Writer: G. Krisna W. PANDE Social Media Team: George K. KIONGSON Source: Photo by Pixabay on Pexels ESG ratings in a nutshell. ESG, which stands for Environmental, Social, and Governance, refers to the three central factors used to measure an investment's sustainability and ethical impact on a company or business. Environmental criteria assess how a company performs considering its environmental impact. Social criteria evaluate how a company manages relationships with its employees, suppliers, customers, and communities. Governance criteria examine the quality and transparency of a company's leadership, board structure, executive compensation, and shareholder rights. Together, ESG criteria provide investors with a framework to evaluate companies based on their commitment to responsible and sustainable business practices. Institutional investors are the ones who rely most on ESG data to make sustainable finance decisions. To paint a picture, institutional investors represent 80% of the New York Stock Exchange trade volume. Therefore, the reliability and efficiency of ESG data must be at best to ensure efficient allocation for socially responsible investment. Many ESG data providers and climate transition metrics have become available for use to institutional investors since the last decade, including Bloomberg, MSCI, and Refinitiv are among the most used. Figure 1. Refinitiv ESG Rating Hierarchy (Source: Refinitiv ESG Rating Methodology, LSEG) Figure 2. MSCI ESG Rating Hierarchy (Source: MSCI ESG Rating Methodology, MSCI) Challenges across ESG ratings In the three pillars, ESG rating providers assess and compute each company’s scores through a range of categories and sub-categories of sustainability-related metrics. There are commonalities in the factors used to assess, such as greenhouse emissions and emission intensity, however, ESG ratings could vary across rating providers (OECD, 2022). This score divergence causes inefficiencies and inconvenience to arise for investment managers. It causes difficulties in assessing ESG performance across companies. Also, it decreases companies’ incentives to improve ESG performance due to complex differences in different ESG raters’ methodologies. Quoting from Berg, Kölbel, and Rigobon (2022), generally, three drivers drive the differences across ESG ratings, namely “Scope” divergence, “Measurement” divergence, and “Weight” divergence. “Scope” divergence, as the name implies, refers to the situation where ratings are based on different sets of attributes. This type of divergence emerges at a more macro level, implying that there is a difference in the attributes or sub-segments to assess a pillar. The “Measurement” divergence occurs when two agencies have the same attributes as a pillar, however, there’s a significant difference in how the attributes are measured, meaning different indicators. The “weight” divergence emerges when rating agencies apply different weights to the same attributes or indicators. Measuring divergence accounts for the largest driver for ESG rating divergence, contributing up to 56% of divergence. Current State of Sustainable Finance in the European Union (EU) In February 2024, the European Union reached an agreement on a proposal that environmental, social, and governance (ESG) rating agencies should be supervised by a governing body. Under this new regulation, ESG rating providers would need to be authorized and supervised by the European Securities and Markets Authority (ESMA) and comply with transparency requirements regarding each one’s methodology and source of information. This regulation will ultimately ensure transparency and reliability of ESG ratings across rating agencies and improve investors’ confidence in the capital markets to strengthen sustainable investing practices. Based on the latest news, here are the key points mentioned by the newly proposed regulation: -              Under the new rule, all unregulated ESG raters in the EU area will need to be supervised by the European Securities and Markets Authority (ESMA). The ESMA itself was founded in 2011 to replace the Committee of European Securities Regulators, being a centralized agency that improves investor protection and promotes stable financial markets within the EU. -              ESG ratings from agencies outside the EU will need to have their ratings endorsed by raters regulated in the EU. -              ESG raters regulated by this law will have to separate their ratings for each of the three pillars. However, if only a combined ESG rating is supplied, they will need to make the weighting of each E, S, and G pillar explicit. -              Rating on the environment pillar would need to state that it took into account alignment with the Paris Agreement on reducing carbon emissions. -              The regulation will also consider the development of smaller ESG rating firms, allowing them to comply with a lighter and less strict version of the rules to help them compete with large players such as MSCI, Moody’s, and Sustainalytics. -              The regulation would most likely come into force sometime around 2025. For expert market insights and more topics towards ESG, please don’t hesitate to contact Mt. Stonegate. We offer comprehensive one-stop solution services and a strong expertise in ESG to boost your company's sustainability profile. Citation OECD (2022), ESG ratings and climate transition: An assessment of the alignment of E pillar scores and metrics, OECD Business and Finance Policy Papers, OECD Publishing, Paris, https://doi.org/10.1787/2fa21143-en. Berg, F., Koelbel, J. F., & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(6), 1315-1344. https://www.reuters.com/sustainability/eu-agrees-its-first-ever-rules-esg-raters-sector-shake-up-2024-02-06/

Writer: Jonathan PHILLIP, George K. KIONGSON Social Media Team: George K. KIONGSON The fight against climate change demands a rapid shift away from fossil fuels, and coal-fired power plants (CFPPs) are a prime target. Once considered the backbone of power generation, these facilities are now recognized as significant polluters, emitting greenhouse gases and harming public health. The tide is turning towards early retirement of CFPPs, paving the way for a cleaner energy future, and COP 28 (Conference of the Parties) significantly accelerated this conversation. COP28 and the Coal Phase-Out Push The Powering Past Coal Alliance (PPCA), an international alliance for phasing out coal power, achieved a significant milestone at the recent COP28 conference. 60 member countries strengthened their commitment to aligning with the Paris Agreement, meaning a coal phase-out by 2030 for developed economies and 2040 for developing ones. This signifies a significant step forward in the global effort to retire coal-fired power plants. This is reflected in concrete actions like Indonesia's early retirement of their Cirebon-1 coal plant by 7 years, achieved through collaboration with the Asian Development Bank (ADB) under their ETM (Energy Transition Mechanism) program. ADB's ETM utilizes financing to expedite coal plant retirement and invest in clean energy while supporting affected workers. Another approach is the Rockefeller Foundation's Coal to Clean Credit Initiative (CCCI). This initiative uses carbon finance to incentivize developing countries to transition from coal to clean energy. The Philippines is a prime example, with a pilot project aiming to retire a coal plant a decade early through carbon credits. Carbon credits are seen as a way to bridge the funding gap for developing countries transitioning away from coal. The Challenge of Younger Coal Fleets in Asia While developed economies often have older, nearing-retirement CFPPs, many Asian countries possess younger fleets with an average age of 13.5 years. This presents a unique challenge. Younger plants have higher outstanding debts and expected returns, making early retirement more expensive. Scaling Up Early Retirement Efforts The successful large-scale retirement of CFPPs requires a holistic strategy. This includes: ·      Financing: Developed nations must significantly increase financial support for developing countries transitioning away from coal. The $47 billion pledged by the G7 through the Just Energy Transition Partnerships (JETP) is a start, but far from enough. ·      Just Transition Plans: Strategies must consider the impact on workers, communities, and local economies. This includes environmental restoration, support for supply chain businesses and employees, and mitigating the rise in consumer energy burden. Financial Mechanisms for Early Retirement Retiring CFPPs early comes with economic considerations. There's a need to manage stranded assets and potential job losses and ensure a stable energy supply. Here's how finances are being addressed: ·      Refinancing Existing Assets: Lower-cost capital allows for faster repayment of loans, facilitating earlier plant closure. ·      Supporting Affected Workers and Communities: Programs are being developed to ease the social impact of the transition on workers and dependent communities. ·      Building Clean Energy Infrastructure: Investments are crucial to replace the lost capacity from retired coal plants with renewable energy sources. The Road Ahead The path towards a cleaner energy future requires a global effort. Developed nations must significantly increase financial and technical assistance to developing countries like Indonesia, the Philippines, and South Africa, which face steeper challenges due to their heavy reliance on coal. The G7's Just Energy Transition Partnerships (JETP) with countries like South Africa, Indonesia, and Vietnam are positive, but more funding and collaboration are needed. Developed nations can also play a crucial role by providing technical expertise and exploring innovative financial mechanisms to reduce risks for private investors in clean energy projects. For expert market insights and updates, please don't hesitate to contact Mt.Stonegate. We offer comprehensive one-stop solution services and hold a strong position in the Asian market. References: 1.     PricewaterhouseCoopers. (n.d.). Tapping into the power of blended finance. PwC. https://www.pwc.com/gx/en/issues/esg/the-energy-transition/sustainable-energy-infrastructure/tapping-into-the-power-of-blended-finance.html 2.     Zhou, L., Ma, Z., Liu, S., & Carter, A. (2023, September 6). 4 priorities for financing early coal retirement in developing countries. World Resources Institute. https://www.wri.org/insights/financing-early-coal-retirement-jetp

Writer: William Daniel, George K. KIONGSON Social Media Team: George K. KIONGSON Figure 1. A flowchart explaining the cycle of carbon credits In the face of escalating climate change concerns and tightening environmental regulations, businesses are under increasing pressure to reduce emissions. This has led to a global carbon market growth, where organizations can buy and sell carbon credits to offset their carbon footprint. Carbon credits are equivalent to one ton of carbon dioxide or an equivalent amount of other greenhouse gasses [i] and are categorized into compliance and voluntary markets. Compliance Market vs. Voluntary Market In the compliance market, government authorities establish emission limits for specific sectors, requiring businesses to stay within these bounds. Companies can purchase additional credits if they surpass the limits or sell excess credits. On the other hand, the voluntary market allows individuals, businesses, and organizations to participate voluntarily[ii], often driven by stakeholder pressure, consumer demand, or effective marketing strategies. Understanding Carbon Projects: Reduction, Removal, Avoidance It’s worth noting that certain projects may exhibit characteristics of both reduction and avoidance categories, as their classification can sometimes depend on the perspective and project details. Carbon credits are generated through reduction, removal, or avoidance projects. Reduction projects focus on minimizing emissions from specific activities or processes. Examples include energy efficiency improvements, renewable energy adoption, carbon capture and storage (CCS)[iii], and sustainable transportation. The success of reduction projects is measured by the decrease in emissions compared to baseline. Figure 2. Carbon Capture and Storage Chart Designed by macrovector - Freepik.com While reduction and removal may seem interchangeable, they are different. Removal projects such as direct air capture (DAC) technology[iv], afforestation, and reforestation, actively extract carbon from the atmosphere, contributing to a global reduction in carbon levels. Measurements are based on the tons of CO2 removed. Figure 3. DAC and CCS technology comparison The third category, carbon avoidance projects, aims to prevent the release of greenhouse gas emissions that would occur without intervention. Examples include forest protection against deforestation and sustainable waste management. Success is measured by the number of emissions prevented[v]. Table 1. Comparison of Carbon Credit Project Categories Navigating Risks and Time Frame Reduction projects yield immediate results in emissions reduction, whereas removal and avoidance may take time to demonstrate their full impact. However, each project typeface risks during implementation. For instance, direct air capture technology is expensive and energy-intensive[vi], potentially offsetting its carbon reduction benefits, but the permanence of carbon storage also raises concerns[vii]. Avoidance projects require careful assessment of the risk of emissions displacement. Successfully protecting an area from deforestation may inadvertently worsen deforestation in another area[viii]. Recognizing these distinctions is crucial for businesses navigating the complex landscape of carbon credit projects and markets. Summary and Call to Action In summary, businesses seeking sustainability practices must clearly understand the carbon market and project categories. For those interested in delving deeper, Mt. Stonegate offers comprehensive solutions and expertise in the Asian market. Contact us to lead your organization toward a sustainable future. References: “Carbon Removal vs Carbon Avoidance Projects · Abatable,” March 30, 2022. https://www.abatable.com/blog/carbon-removal-vs-carbon-avoidance-projects. Daugherty, Greg. “Carbon Markets: What They Are and How They Work.” Investopedia, October 13, 2023. https://www.investopedia.com/carbon-markets-7972128. DiFelice, Oakley Shelton-Thomas, Mia. “Direct Air Capture: 5 Things You Need to Know About This Climate Scam.” Food & Water Watch, January 19, 2023. https://www.foodandwaterwatch.org/2023/01/19/direct-air-capture-climate-scam/. Shelton-Thomas, Mia DiFelice, Oakley. “Why Carbon Storage Is a Bad Idea.” Food & Water Watch, September 6, 2023. https://www.foodandwaterwatch.org/2023/09/06/carbon-storage-bad-idea/. UNDP Climate Promise. “What Are Carbon Markets and Why Are They Important?,” May 18, 2022. https://climatepromise.undp.org/news-and-stories/what-are-carbon-markets-and-why-are-they-important. “What Are the Different Carbon Reduction Projects Types?,” February 7, 2023. https://climateseed.com/blog/what-are-the-different-carbon-reduction-projects-types. Zuo, Jian, Yashan Zhong, Yun Yang, Cong Fu, Xiangzhen He, Bo Bao, and Feng Qian. “Analysis of Carbon Emission, Carbon Displacement and Heterogeneity of Guangdong Power Industry.” Energy Reports, The 2021 7th International Conference on Advances in Energy Resources and Environment Engineering, 8 (September 1, 2022): 438–50. https://doi.org/10.1016/j.egyr.2022.03.110. [i] “What Are Carbon Markets and Why Are They Important?” [ii] Daugherty, “Carbon Markets.” [iii] “What Are the Different Carbon Reduction Projects Types?” [iv] DiFelice, “Direct Air Capture.” [v] “Carbon Removal vs Carbon Avoidance Projects · Abatable.” [vi] DiFelice, “Direct Air Capture.” [vii] Shelton-Thomas, “Why Carbon Storage Is a Bad Idea.” [viii] Zuo et al., “Analysis of Carbon Emission, Carbon Displacement and Heterogeneity of Guangdong Power Industry.”

Writer: Krishnan SRINIVASAN Social Media Team: George K. KIONGSON Climate Reporting Becomes Mandatory in Singapore from 2025 Onward [i],[ii] Figure 1: Photo by Jisun Han on Unsplash All companies listed on the exchange will be required to report their Climate-Related Disclosures (CRD) starting from the fiscal year 2025 using requirements aligned with the International Sustainability Standards Board (ISSB) standards, while large non-listed companies will have to comply from the fiscal year 2027 onwards. These large non-listed companies (called large NLCos) have an annual revenue of no less than $1 billion and total assets amounting to at least $500 million. The Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo) have outlined the specifics of this mandatory climate reporting initiative for both listed issuers and sizable non-listed entities. SGX RegCo also plans to have a public consultation on the specific rule amendments for implementing the recommendation concerning listed issuers. This includes the mandate for climate-related disclosures aligned with the ISSB Standards starting from the fiscal year 2025. This initiative shows the government’s commitment to enhancing companies' sustainability capacity and helping drive the green transition. With a higher environmental focus, companies that can furnish CRD can access new markets, customers, and investment opportunities. The Ministry of Trade and Industry (MTI) will extend support to help companies kickstart their climate reporting journey and build climate reporting capabilities. Singapore government shall provide funding support of up to 30% for large companies that will make climate-related disclosures aligned with the International Sustainability Standards Based framework from 2027. Table 1: Timeline for reporting CRD IEA Study Indicates Surge in Global Energy-Related CO2 Emissions in 2023 [iii] Figure 2: Photo by Anne Nygård on Unsplash According to the IEA's annual emission update, CO2 emissions from energy sources rose by 1.1 percent in 2023, climbing by 410 million tonnes to reach a new peak of 37.4 billion tonnes. This growth rate represents a deceleration compared to the 490 million tonne increase observed in 2022. Over the ten years ending with 2023, global CO2 emissions have grown by slightly more than 0.5 percent per year. The IEA emphasized that the global surge in energy-related CO2 emissions over the past five years would have increased thrice from 900 million tonnes, if not for adopting technologies such as solar panels, wind turbines, nuclear power, and electric cars. In 2023, carbon emissions from energy increased in China and India, while advanced economies experienced a historic decline in emissions despite economic growth. These advanced economies achieved a 50-year low in emissions, attributed to reduced coal demand to levels reminiscent of the early 1900s. Mass Coral Bleaching Affects Australia's Great Barrier Reef [iv],[v],[vi] Australia’s Great Barrier Reef has been hit by a major coral bleaching event likely caused by heat stress built up over the summer. Widespread mass bleaching was first seen in 1998 and happened again in 2002, 2016, 2017, 2020, 2022, and now in 2024. Figure 3: Photo by Francesco Ungaro on Unsplash Extending across 2,300km (1,400 miles) along Australia's north-eastern coastline, the Great Barrier Reef stands as the largest coral system globally and represents one of the most diverse habitats in terms of biodiversity. It is home to hundreds of coral, 1,500 fish species, and 4,000 different mollusks. The Great Barrier Reef has been listed as a heritage site for more than four decades due to its immense significance. However, UNESCO has raised concerns, stating that this iconic natural wonder faces a "serious threat" from warming seas and pollution. Bleaching leads to the loss of colorful algae residing in coral tissues, turning them white. While corals can endure a bleaching episode, it may hinder their growth and reproductive capabilities. If temperatures fall, corals can survive but scientists say they tend to be more susceptible to disease and struggle to reproduce. Prolonged or intense heat has the potential to cause coral death. According to reports from the United States government's Coral Reef Watch program, global ocean temperatures have remained high for nearly a year. The planet is on the verge of a global mass coral bleaching event that hit reefs in the Atlantic, Pacific, and potentially the Indian Ocean. The world's southernmost coral reef, located at Lord Howe Island off Australia's New South Wales coast, is currently undergoing bleaching. According to a statement by the World Wide Fund for Nature (WWF), the ongoing mass bleaching event, among several occurrences in recent years, could indicate climate change exerting strain on the reef. For expert market insights and updates, please don't hesitate to contact Mt.Stonegate. We provide comprehensive one-stop solution services and hold a strong position in the Asian market. References: [i] https://esgnews.com/singapore-to-introduce-mandatory-climate-reporting-beginning-2025/ [ii] https://www.pinsentmasons.com/out-law/news/singapore-to-roll-out-mandatory-climate-reporting-from-2025 [iii] https://phys.org/news/2024-03-energy-carbon-dioxide-emissions-iea.html [iv] https://www.theguardian.com/environment/2024/mar/08/coral-bleaching-great-barrier-reef-australia [v] https://www.theguardian.com/environment/2024/mar/08/coral-bleaching-great-barrier-reef-australia [vi] https://www.aljazeera.com/news/2024/3/8/australias-great-barrier-reef-hit-by-mass-coral-bleaching

Writer: Albert SUTANTO, Krishnan SRINIVASAN, Social Media Team: George K. KIONGSON The growing consciousness about the environment and the imperative to devise effective strategies against climate change have led to the establishment of carbon exchanges in Asia. While these exchanges were historically more prevalent in Western economies, they are now gaining prominence in Asia, signaling the region's dedication to tackling environmental challenges and actively contributing to global endeavors in reducing carbon footprints. Carbon exchanges serve as specialized markets tailored to facilitate the trading of carbon credits, operating in both compliance and voluntary markets. They have become indispensable tools for countries aspiring to achieve carbon neutrality and fulfill their commitments to achieving net-zero emissions. Notably, several Asian nations, including Japan, Taiwan, Malaysia, and Indonesia, have recently launched carbon exchanges, marking a significant step in their collective journey toward environmental sustainability. Figure 1. Stock Exchanges Japan[1] On October 11, 2023, Japan's Tokyo Stock Exchange (TSE) commenced its trading of carbon credits. Yasutoshi Nishimura, the Trade Minister of Japan, noted a significant shift in the approach, stating that "Japan's industry ministry has been cautious about implementing emissions trading, but we have made a major turn to utilize the carbon credit market to achieve our carbon-neutral goal." Within the TSE framework, members have the opportunity to engage in the trading of existing J-Credits, which constitute a domestic carbon crediting mechanism primarily traded among individual companies. The volume amounted to 3,689 metric tons of CO2 on the inaugural day. The transaction prices for J-Credit on energy-saving stood at 2,850 yen per ton-CO2, while for J-Credit on forest, they were at 9,900 yen in the morning session and 7,000 yen in the afternoon. Taiwan[2], [3] On August 7, 2023, President Tsai Ying-Wen formally inaugurated the Taiwan Carbon Solution Exchange (TCX), committing to supporting local businesses in transforming the hurdles of achieving net-zero carbon emissions into viable business prospects. President Tsai emphasized that the exchange would streamline carbon credit trading and incentivize enterprises to decrease their carbon footprint. She highlighted how these trading mechanisms would stimulate the advancement of low-carbon technology research and development, bolster personnel training aligned with net-zero objectives, and foster a positive cycle for Taiwan's green economy. Trading activities commenced on December 22, 2023, at TCX, totaling 88,520 metric tons of international carbon credits sold, amounting to a value exceeding US$80,000. Notably, the initial sale exclusively involved international carbon credits, as regulations related to domestic carbon emission reduction fees are yet to be finalized by the Ministry of Environment (MOENV). These regulations are expected to be presented in the first quarter of 2024. Malaysia[4],[5],[6] Bursa Carbon Exchange (BCX), the newly introduced carbon trading platform by Bursa Malaysia, concluded its inaugural pilot carbon credit auction, with domestic buyers acquiring the entire inventory of Verra-registered carbon credits. The electronic auction, held on March 16, 2023, witnessed the participation of 15 entities from various industries, collectively procuring 150,000 credits. The official launch of Bursa Malaysia's carbon credits trading platform on September 25, 2023, demonstrated promising signs of success. Participants from diverse sectors, including notable entities such as Vitol Asia and CIMB Bank, actively engaged in trading activities. Ten companies completed transactions involving 16,500 Verra-registered carbon credits on the exchange in the initial two days of trading. With its successful operations, BCX is expanding its product offerings, intending to incorporate Renewable Energy Certificates (RECs) into its trading platform. Indonesia[7] On September 26, 2023, President Joko Widodo of Indonesia introduced the nation's inaugural carbon emission credit trading system, intending to establish a market that funds reductions in greenhouse gas emissions and positions Indonesia as a significant player in the global carbon trade. The opening session saw the trading of thirteen carbon credits, representing nearly 460,000 metric tonnes of carbon dioxide equivalent from projects by PT Pertamina Geothermal Energy in North Sulawesi. These credits were priced at 69,600 rupiah ($4.51) per tonne, as the trading board at the Indonesia Stock Exchange reported, which facilitated the transactions. Key buyers included major Indonesian banks such as Bank Central Asia and Bank Mandiri, various units of the state energy firm Pertamina, and companies in the mining sector. In its initial phase, the trading will be entirely voluntary, although the government is actively developing mandatory measures such as a carbon tax and an emission trading system (ETS), which have been in effect for coal power plants since February. Figure 2. Carbon Emissions To conclude, the emergence of carbon exchanges in Asia reflects a dynamic shift in the region's approach to environmental sustainability. By embracing these platforms, Asian countries are fostering economic incentives for businesses and actively participating in the global movement towards a more sustainable and environmentally conscious future. For further assistance in navigating the Carbon Market, don’t hesitate to contact Mt.Stonegate, as we lead to a better future. We offer comprehensive one-stop solution services and hold a prominent position in the Asian market. References: [1] https://www.reuters.com/sustainability/tokyo-stock-exchange-kicks-off-carbon-credit-trading-2023-10-11/ [2] https://taiwantoday.tw/news.php?unit=10&post=240255&unitname=Society-Top-News&postname=President-Tsai-launches-Taiwan-Carbon-Solution-Exchange [3] https://focustaiwan.tw/business/202312220018 [4] https://bcx.bursamalaysia.com/web/auctiondetails [5] https://carbonherald.com/malaysia-officially-launches-carbon-exchange/ [6] https://www.nst.com.my/business/corporate/2023/09/959997/bursa-malaysia-kicks-carbon-credits-market-deals [7] https://www.reuters.com/sustainability/sustainable-finance-reporting/indonesias-president-launches-carbon-emissions-trading-2023-09-26/

Writer:: Lynn HSIAO, George K. KIONGSON Social Media Team: George K. KIONGSON If your company operates in Japan and needs to purchase unbundled renewable energy certificates (RECs), you might be concerned about how to choose among the different types of RECs available. Clearly, for a company's first attempt with low demand in this market, the most flexible and accessible way is to choose Non-Fossil Certificates (NFCs). Background In 2016, the Sophisticated Act was amended, mandating electricity retailers to achieve at least a 44% non-fossil fuel target by 2030. At that time, because general electric utilities acquired most of the renewable energy electricity through FIT, the electricity market required a more accessible approach to procure non-fossil value. Thus, the first NFCs were issued in 2017 at the Non-fossil Value Trading Market under the Japan Electric Power Exchange (JEPX), allowing small and medium-sized electric retailers to participate in certificate auctions. Subsequently, increasing numbers of electricity consumers required the market to provide unbundled RECs due to regulatory requirements or voluntary commitments. In 2021, the market further expanded, with the original "Non-fossil Value Trading Market" splitting into the "Renewable Energy Value Trading Market" and the "Fulfill Sophisticated Act Market." The former allows direct participation from general electricity consumers, while the latter is limited to retailers. Transformation In the original NFCs system, end-users could only acquire certificates through retailers, increasing costs. Additionally, since NFCs initially did not track information on renewable energy, they were not recognized by RE100. For RE100 members with operation sites in Japan, NFCs did not provide assistance. Based on the reasons mentioned above, NFCs underwent partial changes in 2021. Firstly, end-users were allowed to acquire certificates through retailers or directly participate in market auctions, increasing flexibility in acquisition approaches and allowing end-users to reflect market prices in their costs. Secondly, all certificates traded in the Renewable Energy Value Trading Market must track information on renewable energy. Consequently, multinational corporations joining RE100, such as Microsoft, began using NFCs after 2021. Different Types of NFCs NFCs can be divided into three types: FIT NFC, non-FIT NFC (renewable), and non-FIT NFC (non-renewable). The distinction between FIT-NFC and non-FIT is based on whether the renewable generation facility accepts FIT. Therefore, FIT NFCs are primarily sourced from solar energy. Besides, since NFCs are certificates issued for non-fossil fuels, the distinction between non-FIT NFC (renewable) and non-FIT NFC (non-renewable) depends on whether the latter is given for nuclear energy or waste plastic. In the Renewable Energy Value Trading Market, only FIT NFCs can be obtained. The other two types of NFCs are traded in the Fulfill Sophisticated Act Market, and businesses seeking to use these NFCs can only purchase certificates through retailers. For companies with high certificate demand and a desire for more options, over-the-counter trading provides a more tailored solution to meet the company’s specific needs. Table 1: Different Types of NFCs Source: JPEX, REI, METI Made by Mt.Stonegate Status Currently, NFCs (excluding Non-FIT NFC (non-renewable)) represent the highest issuance and transaction volume among all renewable energy certificates in Japan. In FY2022, the total issuance of RECs, including GEC, I-REC, and J-Credit (renewable), exceeded 20 million MWh, with FIT-NFC accounting for 72% and non-NFC (renewable) representing 21%. Regarding pricing, FIT NFCs in the market trade within the range of 0.4-4 JPY/kWh, while non-FIT NFCs are in the range of 0.6 to 1.3 JPY/kWh. Table 2: Consumer Cost and Issuance of FIT NFC and non-FIT NFC Source: JPEX, REI, METI Made by Mt.Stonegate Conclusion Due to NFCs’ comparatively lower prices, higher issuance quantities, and diverse acquisition options, NFCs are an excellent choice for end-users initially utilizing renewable energy certificates. For companies already well-versed in procuring and using such certificates, there is an opportunity to diversify the company’s renewable energy certificate portfolio. For instance, businesses can opt for higher-quality certificates or RECs with greater international recognition. Alternatively, for companies seeking a stable, long-term supply of a substantial quantity of renewable energy certificates, engaging with suitable retailers can provide a tailored combination or package of certificates to suit the company’s specific needs. For further assistance in navigating Japan’s renewable energy sector, don’t hesitate to contact Mt.Stonegate, as we lead to a better future. We offer comprehensive one-stop solution services and hold a prominent position in the Asian market.

Writer: George K. KIONGSON, Jonathan PHILLIP Social Media Team: George K. KIONGSON Source: International Maritime Organization (https://www.imo.org/en/OurWork/Environment/Pages/IMO-at-COP-28.aspx) Introduction: Quick History of COP For over three decades, the Conference of the Parties (COP) by the United Nations (UN) has been on the global stage for tackling climate change. This annual meeting, hosted by different countries, brings nations together to negotiate, assess progress, and chart a sustainable future, from the Rio Summit's groundbreaking Framework Convention in 1992 to the Paris Agreement's landmark pledge to limit rising temperatures in 2015. COP28, held in Dubai in late 2023, marked a historical agreement to transition away from fossil fuels. Now, the focus shifts from lofty pledges and targets to action, where governments and the private sectors hold the key to unlocking a low-carbon future. This article aims to aid businesses in cracking the COP28 code by presenting the challenges and opportunities of carbon and renewables. COP28 key takeaways and its influence on private sectors After two intense weeks of deliberations and negotiations, COP28 concluded with mixed sentiments about whether this COP was successful or a flop, as the progress is not accelerating as expected by others. Nevertheless, here are some of the key takeaways from COP28: Transition away from fossil fuels In its 28th year of the COP, for the first time, fossil fuels were acknowledged, and a deal was agreed upon to "transition away from fossil fuels." However, the agreement did not explicitly commit to phase out or even phase down fossil fuels. As a compromise, the deal calls for transitioning away "in a just, orderly, and equitable manner, accelerating action in this critical decade." To some extent, the deal illustrates developments already in progress, as several governments have recently implemented policies to shift towards a greener economy. For example, Europe and the United States have decommissioned coal-fired power plants. 2. Article 6/Voluntary Carbon Market (VCM) In 2023, the VCM was in a negative light as scandals emerged in the entire market sector, especially nature-based projects. Preceding COP28, market participants and stakeholders hope to acknowledge the issues and solutions regarding transparency, governance, and oversight while strengthening the end-buyers use and claims. The COP28 announced the formulation of a coalition by the main entities and stakeholders of the VCM to ensure the positive impact of the market that gives assurance to the investors and buyers. It has been announced that several standards, such as Verra, will work with the Integrity Council for the Voluntary Carbon Market (ICVM) to adhere their methodologies to the Core Carbon Principles (CCPs)— parameters to guarantee the quality and integrity of the carbon credits. Furthermore, the Science Based Targets Initiative (SBTi), the Voluntary Carbon Markets Initiative (VCMI), the GHG Protocol, and the We Mean Business Coalition joined forces to develop integrity guidance that provides scientifically based methodologies for the decarbonization of production processes and the use of voluntary carbon credits to offset residual carbon emissions. Another significant outcome of COP28 is the Transition Credit framework by the Coal Clean Credit Initiative (CCCI), which supports a transition from the fossil fuels agreement. This framework invests in the early phase-out of coal plants in emerging markets and replaces them with clean energy sources. The pilot project is in the Philippines, where 60% of the national power mix is coal. Despite all these successful outcomes, the COP28 concluded without a final agreement regarding Articles 6.2 and 6.4 of the Paris Agreement. This outcome represents a missed chance to establish clear guidelines for carbon trading, including the role of VCM. Presently, this means another year of uncertainty for the VCM in the absence of international trade carbon credit rules, which poses a problem for smaller countries to leverage the opportunities of Article 6.2 regarding the internationally Transferred Mitigation Outcomes (ITMOs). However, the market is still growing, as evident by the numerous agreements between countries. 3. Tripling Renewable energy capacity globally COP28 vows to triple the global renewable energy capacity to at least 11,000 GW and double the global average annual rate of energy efficiency improvements by 2030. Some new pledges were launched, such as the goal of tripling nuclear energy capacity globally by 2050. That would mean increasing the investment in renewables. According to the International Energy Agency (2023), more than USD 800 billion is needed to achieve this target. It is also mentioned that some investors are retreating because of the higher borrowing costs. Conclusion It is important to note that the progression of the carbon and renewables market depends on the corporations and the standards set in the COPs. It is crucial to emphasize that corporations lack the motivation and assurance to invest confidently in these markets without well-defined rules. To explore the market challenges and opportunities tailored to your needs, contact Mt.Stonegate. We lead to a better future, providing high-quality one-stop solution services and holding a solid position in the Asian Market. Reference: [1] International Energy Agency (2023). Lack of ambition and attention risks making electricity grids the weak link in clean energy transitions https://www.iea.org/news/lack-of-ambition-and-attention-risks-making-electricity-grids-the-weak-link-in-clean-energy-transitions

Writer: Krishnan SRINIVASAN, Dongqi YANG Social Media Team: Irina LIN India is the second largest greenhouse gas emitter and energy consumer in Asia, which comes after China and Prime Minister Narendra Modi declared in 2021 that the nation would achieve net zero by 2070. To tackle climate change, India has announced draft guidelines for the issuance and trading of carbon credits as part of the operationalization of its compliance carbon market. Governance Structure: The Bureau of Energy Efficiency (BEE) under the Ministry of Power will be the administrator of this scheme, and the Central Electricity Regulatory Commission (CERC) will act as a market regulator for trading activities. The Ministry of Environment, Forest and Climate Change (MoEFCC) will be announcing greenhouse emission intensity targets for the obligated entities based on India's Nationally Determined Contributions (NDCs). The Carbon Credit Certificates (CCCs) will be issued from a national registry, called the Indian Carbon Market or ICM registry. For obligated entities, they need to buy and sell CCCs through designated power exchanges. Figure 1: Governance Structure of Indian Carbon Market GHGs covered under this mechanism: India’s Carbon market is anticipated to encompass a broader range of greenhouse gases (GHGs), such as Methane, Nitrous Oxide, Tetrafluoromethane, Hexafluoroethane, and Perfluorocarbons. As per the draft, emissions for all GHGs will be expressed in terms of CO2 equivalents. Intensity-based Approach: BEE’s draft states that India will follow an Intensity-based approach. The government will set annual targets for greenhouse gas or GHG emission intensities, i.e. maximum amount of GHG emission (tCO2e) allowed per unit of product/output (tons). Compliance Mechanism: India's carbon market is expected to follow a one-year compliance cycle, requiring obligated entities, to report their performance annually based on an Intensity-based approach. Obligated entities will receive CCCs if they manage to keep emissions below the target and have to purchase CCCs if their intensities exceed the targets. India has planned to implement its compliance mechanism around 2026, with 11 sectors expected to be covered initially, including Refineries, Cement plants, Iron and Steel, Chlor-alkali, Aluminum, Thermal power stations, and Fertilizers etc. Although the compliance cycle is one year, the greenhouse gas (GHG) intensity targets will be announced once every three years. This approach allows obligated entities to formulate longer-term plans for decarbonization, and they will also be allowed to bank their surplus CCCs from the current compliance period and use them for the next period. Each obligated entity will be allocated specific targets based on the sector-wide emission reduction trajectory as well as its average rate of historical emission reductions. The basic elements of the cycle – baselining, implementation, monitoring, and verification – are common to all organizations that must comply with laws and regulations. Figure 2: Compliance Mechanism Cycle The Baseline Year is first fixed before starting the compliance cycle based on which the Obligated Entities perform. Compliance Period: The Financial Year in India starts on 01st April 20XX (current year) and ends on 30th March 20XY. (next year) After the end of the Compliance period, the entities will have to move forward to the verification. Every obligated entity, within three months of the conclusion of the Financial year from the baseline year, shall submit the performance assessment document to the verifiers. Next will be the Issuance process which has to be completed within six months of the completion of the financial year and demonstrate compliance within nine months of the completion of the financial year. The draft outlines the adoption of a "gate-to-gate" approach, which entails accounting for emissions from the raw materials to the completion of the production process. As per the draft, BEE excludes the monitoring of greenhouse gas (GHG) emissions arising from renewable energy sources, biomass, or biogenic energy sources. Additionally, the purchase of Renewable Energy Certificates (RECs) will not be acknowledged as a valid measure for claiming renewable energy consumption within the compliance framework. Therefore, obligated entities cannot use RECs to waive liable emissions.

Writer: Vivi CHEN, Jenica OU Social Media Team: Irina LIN Coverage Carbon Border Adjustment Mechanism (CBAM), launched by the European Union, serves as an import tax on products designed to address the "carbon leakage" issue, preventing businesses from relocating production to other countries to evade the costs associated with climate policies. The regulation was enacted on 17 May 2023, covering six sectors at the highest risk of carbon leakage: electricity, aluminum, iron and steel, cement, fertilizers, and hydrogen. Notably, in the steel sector, it extends beyond the basic material to include further down the value chain, such as screws and bolts. The relevant regulations of the European Union until November 2023 specify emission scope requirements for six industries, as shown in Table 1. During the transition phase, all enterprises in these industries, except for the electricity sector, must report both direct and indirect emissions. In the final phase, it is currently anticipated that only indirect emissions related to cement and fertilizer products will be considered, while the other three industries will require further consideration. Table 1. CBAM Constrains Industries and Corresponding Scope Current Phase of CBAM Regulation First Stage – Transitional Phase Before the CBAM becomes fully operational, there will be a transitional period[1]. This transitional period, which began on October 1, 2023, and concludes at the end of 2025, requires the reporting declarant (the importer or the customs representative) to submit quarterly reports on emissions embedded in CBAM goods imported during each quarter. No financial adjustment is required during this phase, allowing the final system to be implemented. Second Stage - End Stage The definitive period of CBAM will come into effect in January 2026, marking the commencement of importers paying the CBAM financial adjustment. Upon the commencement of this period, EU importers will purchase CBAM certificates equivalent to the carbon price that would have been paid if the goods were produced under the EU's carbon pricing rules. Conversely, suppose a non-EU producer has already paid a carbon price in a third country for the embedded emissions in producing the imported goods. In that case, the corresponding cost can be fully deducted from the CBAM obligation. This phase will persist until free allowances in CBAM sectors are entirely phased out in 2034. The impact on Asian industries – Mainland China & Taiwan Following the announcement of the CBAM transitional period, questions have arisen about its impact on trade between Europe and Asian industries, including China and Taiwan. As of now, the EU’s CBAM is most likely to impact Chinese exports to the EU in the steel sector. According to China Metallurgical Industry Planning and Research Institute, based on steelproducts exported from China to the EU in 2022 (389 million tons), the total value of steel products exported to the EU in 2022 (USD 6.44 billion), and the average carbon price in the EU carbon market in 2022 (EUR 81 per ton), the cost of China industry products exported to the EU is expected to increase by around 4% to 6%. This implies an annual payment ranging from USD 200 million to USD 400 million to the EU.[1] Examining the impact on Taiwan, the Chung-hua Institution for Economic Research shows that over the recent five years, the average annual export of products from Taiwan to the EU was nearly 1.8 million tons, with an average yearly export value to the EU (USD 1.21 billion). This accounts for 5.2% of Taiwan's annual average export value to the EU. Steel represents the highest proportion, with an average annual export value (USD 11.96 billion), followed by aluminum (USD 1,362 million). Following the implementation of CBAM in 2026, the financial adjustment is projected to amount to 1.21 billion USD.[2] Based on the statistics, the impact of CBAM has already been felt to a certain extent. CBAM has extended its control to downstream products of the steel industry, directly affecting the exports of steel and aluminum, which include items like screws, bolts, and nuts. CBAM might further expand its regulated industries in the future as well. Therefore, countries must understand the actions businesses should take to prepare for the future. Further Action The CBAM introduced by the European Union signifies a noteworthy advancement in the global initiative to mitigate greenhouse gas emissions. For companies or industries affected by the CBAM, feel free to contact Mt.Stonegate for comprehensive assistance in minimizing risks related to CBAM and other evolving carbon market regulations. Ref. [1] Bird&Bird. (2023, July 17). CBAM Reglation adopted. https://www.twobirds.com/en/insights/2023/global/cbam-regulation-adopted [2] 車百智庫. (2023, September 20). 歐盟碳關稅即將落地，影響幾何？. https://baijiahao.baidu.com/s?id=1777513410632575255&wfr=spider&for=pc [3] 中華經濟研究院. (2021, August 4) 國際碳邊境調整機制與國內碳定價風險因應https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjo-ZLN_bODAxUIslYBHTSXAU8QFnoECAoQAQ&url=https%3A%2F%2Fwww.moea.gov.tw%2FMNS%2FCORD%2Fcontent%2FwHandMenuFile.ashx%3Ffile_id%3D26799&usg=AOvVaw1QqF3WwRmH1vQpHrRh5_O4&opi=89978449

Writer: Tiantai LING, Albert SUTANTO Social Media Team: Irina LIN Overview The New Batteries Regulation, entering into force on 17 August 2023, is another demonstration of the European Union's (EU) even stricter environmental regulation on products sold in its territory. Carbon footprint is one of the most central components of the new regulation, stipulating that all batteries, not only those sold independently but also those incorporated or added to products, shall bear clearly legible carbon footprint labels. This requirement will be applied starting from EV batteries as early as February 2025. In addition, the EU plans to set maximum lift cycle carbon footprint thresholds in the future. Companies are mostly concerned with the methodology of the carbon footprint calculation. In particular, instruments' eligibility will substantially affect their carbon reduction strategies. This article will mainly discuss the electricity modeling for calculating indirect emissions inventory aligned with the New Batteries Regulation. Indirect emission footprint from electricity consumption The regulation requires that carbon footprint be calculated in compliance with the latest EU product environmental footprint (PEF) methodologies and its categories rules (PEFCR). In the latest PEF-aligned rules for the calculation of the Carbon Footprint of Electric Vehicle Batteries (CFB-EV) published by the EU Joint Research Centre (JRC), a hierarchy is established for the calculation of carbon footprint resulting from electricity consumption, shown in Figure 1. On-site generation and supplier-specific products are recognized. The supplier-specific product, which should include a Power Purchase Agreement (PPA), retail supply contract, and probably unbundled renewable electricity certificates (RECs), however, is accepted only if the associated contractual instruments meet certain criteria (See Figure 2 and CFB-EV for detail). PPA and retail electricity products should generally be bundled with underlying RECs so that no double-counting problem will occur. This means that the REC should fulfill those criteria established by JRC if supplier-specific emission factors are to be used. Criteria for eligible supplier-specific electricity product The criteria established in the JRC rules are stringent and prototyped according to the EU Guarantee of Origin (GO). Indeed, the rules explicitly state that "GO are currently the only contractual instruments that comply with the minimum reliability criteria in the European Union". For example, a critical criterion stated that the contractual instruments shall "be associated with a quantity of generated electricity that is reported and considered for the determination of the country-specific residual consumption mix, and this unique residual consumption mix is disclosed publicly by a competent authority." The residual consumption mix, or residual mix, in brief, is the emission factor characterizing those electricity with unclaimed emission attributes, compared with the country's average emission factor. As a matter of fact, few REC schemes worldwide other than GO have implicitly calculated this residual mix. For example, the most prevalent RECs in China, the Chinese Green Electricity Certificate (GEC) and the International Renewable Electricity Certificate (I-REC), currently do not disclose their residual mix. Conclusion When we look at the Chinese example above, if GEC and I-REC do not fulfill the CFB-EV criteria, would it be impossible to claim any external renewable electricity purchase in the carbon footprint of all batteries fabricated in China and exported to the EU? It is impossible to give a clear answer to this question now. However, this will likely be a dynamic process involving different stakeholders. On the one hand, issuers of RECs and corporate users are always on the way to improving the REC standards and avoiding double counting. On the other side, regulators may also look at and refine the implementation of their rules. Whatever the case, companies, not just the battery manufacturers, should continue their transition to renewable electricity and keep their attention on relevant policies. As international green barriers prevail, just like the EU New Battery Regulation and CBAM, more sectors are expected to be affected. Figure 1. CFB-EV electricity modeling for indirect emission footprint Figure 2. Instruments criteria for supplier-specific electricity product

Writer: Vivian CHUANG, George K. E. KIONGSON Social Media Team: Irina LIN Renewable energy plays a crucial role worldwide; it is an essential solution to climate change, reducing reliance on fossil fuels and lowering CO2 emissions. Both government and businesses must participate to foster the advancement of renewable energy. Businesses, in particular, should proactively invest in renewable energy sources. Such investments fulfill corporate social responsibility and contribute significantly to diverse national goals. Companies can substantially shape a sustainable and resilient energy future by stabilizing the power grid, diversifying the energy portfolio, and boosting overall national competitiveness. Normally, companies procure electricity from the power grid and calculate their emissions using default emission factors. However, when considering lower carbon emissions, organizations can purchase renewable energy certificates (RECs) or Energy Attribute Certificates (EACs) to claim the use of renewable energy. Depending on geographic region and regulatory frameworks, these certificates are known by various names, such as Renewable Energy Certificates (RECs) in the U.S. and Canada, Guarantees of Origin (GOs) in Europe, and other National EACs such as Taiwan T-REC, China GEC, Japan GEC, and Australia LGC. These certificates allow companies to claim the utilization of renewable energy and can be traded independently of physical electricity. This flexibility enables purchasers worldwide to assert environmental advantages associated with renewable energy. Renewable power plants can register their electricity generation through global registries such as Tradeable Instruments for Global Renewables (TIGRs) and  International Renewable Energy Certificates (I-RECs)— universally accepted RECs in regions that lack regulated national renewable electricity systems. As of October 5, 2023, I-REC has been issued in 40 countries, with an accumulated issuance quantity of 552.11 million. The International Tracking Standard Foundation (I-TRACK Foundation), previously named the International REC Standard Foundation (I-REC Standard), is a non-profit international organization dedicated to empowering energy consumption choices globally. Each I-REC represents the unique identification of 1 MWh of renewable energy connected to the grid. Using I-RECs aids in achieving scope 2 emission reduction goals based on the Greenhouse Gas Protocol's scope 2 guidance. Moreover, the I-REC Standard ensures that issued certificates adhere to major international sustainability and carbon accountability standards, including GHGP, CDP, and RE100, aligning with stakeholders' expectations of industry best practices. Using I-REC enables companies to transparently and evidence-based reduce their scope 2 emissions. If your company wants to understand how purchasing RECs/I-RECs can address electricity emissions and help achieve sustainability goals with additional ecolabels such as EKOenergy and Green-e, please contact Mt. Stonegate. We lead to a better future, providing high-quality one-stop solution services and holding a strong position in the Asian Market.

Project Analyst, Shanghai “From Asia to the world, we empower consumers choice to reveal the true virtual of green electricity.” Mt.Stonegate is rapidly expanding! We are looking for someone who can take part in our extensive global network to learn and grow with us. This is your opportunity to learn more about the energy sector and impact the success of our business and your own personal growth. * This position is based at our Shanghai office located in Xuhui District. Who are we? Mt.Stonegate is one of the most active renewable energy traders and consulting firms in the Asia Pacific region. We are headquartered in Taiwan, with operations in Shanghai and Japan. From carbon credits, renewable energy to wind farm development, we unlock hurdles each stops along the way to make possible the sourcing of renewable energy for corporates. Our Core Values: Our globalized outreach has found us a passionate team of professionals with diverse backgrounds and ethnicity. We play diversity to our strength to support our mission and find genuine harmony in love and respect. Work with an Open-Mind: Being in a fast-changing market, we stay flexible with the solutions we provide and are not afraid to make mistakes. We love our work, and value our people: We devote energy and resources to building your skills and support your growth. We work as a team to support our mission and find genuine trust, love, and respect. Who are we looking for? We have an opening for Project Analyst, with visible career development pathway. This opportunity is currently open to new-grad students currently in their final year of study. Key Responsibilities Native Japanese speaker. Bachelor graduate or undergraduate student who is in their final year of study. Preferable in Environmental Science, Marketing, Public Policies, International Relationship, English or other related fields. Fluent English communication skills; both verbally and written. Chinesecommunication skill is a plus. Interested in global warming and environment-related topics . Stress resistant and capable of working independently. Proficient in MS office applications. Job Requirements Educate clients on international initiatives of renewable energy. Conduct market research on international renewable energy, electricity, carbon market and relevant policies. Assist project managers with project development along the project life-cycle. Provide other administrative support as needed. Job Highlights This role allows you to wear multiple hats to help you find your career passion. Become part of our great team and work with us towards a more sustainable planet. Employee may apply to work in our Japanese branch after one year of service. How to Apply? If you are willing to take on steep learning curve, AND appreciate work-life balance, we would love to hear from you.Please submit your interest with the following: Cover letter in English; Your CV in English, concisely demonstrating how you meet the required skills, experience or key responsibilities. To hr@mtstonegate.com and yiling.zhang@mtstonegate.com. -Visit Our Website: https://www.mtstonegate.com -Follow us on LinkedIn: https://www.linkedin.com/jobs/view/2472243874/?refId=Jdv4XiwQTgugoMP2bTdQ5g%3D%3D