The Challenge of Making Carbon Credits Fungible

Fungibility refers to the property of a good or asset where individual units are interchangeable and indistinguishable.  In other words, each unit of a fungible asset is considered identical and can be exchanged or replaced with another unit of the same asset without any loss of value or change in quality.  Examples of fungible assets include money, commodities, and certain financial instruments.  In the case of money, a specific unit of currency, such as a dollar bill or a digital currency unit, is fungible because any unit of the same denomination is equal in value and can be used interchangeably.  Similarly, commodities like gold or oil are often considered fungible because each unit of the same type and grade is interchangeable with any other unit of the same type and grade. 

Fungibility is a key concept in economics and finance, as it simplifies transactions and facilitates the liquidity and trade of assets in markets.  Non-fungible assets, on the other hand, are unique and not interchangeable with other units.  Real estate, collectibles, and certain types of intellectual property are examples of non-fungible assets.  Fungibility is lacking in the carbon markets, even across compliance exchanges.  For the carbon market to move to next level, and be a distinct commodity to be traded and consumed, this is a necessity.  Just like in the commodities market, for it to function, the market must have confidence that all producers are working within the same regulatory framework, to the same standard, such that the market can reliably value all carbon credits of the same category to the same value, regardless of geographic origin.  There must also be enough of the market for there to be liquidity. 

The basis of the market is a carbon offset credit, or simply a carbon credit.  A carbon offset credit is a tradable certificate representing the reduction, the removal, or the avoidance of production, of one metric ton of carbon dioxide (CO₂) or its equivalent in other greenhouse gas emissions.  It is called CO₂e.  The intent is to mitigate climate change by incentivising and by financing projects that reduce or offset greenhouse gas emissions.  There are, broadly, two kinds of markets: the voluntary and the compliance.  Voluntary carbon credits do not meet the verification and validation requirements to be considered a financial instrument.  The key to the commodification of carbon credits is found in the compliance market. 

While I may refer to carbon credits as a commodity and a financial instrument, a financial instrument and a commodity are distinct concepts, but there can be overlap in certain situations.  A financial instrument is a broad term that refers to various contracts or assets whose value is derived from an underlying asset, index, rate, or instrument.  It represents a tradable asset that has monetary value.  Examples of financial instruments include stocks, bonds, derivatives such as options and futures contracts, currencies, and various investment funds. 

A commodity, on the other hand, is a raw material or primary agricultural product that is traded on an exchange.  Commodities are typically standardised and interchangeable with other goods of the same type.  Examples of commodities include gold, silver, oil, natural gas, agricultural products, and base metals. 

Financial instruments can be linked to commodities in certain cases. For instance, financial instruments like futures and options contracts can be based on the value of commodities.  Traders and investors use these derivatives to speculate on or hedge against price movements in commodities.  Some financial instruments are specifically designed to track the performance of a commodity or a basket of commodities.  Exchange-traded funds (ETFs) and commodity-linked notes are examples of such instruments. 

A financial instrument is a broader category that encompasses various tradable assets, while a commodity specifically refers to raw materials or primary agricultural products.  However, financial instruments can be created based on the value of commodities, allowing investors to gain exposure to commodity price movements or manage related risks.  In the case of carbon credits, it can become a commodity, and because of the nature of the contracts, and the possible derivatives, it can become a financial instrument. 

At the moment, however, there are key differences between the commodities markets and the carbon markets.  For example, commodities have defined rules on standards and regulations that must be adhered to.  The carbon markets lack that.  The standards are evolving, and there are different levels of credibility in the different markets.  This explains why the EU ETS alone takes up more than 90% of all the compliance carbon markets, despite there being around 30 such markets. 

Commodities are abundant enough that while changes in supply and demand will influence price, there is still liquidity in the market.  That is not the reality with carbon credits.  In fact, as we push towards a more stringent compliance regime, to pave the way for rated carbon credits, we will face an initial shortage oof such carbon credits because there are not enough compliance credits to meet the expected exponential rise in demand due to the implementation of the carbon tax globally. 

While we may refer to carbon credits a commodity, commodities are generally raw materials that may be consumed to produce finished products.  The commodity itself is a physical product.  That product may be tested, assessed, and validated, which creates confidence in its fungibility.  Carbon credits are smart contracts, sometimes on a blockchain.  They are intangible products based on a physical asset, the carbon sink.  It is because of this intangibility that the market confidence for carbon credits can only be based on the stringent compliance standards and regulatory framework.  It is this point that precludes voluntary credits from being considered either a viable commodity or a financial instrument. 

The intangibility of carbon credits is what feeds the inherent uncertainty of the product.  This is what needs to be addressed.  Analysts, experts, and market observers have advanced the idea that carbon credits are like bonds.  This is a conceptual comparison, an analogy used to highlight certain financial characteristics that carbon credits and bonds may share, such as tradability, market value, and the potential for generating returns. 

Like bonds, carbon credits can be bought and sold in markets, and their value can be influenced by supply and demand dynamics.  Both financial instruments have the potential to provide financial benefits, although the mechanisms through which they do so differ.  This leads to the debate whether carbon credits should be treated more like bonds.  This implies that market underpinnings such as ratings, compliance standards, regulatory audits, and insurance drive pricing and risk scoring.  They differ in significant areas.  Bonds represent debt issued by governments, municipalities, or corporations.  When an investor buys a bond, they are essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity. 

Investors in bonds receive periodic interest payments as income, and they are typically repaid the principal amount at maturity.  Carbon credits do not generate periodic income.  Their value is associated with their ability to offset or reduce greenhouse gas emissions.  Bonds are issued by governments, municipalities, or corporations to raise capital.  The issuer has an obligation to repay the principal amount and make interest payments according to the bond’s terms.  Carbon credits are generated by projects that reduce or offset emissions.  The entities undertaking these projects may sell the credits to generate revenue, but there is not a direct obligation to repay a principal amount as with bonds. 

In any case, whether we consider carbon credits a commodity or financial instrument or both, a key contention is the lack of trust in the quality of the carbon credits, and the associated reputational risk for buyers and investors.  Buyers and investors are forced to conduct extensive amounts of due diligence prior to executing any carbon credit transaction, which adds to cost.  Because of this variance in due diligence in the absence o framework, there is no fungibility.  There is also the challenge for buyers to align their due diligence requirements to wider message on net zero strategies, and Sustainable Development Goals (SDGs).  In the course of this, there is a lack of understanding, in many quarters, on the differences between reduction carbon credits, avoidance carbon credits and removal carbon credits. 

There are specific areas that need to be addressed, as we work towards fungibility in the carbon market.  We cannot achieve fungibility for all compliance carbon offset credits, but we can have fungibility within classes.  That means we have to class them according to type of project.  These include cookstove offsets, renewables, afforestation, reforestation, biochar, peatland, direct air capture, and green and blue sequestration, among others.  Some of these types are not suitable for the compliance market.  For example, cookstove offset projects are responsible for millions of junk credits. 

As part of the verification and validation process, we need to consider location, because that has a direct correlation to credibility.  From location, we can consider political risk, regulatory risk, local community engagement, benefit-sharing, relevance to buyer’s business; geological risk such as natural disaster, corruption, and even project viability.  This is especially important when we see this in light of the SSGs. 

In summary, we need to identify the types of carbon credits for the compliance market before we create a regulatory framework that encompasses the points of contention to be addressed.  We need to identify, qualify and quantify the risks.  We need a wide variety of strategic partners from regulators to central banks to project owners to buyers before traction can be achieved.  From this, we need to work towards a rating system for carbon credits, so that they can be rated, and eventually made investment-grade.  When we have that, we can apply for carbon credits to be recognised as financial instruments by elect central banks, and made fungible.

The Compliance Market Pivot for Carbon Trading

Red Sycamore Pte. Ltd. is the holding company of two related startups.  Carbonyx Worldwide Pte. Ltd. is a startup that is creating an offshore compliance carbon credit exchange, distinct from the existing exchanges, in that the intent is to make the markets cross tradable.  Carbonyx BLUE Pte. Ltd. is a startup that establishes carbon sinks in different parts of the world in order to create investment-grade blue carbon credits.  These are meant to be initially traded exclusively on our exchange. 

Climate change is a reality.  We strongly believe that it is the collective interest of humanity to address it, in order to maintain the quality of life, protect the most vulnerable among us, and secure our future.  We believe it is in the interest of companies to aggressively pursue any and all viable efforts to minimise our global carbon footprint, within our companies, and across our collective value chains.  Addressing climate change is expensive.  Not addressing climate change is unfathomably more expensive. 

Carbon credits and the cap and trade system is a means to that end.  However, there is a danger, through the voluntary market, that carbon credits have been used by some to forestall active efforts to address climate change, or subvert the entire intent of the system.  The carbon markets play an extremely important role to complement efforts to transition to a low carbon economy, or even achieve the holy grail of it all, net neutrality of carbon emissions.  Additionally, at Red Sycamore, we believe that carbon exchange that trades investment-grade carbon credits as a commodity and financial instrument in its own right, will encourage the creation of carbon sinks, and spawn a viable secondary market.  We do this right, we not only grow efforts to address climate change exponentially, but we create the means to fund it through the system. 

We need to consider enabling some flexibility in the overall system for the reduction and removal of net emissions.  Policy-wise, we need to address this with a scalpel, not a sledgehammer.  We must be cognisant that any pivot towards reducing net emissions is expensive.  This is particularly so for companies that are in sectors of the economy where carbon footprint is difficult to mitigate, where technology has not become commercially viable, or where the nature of the industry is simply inimical to reducing net emissions.  In these cases, purchasing carbon credits is the only viable option, because these purchases fund the deployment of climate solutions in other sectors.  This carbon tax is a cost upon society as whole, which theoretically encourages the entire society to incentivise investments in carbon reduction solutions elsewhere.  In effect, we are harnessing market forces to facilitate further investment in viable solutions at other points of the economy.  The intent is to reduce overall cost by taking advantage of economies of scale in sectors where the technology is economically viable and can be deployed widely. 

Policy wise, it is in our collective interest to drive capital toward existing technologies and already scalable solutions, that can deliver immediate or near-term reduction of carbon footprints.  In order to do so, businesses must be encouraged to innovate from the startup scene upwards.  We need to put money into incubators and startups exploring new solutions.  We need to carbon reduction and removal projects to gain access to a wider pool of capital, because amounts invested versus possible gain make financial sense.  An increasingly established carbon market can then facilitate the rapid deployment of viable solutions in order to drive down emissions. 

Taking stock of the industry since the setting up of the UNFCC, there is greater emphasis on green carbon credits in the voluntary market, particularly from forests.  As demand for carbon credits continues to grow, people with access to land are encouraged by financial as well as environmental concerns to plant paulownia and other plans in order to earn from more than just harvesting timber.  The issue is the impact on diversity by simply planting paulownia trees.  Another contention is that the voluntary market lacks the rigorous verification and validation to prevent what is essentially greenwashing.  On one hand, it is a step towards reforestation.  On the other hand, the lack of oversight means the system is subverted. 

It is sound policy to create a system that generates economic value for reducing or removing emissions, in order to incentivise innovation with the potential to accelerate decarbonisation.  Startups and initiatives within the carbon market that can demonstrate the potential for future revenue, encourage investment.  We are looking for an internationalised and resilient market for the removal of carbon credits.  When that total addressable market is there, and the grey market is deemed feasible, we will have more startups developing carbon capture technologies with some certainty that they can be funded.  This creates a positive loop that attracts more investment capital.  This will create competition for those investment funds, increasing supply, and generating demand. 

Red Sycamore believes that the future is found in blue carbon, specifically seagrass.  0.2% of ocean floor is covered by seagrass, but 10% of the ocean’s carbon is absorbed by seagrass.  One hectare of seagrass can store twice the carbon of a terrestrial forest.  Seagrass sequesters carbon 35 times faster than a terrestrial forest.  This is an example of developing technologies that creates a range of potential environmental, social and economic benefits. 

Companies and funds investing in startup and projects can ensure their access of carbon credits, while increasing market supply.  This is also an opportunity for these investors to support objectives beyond mere abatement, such as increasing biodiversity, job creation, economic development, community development, and mitigation of pollution.  Both green and blue carbon projects on a larger scale influence land use and coastal use, which enhances sequestration and, to an extent, preserves the ecosystem.  For example, Singapore has increasing incentives for family offices to invest in ESG projects, including carbon sequestration initiatives with tax breaks.  Or, for example, carbon sinks in coastal communities elevate the local gross domestic product because it allows these communities, many of them indigenous, to move up the value chain.  This facilitates the transition of employment from pollution intensive industries with high carbon footprints to a green economy.  This is a process that takes time.  That means it is imperative that this impetus begins now.  These secondary benefits are relevant to stakeholders. 

Based on this understanding, the carbon market is an important means to advance a green agenda, and fund transition efforts.  What began with the voluntary market must now pivot to a compliance market.  As long as this remains in the voluntary market, there is a danger of greenwashing and subversion of the system.  The compliance market is the foundation of decarbonisation efforts, and the reduction of our collective carbon footprint.  The voluntary carbon markets are unlikely to expand quickly enough to incentivise the level of reduction necessary to keep us on track to net-zero emissions by 2050.  The value of voluntary carbons is too low to be a financial instrument, let alone support a secondary market. 

The general consensus of banks and fund managers is that incremental investments, and gradual engagement can help companies enhance their decarbonisation efforts.  The argument is cost of abatement, and caution in investing in new technologies to manage risk.  My belief is that this is not the right way.  Recent data has decisively demonstrated that global temperatures are rising faster than expected.  Events such as the civil war in Tigray and Russian-Ukrainian conflict are not helping.  At the rate we are going, we will not only fail to meet any of the 2030 and 2050 targets, but will find ourselves well short, dooming us to a runaway greenhouse effect in the next 100 years.  There is no financial risk to manage when we face the catastrophic effects of rising sea levels and adverse weather effects leading to a global loss of production amounting to trillions of US dollars a year. 

The voluntary carbon market itself is no substitute for the robust public policies required to address climate change.  While we do look to the private sector to provide technology initiatives and raise funds, the public sector is the key driver to create the proper legislative and regulatory framework for these very solutions to thrive.  Without government support and political will, we will not achieve the overall progress to meet global emissions goals.  The carbon market, whether voluntary or compliance, enables private parties to buy and sell carbon credits.  As part of the overall cap and trade system, it is meant to represent the removal of carbon emissions from the atmosphere, the sequestration of carbon dioxide equivalents, or the avoidance of processes that lead to further emissions. 

Unlike the voluntary market, the compliance market is regulated by mandatory international, national or regional carbon management regimes.  The most prominent, the European Union Emissions Trading System (EU ETS) is a cap-and-trade.  Regulated entities are granted allowances for a given share of overall emissions.  They can then exchange with others in order to reduce the overall cost of compliance with emissions limits.  It is a regional market, specific to the companies under the EU regime.  This is the same for all the established compliance markets: Australia, China, New Zealand, South Korea, and Southern California.  The voluntary market functions independently of these compliance markets, by enabling companies or individuals to purchase carbon credits to meet their own emissions goals.  Compliance credits may be purchased voluntarily by non-regulated entities, but voluntary credits are not allowed to fulfill compliance market requirements because they are created under a less stringent verification and validation process. 

While the past two decades have seen growth of the voluntary carbon market, the compliance market has lagged behind.  Despite this, the voluntary market has enabled substantial investments into climate solutions.  As we get closer to the 2030 pledges, decarbonisation efforts are accelerating across the global economy.  It is anticipated that demand for carbon credits will continue to increase, which means the voluntary market alone is insufficient to meet that demand.  We will also see more greenwashing come to light, as the spotlight is the voluntary market.  The recent Verra controversy is a case in point.  There are significant issues that need to be addressed. 

Firstly, we need to raise the overall quality of carbon credits.  This means pivoting away from the voluntary market towards the compliance market.  The lack of quality credit supply is actively hindering further development of comprehensive efforts to support large-scale decarbonisation.  Within the voluntary market itself, there is a scarcity of Carbon Dioxide Removal credits, the so-called removal credits.  There is an excess of junk-quality carbon credits that need to be bought in massive quantities to meet the carbon tax of individual organisations.  This negatively impacts capital investment into carbon credits, since the view is that credits have little to no value. 

Secondly, as mentioned above, the voluntary market has a perception problem with the market integrity.  On the 18^th January 2023, the Guardian published an article accusing Verra of grossly overstating the emissions reductions associated with its “avoided deforestation” credits. Investigative journalists at SourceMaterial partnered with the Guardian, and claimed that only 6% of Verra’s avoided deforestation credits represented real emissions reductions.  This led to the invalidation of around US$1 billion worth of carbon credits, and the CEO of Verra stepping down. 

On the 21^st March 2023, reports came out that Verra suspended the issuance of credits from an award-winning project in Kenya, after serious questions were raised about its validation and methodology.  Survival International released a report on the 16^th March 2023 saying that the offset, called the Northern Kenya Grassland Carbon Project, could not accurately count its carbon savings.  The Northern Rangelands Trust, the Kenya-based conservation group that managed the offset, criticised the Survival International report.  The project claimed to increase carbon storage in the soil of northern Kenya’s savannah grasslands by managing the grazing patterns of livestock herds.  At COP27, it was awarded the Triple Gold distinction by the Climate, Community & Biodiversity Alliance.  Survival International’s investigation found that third-party validators hired to assess the project had raised more than 100 “findings” before Verra ultimately decided to verify the carbon credits it generated.  The voluntary market is losing its credibility, as more such cases of greenwashing and malfeasance come to light. 

Thirdly, whether compliance or voluntary, there are multiple marketplaces, competing frameworks, thinly veiled protectionism, and other regulatory complexities make it difficult and costly for organisations and companies to navigate the market.  The compliance markets are not cross-tradable.  There is a need for an offshore compliance market that allows trade of all compliance credits, which will force existing compliance markets to open up, and come together to create a common standard.  No carbon credit, even in the compliance market, is not investment-grade. 

Fourthly, it is a fact that the voluntary market lacks the capability to support more sophisticated forms of trading.  A voluntary credit will never be investment-grade.  It cannot be a financial instrument, and the voluntary market can never spawn a secondary market.  This limits its ability to meet the needs of different kinds of participants.  There is a dire need for an improved trading infrastructure to create a futures market and other derivative instruments.  This will create more liquidity in the market, spur further trading, and incentivise further investment in the system. 

It is with these inadequacies in mind that Red Sycamore formed Carbonyx Worldwide as a vehicle to raise funds for that offshore compliance exchange to meet these very needs.  The trades will be on a blockchain for tracking by stakeholders and transparency.  The exchange will accept all compliance credits, and trade in select international currencies.  This is the grey market that exists now.  The total addressable market is global because as we advance closer to 2030, the carbon tax will be implemented globally by signatory nations, specifically starting with the oil and gas, maritime transportation, mining and air transportation industries – four industries with the largest carbon footprints. 

Ideally, we would all like to see a convergence on a common standard.  However, for political and other reasons, that would be unlikely anytime soon.  For example, the Americans and the Europeans cannot even agree on the classification of kelp for blue carbon.  Rather, it should be the market demand that forces this eventual convergence.  When there is sufficient market size, legislation will automatically follow, because no major trading power can afford to not be part of it. 

The carbon credits to be traded through the Carbonyx Worldwide offshore compliance exchange, in order to be investment-grade, and considered a financial instrument in its own right, must have specific qualities.  It must be based on real, verifiable carbon sinks, such as the ones established under Carbonyx BLUE.  These credits must be substantiated through a verification and validation process by a reputable third-party verification authority, based on ground observation and remote sensing data.  The reputation and track record of the carbon sink and stakeholders must be part of that audit. 

The carbon credits must be measurable and quantifiable using recognised measurement approaches and processes, compared to a credible emissions baseline.  This includes the application of relevant standards or protocols.  The carbon sequestered through this process must be in addition to the natural sequestration.  Failure to do this implies greenwashing.  This is the problem with much of the voluntary market, and must be avoided to maintain the credibility of the compliance carbon credits. 

Because these carbon credits are meant to be financial instruments, each credit created must be unique, traceable, trackable until retirement, and recorded on a blockchain.  They must be able to be traced to a specific project, and timeframe.  This requires the maintenance of an independent registry.  This also means that they have to be independently verified, as mentioned above. 

The Red Sycamore blueprint, through Carbonyx Worldwide and Carbonyx BLUE, is for a scalable series of carbon sinks to create these carbon credits to fulfill that anticipated market need, and traded on our own indigenous exchange, and recognised on the EU ETS.

Quora Answer: How to Build a Portfolio Aligned with Carbon Neutrality Goals?

The following is my answer to a Quora question: “How could one invest in building a portfolio that is aligned with carbon neutrality goals?” 

Carbon neutrality is a state of net-zero carbon dioxide emissions.  If you truly want to balance out a portfolio, you need investments that are carbon negative, which is difficult.  Carbon neutrality is an ideal.  It is far from a reality.  While there is some effort to reduce carbon emissions, it is insufficient, and this is reflected in trying to build such a portfolio. 

Consider this, people would say they would invest in electrical vehicle companies such as Tesla.  That portfolio might do well, but it is far from carbon neutral.  The batteries require lithium, cobalt and other metals.  Mining is not even close to carbon neutral.  The disposal of those batteries is also an environmental problem.  This applies to renewable energy as well, since all that power collected must be stored somewhere – those same batteries. 

Carbon neutrality is more than simply building a portfolio.  It involves engagement with the people we invest in, and carbon reduction targets.  It involves influencing the development of the entire ecosystem in a pivot towards carbon neutrality, and an investment in carbon negative developments.  This is a process.

Indonesian Plans for a Carbon Tax

Indonesian plans to impose a carbon tax.  This was always expected.  Indonesia submitted its post-2020 climate pledges to reduce global emissions, their intended nationally determined contributions (NDC), to the to the United Nations Framework Convention on Climate Change (UNFCCC). 

Indonesia signed the Paris Agreement, and ratified it through Law No. 16 of 2016.  Indonesia submitted its NDC in 2016, and sealed its voluntary pledge to reduce emissions by 29% to 41% by 2030.  These are ambitious targets.  To achieve this emissions reduction target, Indonesia is in the process of drafting a more progressive emissions reduction scheme under the draft Presidential Regulation on Instruments of Carbon Economic Value for NDC (Carbon Economic Value Bill).  This will likely take a while, and there are contentions as to whether the government would reserve the sole right to regulate the trade, allow private transactions, or have a mix of both. 

The proposed scheme would be to regulate the carbon trade, provide payments based on performance in reducing greenhouse gas emissions, and impose a levy on carbon emissions.  The Carbon Economic Value Bill is in the process of being finalised, and is expected to enacted by the end of the year, or more likely, the first quarter of 2022. 

The current Indonesian administration is pursuing an amendment of Law No. 6 of 1983, the General Provisions and Taxation Procedures (Tax Law) to include a new carbon tax scheme.  The proposed amendment would be the fifth amendment to the bill.  This bill is registered with the Majelis Permusyawaratan as one of thirty-three bills included in the priority national legislation programme.  This bill is intended to become the legal basis to impose a levy on greenhouse gas emissions outlined in the Carbon Economic Value Bill. 

Under Indonesia’s Tax Bill (Article 44G), carbon emissions with a negative impact on the environment will be subject to a minimum carbon tax of Rp 75 per kilogramme of CO₂e or other equivalent measurement unit.  This would be around US$5.20 per tonne CO₂e.  The proposed carbon tax would be imposed on individuals or entities purchasing goods containing carbon or engaged in activities that generate carbon emissions.  The Tax Bill contains general carbon tax provisions, which include catch-all provisions to tax any goods or activities that cause environmental externalities, such as depletion of natural resources, environmental pollution, or environmental damage. 

According to the bill, goods containing carbon include, but are not limited to, fossil fuels that cause carbon emissions.  Regulated activities are defined as activities that produce carbon emissions in the energy and transportation, agriculture, forestry and peat lands, industry, and waste treatment sectors.  Indonesia’s NDC identified these sectors as the five main sources greenhouse gas emission contributions.  Aside from this, the full scope of the carbon tax is still undefined, and details are still scarce. 

If all five targeted sectors are taxed without any exemption, many businesses will be affected and will have to recalculate their strategies in response to a carbon tax that directly puts a price on greenhouse gas emissions.  Businesses in carbon-intensive sectors such as coal-fired power plants, oil and mining, pulp and paper, cement, plastic, petrochemicals, and palm oil plantations, among others, will be the most heavily affected.  Industry player have already voiced their concern, and there have been nascent attempts to lobby against it through business associations.  Their primary contentions that the carbon tax places too high a burden on businesses, and not the government.  Businesses have also questioned the calculation of the carbon tax rate. 

Brown energy companies are rightly concerned about the imposition of Indonesia’s carbon tax scheme.  It is expected that there will be incentives provided for taxpayers to lower their greenhouse gas emission.  It is expected that the carbon tax may help generate investment in the renewable energy sector.  This could support the government’s intention for renewable energy to account for at least 23% of the country’s total energy mix by 2025.  That is an ambitious goal.  Currently, the share of renewable energy is 10.9%.  Coal-fired plants dominate the supply of power in Indonesia and are a major source of revenue. 

It is expect that with the expected exponential increase in carbon credits, and the pressure on brown energy businesses, there will be an increasing shift to more sustainable energy generation.  It is about the money.  There is a blue ocean market for generating profit through the issuance of Verified Carbon Units (VCUs), and the sale of carbon credits on the international voluntary carbon market.  As the government moves toward the enactment of the Carbon Economic Value Bill, to regulate carbon trade and provide payments based on performance, more players will explore opportunities to generate additional revenue streams. 

There are a number of projects and initiatives that intend to take advantage of these new developments in carbon trading.  We will closely watch the market in the next few months to see if Indonesia can keep to the ambitious timetable it set.

EV Investment Opportunity Webinar, 20th May 2021

Red Sycamore Pte. Ltd., in collaboration with Ashirel Business Solutions Pte. Ltd., is proud to have presented on an investment opportunity in Southeast Asia with electric vehicles.  The response was very good, and we look forward to following up with interested parties.

Maribel Colmenares Martinez, Chief Executive Officer, Ashirel Business Solutions was the driving force behind the event, and she moderated.  Our Chief Executive Officer for Red Sycamore, Ng Kin Foong presented the deck, and I gave the pitch.  Gerald Yong Kim Heong, our Chief Financial Officer, explained the numbers, and Leonard Melvin Fernando, who is the President of Quantum Age Holdings Corporation (Asia-Pacific), explained the technology.  Also in attendance were the rest of the team: Eric Tan Shi Wei, Margrette Lo Foong Quan, and Zhuo Shu Zhen.

The Battery Industry in 2026: Where the Money, the Chemistry, & the Carbon Accounting Sit

The electric vehicle battery market is not a single market.  It is four or five overlapping markets, moving at different speeds, and any commentary that treats batteries as one undifferentiated blob is not analysis.  It is marketing copy wearing a lab coat.

The Market, Sized Honestly

Global EV sales are expected to top 20 million units in 2025, roughly triple 2021 levels.  Battery demand is forecast to grow at a compound annual rate of 17.5% through 2035, with the market index rising from 100 in 2025 to 485 by 2035.  Passenger vehicles account for approximately 65% of total battery volume in 2026, though that share gradually declines to 55% by 2035 as commercial fleet electrification accelerates.  Cost has fallen from over US$1,100 per kilowatt-hour in 2010 to roughly US$130 per kilowatt-hour in 2024, with the industry targeting US$80 per kilowatt-hour by 2030, the point at which total cost of ownership reaches parity with internal combustion vehicles across most vehicle segments.

The Chemistry Breakdown: Where the Real Competitive War is Fought

Lithium Iron Phosphate, LFP, continues gaining share and is projected to reach 50% of passenger EV battery volume by 2030, favoured for cost, safety, and cycle life.  Nickel-rich NMC chemistries retain dominance in premium and long-range vehicles, forecast to hold roughly 46% share in both the European Union and North America through 2030.  The industry is simultaneously pushing toward ultra-high-nickel variants, above 90% nickel content, to lift energy density further while reducing cobalt dependency.

Silicon anode technology is where the genuine engineering gains are happening.  High silicon content anodes can deliver more than 350 Wh/kg, rising to 500 Wh/kg with prelithiation, translating directly into extended vehicle range.  Solid-state batteries remain the industry’s most hyped and least delivered promise.  The global solid-state battery market is projected to grow from roughly US$372 million in 2026 to somewhere between US$2.2 billion and US$3.6 billion by the early 2030s, an eye-catching compound growth rate on a genuinely tiny base.  Toyota Motor Corporation has targeted mass production around 2030, and China’s FAW Group deployed its first semi-solid-state EV battery in February 2026, delivering over 500 Wh/kg at the cell level with a claimed range exceeding 1,000 kilometres.  Impressive on a specification sheet.  Still under 5% of total battery volume through 2035, according to sector forecasts, because manufacturing complexity and cost have not caught up with the marketing department’s enthusiasm.

Sodium-ion batteries were meant to be in mass EV production by 2026.  That timeline has cooled considerably as LFP prices kept falling, and sodium-ion now has to match LFP on cost, performance, and durability simultaneously, a considerably harder target than beating a chemistry that was still expensive when the sodium-ion roadmaps were drawn up.

Where the Industry’s Credibility Problem Sits

Every battery technology claiming a breakthrough energy density, an imminent production date, or a proprietary chemistry that eliminates a critical mineral deserves the same question applied to it: where is the third-party verification, and where is the patent actually registered, checkable, and enforceable?  The sector is littered with companies that have announced production timelines, made energy density claims, and asserted patent ownership that collapsed under basic scrutiny.  A specification sheet is not evidence.  A registered, searchable patent number is evidence.  Anyone evaluating a battery technology claim in 2026 should demand the latter and treat the former as marketing until proven otherwise. 

The EU Battery Regulation, 2023/1542, has turned carbon accounting from a sustainability nicety into a binding market access requirement.  Carbon footprint declarations became mandatory for EV batteries from 18^th February 2025, and expanded to rechargeable industrial batteries above 2 kWh from 18 February 2026.  From 18^th February 2027, that declaration must be accessible through a QR-linked Digital Battery Passport, tracking material composition, carbon footprint, recycled content, and performance data across the battery’s operational life.  Crucially, the declaration applies per manufacturing plant, not per company, and requires third-party verification by a notified body.  Self-declared carbon figures, the report from PSQR notes explicitly, will not survive a 2026 audit cycle.

This changes the financing conversation entirely.  A gigafactory that cannot produce a verified, plant-specific carbon footprint declaration will not access the EU market, full stop, regardless of how compelling its energy density claims are.  That single fact is reshaping where capital flows within the sector.  Financing structured around compliance-grade carbon accounting, rather than voluntary offsets purchased for a sustainability report nobody audits, is becoming the only financing that survives contact with the regulation.  Manufacturers positioning themselves for verified, low-carbon production, with traceable cobalt, lithium, nickel, and natural graphite supply chains, are the ones building a genuine moat.  Manufacturers hoping a voluntary carbon credit purchase will paper over an unverifiable supply chain are building a business that stops at the EU’s border on 18^th February 2027.

The Underlying Trend

The battery market is consolidating around verified performance and verified carbon data simultaneously.  Chemistry innovation without registered patents is marketing.  Carbon claims without third-party verification are liabilities waiting for an audit.  The capital that wins this decade is the capital that priced both of those facts in before the regulation forced everyone else to.

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Terence Nunis | Executive Chairman, Equinox Zenith & Red Sycamore | Author, The 1% Playbook: The Billionaire Cheat Code

Micro-Factories for EV Production

One of the greatest challenges of deploying a vehicle for a new company is the inherent cost of setting up a production line.  We have estimated that were we to do this conventionally, that production line could cost up to US$200 million, and take up to 18 months to set up.  That is a lot of cost and time lost before the first vehicle rolls off the production line. 

When we consider that we are looking to manufacture in nations in the developing world, there is that concern of political risk.  Some government have been known to hold companies to ransom through the withholding or even withdrawal of permits.  That would add to cost, and investor uncertainty.  This adds to infrastructure cost. 

Quantum Motors, the joint venture between Red Sycamore and Quantum Age Holdings Corporation, avoids this risk through the development of micro-factories.  These micro-factories are container deployable, and five units are enough to produce 10 vehicles per day upon deployment.  Deployment is a matter of hours, not months.  This ensures we hit the ground running once we start manufacturing as planned.  Production can be scaled up according to demand, and scaled back to cut cost through the deployment and redeployment of more units. 

Once we have stabilised demand and growth, and grown our ecosystem to mitigate political risk, we can consider development of a larger production line.  In the interim, production does not stop, which is a business advantage.