NEA: Credits used to offset carbon tax must meet prescribed criteria

Large emitters in Singapore who plan to shrink their carbon tax bill by buying international carbon credits would be able to do so only 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 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 which 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 are 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, for example, 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.

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.

Ms Marissa Lee, a senior associate at consultancy Global Counsel, which advises companies on climate and sustainability policy, said 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.