Russia’s invasion of Ukraine is expected to boost fossil fuel demand and carbon emissions in the near term, which means more companies will need carbon credits to offset their emissions, eventually resulting in higher carbon prices, according to executives at an event in Singapore March 16.

Carbon prices have been highly volatile since the war in Ukraine started in early March, with EU carbon allowance prices falling nearly 42% in the span of a week and then rebounding sharply.

The volatility impacted sentiment in carbon markets around the world, including the voluntary market and regional carbon markets.

The expectation is we will see a bump in emissions this year because of the rebound in fossil fuel demand, Claire O’Neill, managing director at World Business Council for Sustainable Development, said when asked how the conflict will impact global carbon markets.

“There will be more carbon that we have to remove. There will be an acceleration of looking for carbon removal solutions. And there will be more focus on really high-quality carbon removals with co-benefits,” she added.

“There will be more demand for carbon credits, and we will see a more realistic price for carbon globally,” Chris Leeds, head of carbon market development with Standard Chartered, said in response to the same question.

Russia’s invasion of Ukraine has forced Europe to recalibrate its energy dependency on Moscow, mainly natural gas supply, and alternatives likely mean shipping in more seaborne LNG and ramping up coal-fired power generation, all of which are more emission intensive options. While Europe is expected to accelerate its move to cleaner energy in the long term, it may end up burning more coal in the short term.

The executives were speaking at the launch of a digital carbon offset trading platform by Singapore-based carbon exchange Climate Impact X, or CIX. The platform called Project Marketplace, which allows businesses and carbon project suppliers worldwide to trade carbon credits, is part of Singapore’s move to becoming a trading hub for carbon.

Leeds said the European Union’s cross-border carbon adjustment mechanism, which puts a carbon price on imports of goods and material, is an example of how carbon prices around the world are getting linked and will be relevant for international trade.

He said growing linkages among carbon markets around the world, including markets like China, India, US and elsewhere, mean global carbon exchanges will become increasingly relevant, and provide important price signals to people who want to reduce emissions.

CIX is a joint venture between Singapore Exchange, DBS, Standard Chartered, and investment company Temasek Holdings owned by the Singapore government. Its digital platform allows companies to buy voluntary carbon credits of their specifications and currently covers nature-based credits from sources like afforestation projects.

In the second half of this year, CIX aims to expand into technology-based carbon removal solutions, such as carbon capture and storage credits. “I do expect our projects’ carbon credits will be priced at the high end,” Mikkel Larsen, chief executive of CIX, said.

Platts’ nature-based carbon credits were assessed at $10.20/mtCO2e on March 15, a 30% drop from February levels before Russia invaded Ukraine, according to S&P Global Commodity Insights.