 SKBI Newsletter | April 2025
A look at Carbon Markets and Policies
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Research Perspective
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Industry Insights
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Weikai Li,
Assistant Professor of Finance
at SMU
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Loh Boon Chye,
CEO at SGX Group
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Many countries are reluctant to implement carbon pricing policies (e.g., carbon taxes or cap-and-trade programs) due to concerns about the negative impacts on firms and the economy. Based on a global sample of public firms in 52 countries from 2002 to 2019, a recent SMU study scrutinizes these concerns by examining how individual firms had been affected when such policies were introduced.
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With the groundwork laid for the implementation of Article 6 of the Paris Agreement at COP29, the operationalization is now work in progress. SKBI Advisory Board Chairman & CEO at Singapore Exchange (SGX Group), Loh Boon Chye, shares his thoughts on the efficiency and potential of the carbon market locally, and in the region.
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Key Messages:
- Carbon pricing initiatives (including both carbon taxes and emissions trading systems) did not reduce overall profitability, firm value, or investments in the policy-initiating country.
- Instead, these policies shifted investments and profits from high-emission firms to low-emission firms, giving rise to a financial redistribution effect that fits the goal of green transition.
- Under such policies, high-emission firms receive a lower market valuation, driven mostly by the lower sales growth and higher operating costs, but also partially driven by the higher cost of capital.
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Overall, carbon pricing mainly redistributes wealth and growth across firms without creating negative aggregate shocks. Hence, the relevant policy question is how to enhance global coordination and create integrated markets, rather than whether to adopt the policies or not.
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Duan, T., Li, F.W. and Zhang, H., 2024. The effect of carbon pricing on firm performance: Worldwide evidence. Working Paper.
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Key Challenges:
- The current carbon credits market is still evolving and has yet to fully take off commercially, especially in ASEAN countries.
- A key challenge is the quality and verification of carbon credits, with concerns about green washing.
- Carbon markets in ASEAN are mainly voluntary. Singapore, which was the first in the region to implement compliance carbon tax, allows eligible voluntary carbon credits to offset part of the carbon taxes.
- International carbon marketplaces like Climate Impact X stand to benefit from the potential convergence of voluntary and compliance carbon markets.
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“Singapore’s commitment to Article 6 of the Paris Agreement positions it well to be a first mover in the region as a global carbon market services and trading hub,” says Boon Chye.
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Meet the Author:
Asst Prof Weikai Li joined SMU in 2017 after completing a Ph.D. in Finance from The Hong Kong University of Science and Technology (HKUST). His research interests lie in sustainable finance and behavioural finance.
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Meet the Expert:
Mr Loh Boon Chye, Chief Executive Officer at SGX Group, leads the firm’s efforts in sustainability and climate action and is a member of the Glasgow Financial Alliance for Net Zero’s CEO Principals Group. He is the current chairman of SKBI's Advisory Board.
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About SKBI:
The Sim Kee Boon Institute generates financial economic research through multidisciplinary collaborations involving not only the SMU community, but also research talent from around the world as well as industry and public-sector partners. The Institute will focus its efforts on the areas of (1) Market Innovations and FinTech, (2) Sustainability and Green Finance, and (3) Household Finance and Behaviour. To maintain relevance to finance practitioners and policy-makers, SKBI also adopts a view on Asian and global economic trends. View SKBI’s research.
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About the SKBI Newsletter:
This monthly newsletter provides a unique platform to connect academic researchers and industry experts. It aims to enhance the outreach of academic studies, while fostering dialogue on key insights and challenges and stimulating new ideas and collaborations.
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