and many small things being done together adds up to something. And I think that is the most encouraging. And I see a lot more of that happening as the climate crisis gets worse.

Yes. So I think the current energy crisis or energy crunch the world is facing, for all its downside effects from a climate perspective, is a net positive because I think increasingly now, the energy security agenda and the climate agenda are converging. And you see this in Asia. The sun that shines on your land and the rivers that flow in your country, the wind that blows on your seashore—those are yours. It can’t be disrupted by war elsewhere. It can be disrupted by closures of chokepoints and bottlenecks. And I think that understanding that real energy security comes from homegrown renewable energy is dawning much stronger now. This is a conversation I hear in many parts of Southeast Asia and countries like India, which have realized their huge reliance on imported fossil fuel. China realized this about ten years ago. And while the focus is on China still building coal-fired power plants, what people miss is that it has built more renewable capacity than the rest of the world put together times two. It is basically moving away from imported liquid fossil fuels, either LNG or oil, into renewables, solar and wind, and as energy security backup coal. And what's interesting is that they're relying less and less on coal. The capacity is that the consumption of electricity—the generation of electricity from that coal fleet has been declining steadily. Almost all the new demand is being met by new renewable capacity. India is trying to do the same thing on a massive scale. So I think this is a real positive. Of course, there are huge problems. Our grids, even in the advanced economies, are not built for renewables quite so. There will be major infrastructure investments that are necessary. And let's face it, renewables have intermittency problems. And to have the baseload electricity supplied on the same scale, you will need battery storage and massive amounts of investment. But these are investment opportunities because this is where the future is. And I don't even have to talk about electric vehicles. I think the queues outside petrol stations across Asia have driven home the point. This is just not tenable to have to pay so much more for private transportation. And so I think that pickup in EVs is also going to—it's already happened on a double-digit scale in countries like Vietnam and so on. And it's likely to escalate. Quite. And of course, we were just hearing from VinFast earlier this morning on the outlook for EVs in Vietnam.

Yeah. So quite apart from the active role that Singapore plays in the UNFCCC process, the COP process, which is really the multilateral setting, and there's been good progress there on several fronts. I think it's now less an issue of having these commitments. There are commitments in place. I think it's more an issue of translating these into actions. And that takes place, coming back to what I said earlier, it takes place at the intersection of the public and private sectors. Of getting things done. In businesses, in supply chains and so on. And so that's where we've been focused quite a lot on, given our strengths in finance and business, and the centrality of Singapore's location. We've been pushing hard on two fronts, which we think will help to unlock a lot more private capital for climate finance in Asia once blended finance. And second is carbon markets. In fact, I don't see a solution to generate the kind of financing we need if you don't get these two things right. There is no shortage of private capital in the world. The total financial assets out there far, far exceed what you need for climate transition. But of course, private capital is not going to flow there unless the risk and returns are commensurate. The returns are too low relative to the risks you're taking. Public capital is just not sufficient. Many governments are in deficits. The public purse is increasingly being squeezed. And so even if you roll in the MDBs, the multilateral development banks, it's not enough. What you need is to blend these two synergistically with public capital. Plus, philanthropic capital can help to de-risk projects, absorb first loss, make projects more bankable, and drive in multiples of private capital. And the theory is now being tested and proof of concepts are being delivered. We are doing this on a platform level in Singapore, the Financing Asia's Transition Partnership. So the Singapore government has decided it's going to make this money work harder. Commits 500 million USD as per grant. Now, if you would use that to finance a few projects, yes, you will reduce CO₂ emissions by so much. But what we thought was a better use of that money was to say, we'll use that to multiply ten times. Every dollar we put in, we want to match it with another dollar from another sovereign or philanthropy. Similar terms but loss grant capital. Junior tranche. And then if you have a good junior tranche of about $1 billion, then to crowd in $4 billion of commercial capital, mostly debt—banks will come in at that when you have first loss covering the first dollar on $5 of exposure. So that is being worked out. And we have already raised more than $1 billion on that basis. So it's not just what FAST-P is doing, it's what many other blended finance structures like this are doing across Asia. And we share experiences, share notes, and see how we can mobilize more. I think this is something that's going to move the needle. The other is carbon markets, a wonderful market mechanism to help decarbonization in places where they would otherwise not take place. At the same time, allow corporates who can't—who need to—account for their residual emissions that they have not been able to extinguish. So when corporates in the advanced economies or governments, for that matter, have top climate targets to meet, but the last mile is too expensive, a very good option is to buy carbon credits to fill that when you've exhausted your abatement potential. Because when you do that, you're reducing emissions in another part of the world. You're making another project viable, and you are also bringing investments into these areas in the global South, improving lives and livelihoods and communities. So it's a win-win for all. I mean, we started by talking about entanglement. The whole logic of carbon markets is, you know, quite a tonne of emissions emitted in London is the same as a tonne of emissions emitted in Jakarta. So the corporate in London can buy carbon credits to reduce emissions in Indonesia, and you have achieved the same contribution to the climate. And that's what matters.

Yes. So this is fundamentally a question of integrity. And we've been working very hard to get the integrity levels up in the carbon markets. Several governments are working very hard together on this, and many NGOs and standards setting bodies and other expert bodies are also working in this space. I think largely on the crediting methodologies to measure that a certain amount of emissions has actually taken place. What are the conditions that need to be put in place? Those methodologies in the last two years have come a long way, thanks to the efforts of Gold Standard and very updated a lot of their methodologies learning from past mistakes. And then you have meta-standards such as the ICVCM, the Integrity Council for Voluntary Carbon Markets. They've done a brilliant job of getting more guidance and more clarity about integrity. Then I think we need to solve problems on the micro-level MRV—measurement, reporting, and verification. The methodologies are there. What are the instruments used to measure that the methodologies standards have been met? And so there's a lot of science that's coming in. And many solution providers emerging. They see this as a future growth opportunity. Singapore has been investing a lot in the R&D for MRV, whether it's geospatial or putting stuff in the soil to measure how much carbon is being sequestered and for how long. I think these are developments that are early stage, but I think have a long way to go. We are also doing a lot on the demand side. As you said, we've signed about 11 agreements now with other countries. So it's sending a very strong demand signal and RFP for more than 2 million tons of nature-based credits has gone out for projects across three countries in Africa and Latin America in place. And we are working more upstream now with project developers so that the credits generated are high quality and will be delivered on time. I think sending these demand signals is so important. When you try to create a market, you want to make sure the supply capacity grows, there's integrity and there is capacity to deliver. Some financing needs to be also in place there. And on the demand side, when you send powerful signals, advance agreement from purchase agreements and so on, then you have a symbiotic, synergistic demand and supply. And then there's the infrastructure, the exchanges, the registries, the clarity you need around those things, and so on. So we are approaching this at multiple points, working with different sets of partners. And I'm quite hopeful that over the next few years, the carbon markets will be a source of growth for both—not just for climate mitigation, but also as a new source of value added and business opportunity.

Yeah, it's a good question. Is it a 2027 issue? Is it a 2028? We are hoping to have some credits by 2030 to meet our targets. But some of these—and that's why—and this points to one of the real challenges in these carbon projects. It's not like your regular financial market, where there's already a source of supply and standardized instruments that you can invest in, and so on. These projects take time to get off the ground, and they need to be done properly so that they meet our requirements. And so we find that we have to actually work much closer with these project developers, which is what we've begun to do now. I can't give a timeline as to when the first credits will cross. We are also waiting with bated breath because we need them to meet our targets. But I think the recognition that these things take time and you need a lot of capacity building to make it work is now, I think, better appreciated. The likes of the World Bank, the Asian Development Bank are getting into this, offering policy advice, but also project development advice. And, of course, what I mentioned earlier about MRV and all that. So we're looking forward to it. I think once the first few transactions start taking place, that will be a very powerful signal.

Yeah. So that's another area we've been—Singapore is very actively involved in now with the ASEAN chairmanship next year. We know this is going to be an important theme. And we are developing programs along these lines. Now, unlike mitigation, where every effort can be measured against a ton of greenhouse gas emissions reduced or removed from the atmosphere, in the adaptation space, the outcomes are very varied. The benefits of a seawall that reduces flood risk—how do you compare that with the benefits of cooling solutions that protect labor productivity during heat waves? Or the embankments on a river that protect the rice crops from flooding? The outcomes are very different. And so you don't have a common numerator. And that is a challenge. And so we have to look at adaptation from the perspective of the downstream effects. And I think a good way to do that is what is happening to water supply, what's happening to food supply, what's happening to air quality. Because these are things people are willing to pay for. A pure adaptation project, as you say, may be seen as a public good that should be financed publicly. And there are many such projects. Seawalls, for instance, is very hard to monetize or get a revenue stream out of that. The benefits for the people living on the coast are huge. But the monetization prospects—and I mean, there are creative people thinking about it, but it's not that straightforward. But if you are making a crop, a rice crop more resilient against drought, against flood, against encroaching salinity, that increases agricultural yields. That is increased revenue for the farmers. That means a revenue stream is generated that makes it monetizable and bankable. You still need a lot of public capital because revenue streams are not that great. But you have some. And we have been garnering interest from private financial institutions to work alongside us. Not quite like FAST-P, but similar in concept blended finance structures. So we're testing that, kicking the tires with banks, with other financiers, how much they're willing to put in if this amount of risk is covered, is the rate of return and the revenue stream sufficient for you to come in? And I think there is interest. That's been quite heartwarming. And look forward to see more progress on that front next year.