Asia-Pacific Pushes for Climate Bonds and Voluntary Carbon Market

Asia-Pacific business executives have proposed issuing climate bonds indexed to a basket of currencies to mitigate foreign exchange risk. They also suggested a voluntary carbon market to facilitate the region's clean energy transition. The proposals will be discussed at the APEC leaders' summit in November.

Asia-Pacific business executives are advocating for emerging economies in the region to issue climate bonds indexed to a basket of currencies, aiming to reduce the risk of foreign exchange fluctuations when raising funds for the clean energy transition.

The group, comprising ABAC, or APEC's Business Advisory Council, suggested the launch of a pilot program to establish a voluntary carbon market (VCM) for the Asia-Pacific region. "We aim to create an interoperable, voluntary carbon credit network to expedite the region's transition to a low-carbon society," stated Hiroshi Nakaso, head of ABAC's finance and investment task force, during a news conference on Sunday.

As part of this initiative, like-minded countries will conduct cross-border carbon credit transactions on a trial basis to identify issues and potential solutions, Nakaso explained. The Asia-Pacific currently lacks cross-border standards or regulatory frameworks for such a market, which is crucial for channeling private financing into climate projects.

The recommendations, formed during a meeting in Tokyo from Aug. 1-4, highlight an increased awareness in Asia about the necessity for cooperation between the private and public sectors in financing the substantial costs associated with energy transition. ABAC, an advisory council to the Asia-Pacific Economic Cooperation (APEC), plans to present its suggestions at the APEC leaders' summit in Lima this November, with Peru, this year's APEC chair, hosting the event.

Among the proposals, ABAC urged regional governments to issue 10-year bonds with payments indexed to a basket of currencies. These bonds would provide developing countries with access to hard currency for purchasing solar farms and storage facilities, thus mitigating exchange-rate risk for lenders, as explained by Tom Harley, one of the task force's project leaders from Australia.

Asia, being one of the world's most climate-vulnerable regions and comprising economies that rely on fossil fuels or are susceptible to currency market fluctuations, faces significant challenges in transitioning to clean energy.

(With inputs from agencies.)