Singapore is actively enhancing its approach to climate change with a strong focus on carbon credits. As the nation sets ambitious emissions reduction goals, carbon credits are becoming a key tool in its strategy. This article explores the evolving landscape of carbon credits in Singapore, highlighting significant developments, market trends, and the impact on businesses.

What are Carbon Credits?

Carbon credits are financial instruments that represent a reduction in greenhouse gas emissions. Each credit equates to one ton of CO2 emissions avoided or reduced. These credits are part of global efforts to combat climate change. Companies can purchase them to offset their emissions or invest in projects that reduce CO2, like renewable energy initiatives.

See more: What is Carbon Credit Trading? Exploring Potential of Its Platforms

Climate Change and Carbon Credits

Climate change has led to rapid shifts in temperature and weather over the past 200 years, much faster than in the previous 10,000 years. This is largely due to increased carbon dioxide (CO2) and other greenhouse gases from human activities.

Since 1880, global temperatures have risen by 1°C, with most of this increase happening after 1975. The last two decades have seen 19 of the hottest years on record. This warming has led to more extreme weather, including a six-fold increase in hydrological disasters from 1980 to 2016.

These climate risks have serious effects on people and property. The World Meteorological Organization reports a 500% increase in climate-related disasters over the past 50 years, causing daily losses of 115 lives and $202 million.

Moreover, climate change could also reduce global GDP by 18%, especially harming developing countries in Asia. Businesses are already feeling the impact, with a projected $1.26 trillion in financial risks from environmental issues over the next five years. The Kyoto Protocol and subsequent climate agreements, like the Paris Agreement, have introduced measures like carbon credits to help reduce emissions and address these challenges.

Now, let’s find out more about carbon credits in Singapore. First, let’s take a look at carbon credits market.

Carbon Credit Market

Since the introduction of the CDM, carbon credit markets have expanded significantly through international climate dialogues such as COP meetings, regional policies, and private sector innovations. The global carbon credit market now includes two main types of markets:

• Compliance Markets: These are regulated by government-issued emission allowances as part of a cap-and-trade system. Governments set a cap on the total emissions allowed and distribute allowances to companies. Each allowance permits the emission of one ton of CO2. Companies can buy or sell these allowances to stay within their emission limits.
• Voluntary Markets: These markets involve independent entities, including businesses, NGOs, and individuals, who choose to participate in carbon trading. Participants in voluntary markets are not legally required to trade but do so to meet their own sustainability goals. The credits traded represent emissions reductions achieved through various decarbonization projects, with credit buyers not directly involved in these projects.

Carbon Credits in Singapore

Singapore is advancing its carbon market significantly as part of the Singapore Green Plan. The country has raised its Nationally Determined Contributions (NDCs) for 2030 and aims for net-zero emissions by 2050. To support these goals, Singapore introduced a carbon tax through the Carbon Pricing Act in 2019. This tax applies to about 80% of the nation’s emissions at a rate of SGD5 per ton of CO2 equivalent (tCO2e). By 2022, Singapore announced plans to increase this rate fivefold by 2024 and to SGD50–SGD80 by 2030.

While this article focuses on carbon credits in Singapore, it’s important to note the role of carbon taxes. Both carbon taxes and carbon credits aim to promote decarbonization but differ in approach. Carbon taxes set a fixed price per ton of CO2, while carbon credit prices are determined by market forces. Additionally, Temasek has pledged SGD5 billion to establish GenZero, an investment platform to boost decarbonization efforts through carbon credits. Singapore is also developing the Climate Impact X (CIX) market, which conducted its first auction in November 2022 at $27.80 per credit. CIX, a joint effort involving the Singapore Exchange, DBS Bank, Standard Chartered Bank, and Temasek, aims to provide a large-scale digital platform for trading carbon credits.

Businesses and Carbon Credits in Singapore

As detailed earlier, Singapore plans to gradually increase its carbon tax starting in 2024. The tax will remain at SGD5 per ton of CO2e for 2019–2023, giving businesses time to transition to low-carbon operations before the tax rises in 2024, 2026, and 2030. This tax increase is expected to influence business behavior by:

• Creating new investment opportunities in green technologies.
• Viewing new investments through the lens of a low-carbon economy.
• Enhancing the decarbonization and energy efficiency of existing investments.

From 2024, companies can use high-quality international carbon credits to offset up to 5% of their taxable emissions. This will support businesses engaged in carbon trading and stimulate the market of carbon credits in Singapore. A transition framework will assist emission-intensive companies in shifting to low-carbon operations, making international carbon credits a valuable and cost-effective option for large emitters, especially those seeking affordable carbon mitigation solutions from other countries.

In conclusion, carbon credits in Singapore are playing a pivotal role in the country’s efforts to combat climate change. With new regulations and innovative market initiatives, Singapore is positioning itself as a leader in carbon trading. Businesses and investors are increasingly engaging with carbon credits, driven by both regulatory requirements and strategic opportunities. As Singapore advances its climate goals, the carbon credit market will continue to be a crucial element in its sustainability strategy.