Singapore sets eligibility criteria for international carbon credits to offset firms' taxable emissions

SINGAPORE: The Singapore government on Wednesday (Oct 4) set out the eligibility criteria governing international carbon credits that companies can buy to offset their taxable carbon emissions.

Minister for Sustainability and the Environment Grace Fu announced the new criteria, which involve seven principles, during the biennial National Energy Efficiency Conference.

The new eligibility criteria will ensure that the carbon credits are of "high environmental integrity", she said. 

"The development of well-functioning carbon markets, which effectively matches the demand and supply of high-quality carbon credits, is a vital part of global efforts to get to net zero," said Ms Fu.

From 2024, companies in Singapore will have the option to tap on eligible international carbon credits to fulfil part of their carbon tax liability. This was introduced in November 2022 as a way to help Singapore achieve net zero emissions by 2050.

A carbon credit is generated through activities that aim to reduce, remove or avoid carbon emissions - such as restoring forests or investing in renewable energy.

It is a permit or certificate that represents a reduction of one tonne of carbon dioxide emission. By buying these credits, companies can offset up to 5 per cent of their taxable carbon emission. 

Singapore’s carbon tax applies to all facilities producing at least 25,000 tonnes of greenhouse gas emissions in a year. Introduced in 2019, the tax was set at S$5 per tonne and will rise to S$25 per tonne in 2024 and 2025, and S$45 per tonne in 2026 and beyond. 

For companies with emissions that are hard to abate, international carbon credits present an alternative decarbonisation pathway allowing them to channel financial resources to support global projects to reduce or remove emissions. 

Detractors of carbon offsetting have pointed to the difficulty of verifying the actual impact of projects that produce carbon credits. Carbon crediting programmes, such as Verra's - one of the world's leading certifiers - are then introduced to verify the authenticity of these projects.

However Verra's work was called into question in a report by British newspaper The Guardian in January this year. The report stated that most forest carbon offsets approved by Verra were likely “phantom credits” that had “no benefit to the climate”.

Addressing the report in Parliament, Ms Fu said Singapore would take all scrutiny of carbon markets and projects seriously, to ensure carbon credits upheld high environmental integrity standards.

In a joint press release issued on Wednesday, the Ministry of Sustainability and the Environment (MSE) and the National Environment Agency (NEA) set out the eligibility criteria to guide the kind of international carbon credits that can be used by companies here to reduce their carbon tax bills.

As part of the criteria, the certified emissions reductions or removals must have occurred between Jan 1, 2021 and Dec 31, 2030, in compliance with the 2015 Paris Agreement.

International carbon credits must also comply with seven principles developed in consultation with more than 70 stakeholders across industry and non-governmental organisations. The criteria take reference from the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), one of the most rigorous international standards. 

The seven principles require that the carbon emissions reductions or removals are: 

• Not double-counted 
• Additional 
• Real
• Quantified and verified
• Permanent 
• Not causing net harm
• Not resulting in leakage 

The MSE and the NEA said the emissions reductions or removals must only be counted once. 

They must have been made possible only with financing from carbon credits, and qualified based on a realistic, defensible and conservative estimate of what would have been emitted in the absence of the project. 

They must be irreversible, or if there is such a risk, must have measures in place to monitor, mitigate or compensate such an occurrence, the authorities said.

Emissions reductions or removals must also be calculated conservatively and transparently; and measured and verified by an accredited and independent third party.

The project that generated the emissions reductions or removals must not violate laws, regulatory requirements or international obligations of the host country. It must also not cause an increase in emissions elsewhere, or if there is a risk in leakage, must have measures in place to monitor, mitigate and compensate such an occurrence. 

"We are developing the market and rules in parallel, with the aim of publishing a list of eligible carbon credit programmes, methodologies and host countries later this year," said Ms Fu.

"This will provide guidance to companies on the environmental integrity requirements of international carbon credits that will be accepted as carbon tax offset."

DEVELOPMENTS ON INTERNATIONAL CARBON CREDIT FRONT

Singapore has also "substantively concluded negotiations" with Ghana and Vietnam on Implementation Agreements, which set out the requirements and processes for compliant carbon credit cooperation, the authorities said.

Companies can source for international carbon credits generated under these Implementation Agreements to offset their taxable emissions.

Apart from Ghana and Vietnam, Singapore has signed memorandums of understanding (MOUs) with 12 other countries: Bhutan, Cambodia, Chile, Colombia, Dominican Republic, Indonesia, Kenya, Mongolia, Morocco, Papua New Guinea, Peru and Sri Lanka. It is in talks with others such as Brazil and Thailand. 

NEA has also signed MOUs with Verra's Verified Carbon Standard programme and four others: Gold Standard, Global Carbon Council, American Carbon Registry and the Architecture for REDD+ Transactions. 

More partnerships with carbon credit programmes can be expected in the future.

Alongside these developments, Ms Fu also gave updates on Singapore's carbon market infrastructure.

"We are currently developing our international carbon credit registry, which will account for the international carbon credits surrendered by taxable facilities and track them under Article 6 rules (of the Paris Agreement)," she said. 

"As we build and grow a carbon market locally, the carbon services industry will benefit from green growth opportunities, creating green jobs for Singaporeans while contributing to the global climate agenda," she added.

The MSE and the NEA also announced the formation of an International Advisory Panel for Carbon Credits which will guide Singapore’s policies relating to carbon credits, including matters on environmental integrity and carbon market development.

The panel comprises six members with expertise in finance, sustainability and international development. 

They are: 

• Chairperson, Professor Bertil Andersson, President Emeritus of Nanyang Technological University
• Ms Catherine McKenna, chair of the United Nations High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities
• Professor Koh Lian Pin, Associate Vice President and Chief Sustainability Scientist at the National University of Singapore
• Ms Patricia Espinosa, Chief Executive Officer and Founding Partner, Onepoint5 
• Ms Usha Rao-Monari, former Under-Secretary-General and Associate Administrator of the United Nations Development Programme 
• Ms Yuki Yasui, Regional Director of Asia Pacific, Glasgow Financial Alliance for Net Zero 

Editor's note: The window for the reduction or removal of certified emissions closes on Dec 31, not Dec 21, 2030, as stated in the original version of this article. We are sorry for the error.