Singapore to contribute $19.2m to global facility to spur international carbon trading

SINGAPORE – The Republic will pump in US$15 million (S$19.2 million) to help make international carbon trading a practical reality amid rising economic pressures and geopolitical uncertainty.

This will make Singapore the first country in Asia to contribute to intergovernmental organisation Green Growth Institute’s facility, which supports and funds carbon credit projects that meet UN standards.

Announcing the contribution on May 19, Minister of State for Trade and Industry Alvin Tan said the ongoing conflict in the Middle East has compounded challenges that delay action to combat climate change, disrupted global energy markets and shifted the focus to short-term survival in many parts of the world.

Progress on climate action needs to continue as the cost of inaction and delay in addressing the crisis will only compound over time, he added, noting that cleaner energy systems will also insulate governments from the volatility of polluting fossil fuel markets.

Mr Tan was speaking at the fourth edition of the GenZero Climate Summit, which gathers global leaders annually to build up carbon markets that allow companies and governments to buy credits to offset their planet-warming emissions.

Effective carbon markets play an “indispensable role” in actively reducing planet-warming greenhouse gas emissions, he said, as they channel finance to high-impact projects and make the reduction or removal of emissions more cost-effective.

Under the Paris Agreement – an international treaty to limit global warming – countries can buy carbon credits generated in other jurisdictions to meet domestic climate targets.

Carbon markets benefit carbon credit buyers as purchasing offsets from elsewhere can sometimes be cheaper than reducing emissions on their own.

Singapore hopes to create greater international alignment in a fragmented carbon market by addressing the barriers of cost, capital and uncertainty, said Mr Tan.

As Singapore is a small city-state with few alternatives for clean energy, buying carbon credits that help the country meet its targets under the UN climate treaty is a crucial complement to its domestic decarbonisation efforts, he noted.

Of the sum, US$10 million will finance projects that develop carbon credits for Singapore to meet its climate goals, while the remainder will help countries participate effectively in carbon markets that satisfy the treaty’s standards.

Mr Tan said: “And with these two pillars, they address both sides of the equation: strengthening supply where technical capacity is lacking, and so anchoring demand with the high-integrity frameworks the market needs to thrive.”

Singapore’s contribution joins those of Britain, New Zealand, Norway and Sweden.

Commenting on Singapore’s contribution to the Carbon Transaction Facility, Global Green Growth Institute executive director Kim Sang-hyup welcomed the “highly appreciated development” as the institute builds a closer relationship with ASEAN countries.

“Through the facility, we work closely with governments to put in place the systems, policies and partnerships that move countries from readiness to results – delivering climate ambition, environmental integrity and sustainable development,” he said.

Also launched by Mr Tan was the Action for a Resilient Climate (ARC) Coalition, a multi-sector initiative that aims to aggregate corporate demand to buy at least 10 million tonnes of carbon credits by 2030.

Members of the coalition include statutory board Enterprise Singapore, Temasek-backed decarbonisation investment firm GenZero, internet company Tencent, Japanese-based enterprise Mitsubishi and non-profit World Wide Fund for Nature Singapore.

In a statement, the coalition, established as a Singapore-based non-profit organisation, said it will bring together companies, financial institutions, philanthropic organisations, government agencies and technical experts to develop carbon markets that meet the UN climate target and strengthen market confidence.

It will also develop and implement a financing facility to channel capital for early-stage carbon projects, set criteria that eliminate greenwashing risks and improve access to carbon credits.

Making a case for carbon credits, GenZero chief executive Frederick Teo said carbon markets can direct capital to underlying activities that would not already be commercially viable and address emissions that are very hard to remove. “A lack of demand commitment for carbon credits generated from high-quality decarbonisation projects is holding back investments into these carbon projects,” he added.

The coalition will also partner a buyers’ coalition known as the Symbiosis Coalition, which is committed to purchasing nature-based carbon removals.

There are two main types of carbon credits – nature-based ones and technological ones. Nature-based credits can come from projects like sustainable agriculture, while technological credits can come from switching from polluting firewood to cleaner cooking stoves.

Mr Rueban Manokara, WWF’s global lead of the carbon finance and markets task force, said carbon finance plays a crucial role in bridging the financing gap for climate and nature. “However, increasing finance alone is not a guarantee of positive impact,” he added.

“Building on 20 years of meaningful partnerships at WWF-Singapore, the ARC Coalition will work with partners in a way that supports the transformation of carbon emitting sectors and markets, drives durable emissions removals and reductions, and maximises global climate action in a way that benefits nature and people.”

To date, Singapore has signed 11 deals to buy carbon credits from countries in Asia, Africa and South America.

However, these have yet to translate into a supply of carbon credits due to recent global developments, which include a stronger industry focus on carbon credit integrity and evolving international carbon market rules.

The Ministry of Trade and Industry told The Straits Times that it expects the first transfer of carbon credits to take place in 2027, barring any unforeseen developments.

Earlier in May, companies liable for carbon tax in Singapore were permitted to roll over their unused offset quota for the second year in a row due to the lack of eligible carbon credits, and they are allowed to offset up to 5 per cent of their carbon tax bill using eligible credits.