SINGAPORE - Large emitters in Singapore who plan to shrink their carbon tax bill by buying international carbon credits would only be able to do so if the credits meet certain criteria.
At minimum, for instance, the credits must be certified by Verra or Gold Standard - two international organisations that have developed standards to ensure the carbon offsets they certify truly result in a reduction in the amount of greenhouse gases in the atmosphere.
The two bodies also have registries that list certified projects, enable the trading of carbon credits and allow "used" credits to be retired so the same credit cannot be used to offset the emissions of more than one party.
The National Environment Agency (NEA), which oversees Singapore's carbon tax regulations, said on Monday (Aug 29) that it has signed agreements with Verra and Gold Standard, to pave the way for businesses here to offset their carbon tax bill.
This update follows Deputy Prime Minister Lawrence Wong's announcement in February that businesses who must pay a carbon tax in Singapore can, from 2024, buy "high-quality, international carbon credits" to offset up to 5 per cent of taxable emissions, in lieu of paying the tax.
Singapore's carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year.
Said NEA in a LinkedIn post: "Companies can acquire eligible high-quality carbon credits issued by Gold Standard and Verra, and surrender them to the Singapore Government, subject to the carbon credits meeting the prescribed criteria set by the Singapore Government."
The agency added that both Gold Standard and Verra have "robust approaches and procedures to safeguard the environmental integrity of the carbon credits they issue".
The Straits Times understands that the full prescribed criteria for carbon credits that can be used under this scheme is still being worked out, as consultations between the Government and industry players are ongoing.
But the latest update from NEA is the first time that the Government has given an indication of what it might consider a high-quality carbon credit - that at the very least the credits must be certified by Verra or Gold Standard.
Carbon dioxide, produced from human activity like burning fossil fuels, is the main greenhouse gas driving climate change.
Companies in emissions-intensive sectors, such as the petrochemical industry, that find it hard to shrink their carbon footprint in the short term can purchase carbon credits, from say, a forest restoration project elsewhere.
Each carbon credit represents one tonne of emissions, so buyers of the credits can offset this amount from their total emissions.
Singapore's carbon tax rate, which will be in place until 2023, is $5 per tonne of emissions. But this will go up to $25 in 2024 and 2025 and $45 in 2026 and 2027, before reaching $50 to $80 per tonne by 2030.
Partially offsetting tax liabilities with international carbon credits would mean that companies can shrink their tax bill if they buy credits generated by, for example, a forest conservation project in Indonesia.
Essentially, it means that a company here would have the option to pay another entity to reduce emissions in another jurisdiction, where it may be cheaper to do so.
But a major problem with international carbon credits is that some of them can be of poor quality - meaning the projects that are the source of the credits do not actually have a positive impact on the climate.
If poor quality carbon credits are bought by companies to offset their emissions, then it may result in emissions growing overall.
Other than Verra and Gold Standard, there are at least four other standards for carbon offsets.
Verra and Gold Standard are among the largest , with projects registered with Verra accounting for two-thirds of all voluntary carbon market transaction volume, said Ms Marissa Lee, a senior associate at consultancy Global Counsel, which advises companies on climate and sustainability policy.
She noted that Climate Action Reserve and American Carbon Registry - the third and fourth largest certification programmes - are mainly active in North America.
Ms Lee told The Straits Times that governments have to be careful about what kinds of credits they allow companies to count towards reducing their carbon tax obligations.
"If the bar is set too low, then companies can simply surrender poor quality, cheaper credits to the government instead of investing in decarbonisation," she added.
The prices of carbon credits vary by project type more so than the standards used in their certification.
For example, credits derived from projects that remove carbon from the atmosphere - such as a forestry project - trade at prices nearly five times higher than reduction-based offsets, such as those from a renewable energy project, said Ms Lee, citing data from Ecosystem Marketplace, an environmental finance site.
"This reflects how carbon removal projects that remove carbon dioxide from the atmosphere are more desirable but also scarcer, whereas credits from carbon reduction projects such as renewable energy projects are more abundant," she added.
Ms Cherine Fok, director, sustainability services at professional services firm KPMG in Singapore, said Verra and Gold Standard are globally recognised frameworks, which are backed by consistent methodology, rigorous accreditation, verification processes and large volumes of use cases.
Both have a track record of high reliability and relevance, she said.
“Ensuring that suitable criteria are in place and applied in a robust manner will be essential in maintaining the reputation of Singapore as a trustworthy carbon trading marketplace and economic hub,” added Ms Fok, who is also director of KPMG Impact, the firm’s sustainability arm.