Singapore inks carbon trading agreement with Peru

SINGAPORE – Singapore on April 1 finalised a carbon trading agreement with Peru, in a move that will pave the way for the Republic to buy carbon credits from the biodiversity-rich nation.

This is the fourth such deal that Singapore has, and the first one inked with a Latin American nation. The country also has similar pacts with Bhutan, Ghana and Papua New Guinea.

Under the Paris Agreement, countries can buy carbon credits generated in other jurisdictions to meet domestic climate targets.

One carbon credit represents one tonne of carbon dioxide that is either removed from the atmosphere, such as through a restoration project, or prevented from being released, such as when a forest is saved from the axe. Buyers of carbon credits can include countries or companies.

Singapore has indicated that

it plans to use such credits

to meet its climate change targets, although it has not yet purchased any offsets.

Credits used to offset national emissions can be purchased only from carbon projects in countries that Singapore has bilateral pacts with.

At the same time, carbon tax-liable companies here can also buy carbon credits from projects in these partner countries to offset up to 5 per cent of their taxable emissions.

The pact between Singapore and Peru was signed virtually by Minister for Sustainability and the Environment Grace Fu and Peruvian Environment Minister Juan Carlos Castro Vargas.

In a statement, Mr Castro noted that Peru is one of the most biodiverse countries in the world, home to vast Amazon and Andean forests that play a crucial role in stabilising the global climate.

“The implementation agreement between Peru and Singapore underscores our shared dedication to fostering high-integrity carbon markets as a tool to achieve our ambitious climate goals, protect our natural resources and support local communities,” he said.

The Ministry of Trade and Industry said in a statement on April 1 that under this pact, the carbon projects in Peru will promote sustainable development and deliver tangible benefits to local communities, such as creating jobs, improving access to clean water and energy security, and reducing environmental pollution.

Singapore has also agreed to voluntarily contribute 5 per cent of proceeds from the carbon credits it purchases to help Peru finance ways to reduce the impact of climate change. In the pact with Bhutan, for example, the 5 per cent will go to the country’s heat management measures and climate-resilient agriculture.

There are two main types of carbon credits – nature-based ones and technological ones, such as switching from pollutive firewood to cleaner cookstoves. Nature-based credits could come from projects such as forest restoration and conservation, as well as sustainable agriculture.

News of the signing of the implementation agreement between Singapore and Peru comes as the Republic looks to buy its first set of nature-based carbon offsets to

meet its 2030 climate change target

.

The Government had in September 2024 called on carbon project developers and credit suppliers to propose nature-based projects that can deliver at least 500,000 credits each.

This request for proposal drew 17 submissions before it closed in mid-February. It is not immediately clear whether any of the submissions included proposals to purchase carbon credits from projects in Peru.

Ms Fu, who is also Minister-in-Charge of Trade Relations, said: “Singapore and Peru are close cooperation partners, and had worked on many bilateral and plurilateral initiatives over the years. This implementation agreement will further strengthen collaboration between our two countries and support efforts to advance climate action while unlocking new opportunities in the carbon market.”

Of the three other implementation agreements that Singapore has, most progress has been made with Ghana.

In September 2024, Singapore and Ghana called for project developers to submit applications for their carbon credit projects in Ghana to be authorised. These applications are now being assessed.

A Singapore Government spokesperson told The Straits Times that some possible project types that may be authorised in Ghana are related to clean water supply and clean cooking.

The Republic is also progressing on negotiations with more than 15 other countries on this front, in the hope of advancing those partnerships into implementation agreements. These include Malaysia, Cambodia and Colombia.

Dr Kim Jeong Won, a senior research fellow at the NUS Energy Studies Institute, said it is quite likely that high-quality nature-based projects will emerge from the Peru-Singapore pact.

Possible projects could be related to rainforest restoration and the conservation of watersheds – land areas where rainwater drains into a final lake or river – given that Peru has been recently leveraging nature to address water scarcity and climate resilience issues, she said.

Furthermore, Peru was among the top 15 countries that hosted carbon projects under the carbon trading mechanism of the Kyoto Protocol – the world’s climate pact before the Paris Agreement.

“Although most of these projects were hydroelectric power projects, the Peru government and local authorities may have built the capacity for collaboration and project management,” said Dr Kim.

But successful nature-based projects need stringent measures and environmental and social safeguards, she cautioned.

“Poorly planned nature-based solutions may have adverse impacts on ecosystems and human communities, as well as exacerbate climate change by releasing more carbon than sequestering – harming indigenous species, and displacing local residents,” added Dr Kim.

While Singapore has bilateral pacts with four countries, the challenge is that no credits have been issued yet, and 2030 is just a few years away, said Ms Melissa Low, a climate policy observer and research fellow at the NUS Centre for Nature-based Climate Solutions.

Singapore had earlier estimated that it would use carbon credits to offset about 2.51 million tonnes of emissions per year over this decade, to help meet its 2030 emissions target. For context, Singapore’s total greenhouse gas emissions in 2022 amounted to 58.59 million tonnes.

Furthermore, nature-based projects can take a longer time to yield carbon credits, given the rate at which trees grow, Ms Low added.

She also noted that Peru has not yet released its 2035 climate change targets, and it remains to be seen if the Latin American country will have sufficient international carbon credits to sell.

Since Peru’s 2035 targets need to be more ambitious than its 2030 ones, more of its carbon credits could be used for its own domestic offsets, Ms Low said.