New pacts will give local firms wider range of credits to offset carbon tax bill

There are safeguards in place to ensure the credits truly certify a reduction in greenhouse gas emissions in the atmosphere, said NEA. ST PHOTO: GIN TAY

SINGAPORE - Companies looking to use carbon credits to offset part of their carbon tax bill could soon have a wider range of options to choose from, with the authorities inking new agreements with two international carbon credit organisations.

The National Environment Agency (NEA), which oversees Singapore’s carbon tax regulations, said on March 2 that it has signed memorandums of understanding (MOUs) with the American Carbon Registry (ACR) and the Architecture for Redd+ Transactions (ART).

Both carbon credit registries have “robust approaches and procedures” to safeguard the environmental integrity of the carbon credits they issue, and are internationally recognised offset programmes, said NEA.

Such registries essentially track projects like those in reforestation and issue carbon credits for each unit of carbon dioxide avoided or removed once this has been verified and certified.

NEA has signed agreements with three other international carbon credit registries so far: Verra, Gold Standard and Global Carbon Council.

It said these five registries have safeguards in place to ensure the credits truly certify a reduction in greenhouse gas emissions in the atmosphere.

In February 2022, it was announced that businesses that 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.

Minister for Sustainability and the Environment Grace Fu said in Parliament in February that the Government would, by 2023, be publishing a white list of eligible carbon credits that companies can choose from.

This will include eligible host countries, carbon crediting programmes and methodologies.

“These new MOUs broaden the list of international offset programmes where companies can acquire eligible high-quality credits, subject to the carbon credits meeting the prescribed criteria and white list set by the Singapore Government,” said NEA.

The agency said it establishes MOUs with these carbon crediting programmes to understand the processes by which these international carbon credits are transacted.

NEA noted that these carbon crediting programmes have been accepted by the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia).

“Corsia standards have been developed and backed by a multilateral process led by the International Civil Aviation Organisation, in consultation with green groups and experts, and are widely regarded as being among the most rigorous standards in the industry,” said the agency.

Corsia was launched in 2016 and came into effect in 2021 to lower the aviation sector’s impact on climate change. Aircraft operators who take part in the programme have to purchase eligible carbon credits from the carbon market to offset their emissions.

Commenting on these developments, Ms Lorna Ritchie, practice director for climate and sustainability at strategic advisory firm Global Counsel, said Corsia offsets are considered more robust than the standard ones in the voluntary carbon market, because authorisation would be needed from the host country in order to purchase the offsets.

The emissions reductions themselves also cannot be claimed more than once, she added.

Additionally, Corsia has requirements in place to avoid double-counting and ensure transparency and that the carbon removals are permanent.

NEA said the agreements with ACR and ART will help Singapore to operationalise Article 6 of the Paris Agreement – which allows countries to transfer carbon credits earned from the reduction of greenhouse gas emissions – to help one or more countries meet their long-term climate targets, otherwise known as their nationally determined contributions (NDCs).

However, these carbon credits may not be eligible for the offset of Singapore’s greenhouse gas emissions if they do not meet the Article 6 rules when they are finalised at this year’s major climate change conference – COP28.

Singapore also has to ensure the list of carbon credits included in its white list are aligned with Article 6. Otherwise, it would not be able to count those emissions reductions towards its NDC, Ms Ritchie noted.

ACR is largely active in North America. But it has also issued carbon credits internationally for projects in countries such as Brazil and Thailand. 

A spokesman for ACR told The Straits Times that credits used by Singapore companies to meet their carbon tax obligations can no longer be used by the host country to meet its NDCs. For instance, if the project is based in the United States, emissions reductions would have to be removed from the US’ NDCs to avoid double-counting.

Likewise, if a local company buys a carbon credit via ACR for a project in Brazil, then emissions reductions have to be removed from Brazil’s NDCs.

This would require a bilateral agreement to be in place between Singapore and the country it intends to collaborate with under Article 6. While the Republic does not have any such bilateral agreements as yet, it has signed a number of MOUs with countries like Papua New Guinea and Peru to advance cooperation and capacity building in carbon markets.

Ms Ritchie also noted that ACR has a “very robust” process in place to deal with permanence.

For instance, it has a “buffer” in place to replace any carbon offsets from trees that may die from disease or are cut down.

“Singapore (and other purchasers from the US) do, however, run the risk that if the US drops out of the Paris Agreement again, their offsets would no longer be eligible for compliance towards Paris Agreement targets,” she said.

US President Joe Biden rejoined the Paris Agreement when he took office in February 2021, after his predecessor, Mr Donald Trump, formally withdrew from it in 2020.

Join ST's Telegram channel and get the latest breaking news delivered to you.