Singapore on October 4 set out the eligibility criteria governing international carbon credits that companies can purchase to offset their taxable carbon emissions.
The Minister for Sustainability and the Environment Grace Fu announced the new criteria, which involve seven principles, during the National Energy Efficiency Conference. The new criteria will ensure that the carbon credits are of "high environmental integrity", she said.
"The development of well-functioning carbon markets, which effectively matches the demand and supply of high-quality carbon credits, is a vital part of global efforts to get to net zero," said Fu.
From 2024, companies in Singapore will have the option to buy eligible international carbon credits to fulfil part of their carbon tax liability. This was introduced in November 2022 to help the country achieve net zero by 2050.
Carbon credit is generated from projects that aim to reduce, remove, or avoid carbon emissions, such as restoring forests or investing in renewable energy. It’s a permit or certificate that represents a reduction of one tonne of CO2 emission. By buying these credits, companies can offset up to 5% of their taxable emission.
Singapore’s carbon tax applies to all facilities producing at least 25,000 tonnes of greenhouse gas emissions in a year. Introduced in 2019, the tax was set at S$5 per tonne and will rise to S$25 in 2024 and 2025, and S$45 in 2026 and beyond.
For firms with emissions that are difficult to abate, international carbon credits provide an alternative decarbonization option, enabling them to allocate financial resources to support global projects aimed at emissions reduction.
In a press release issued on the same day, the Ministry and the National Environment Agency set out the eligibility criteria to guide the kind of international carbon credits that can be used to reduce carbon tax.
According to the criteria, the certified emissions reductions or removals must have occurred between January 1, 2021 and December 31, 2030, in accordance with the 2015 Paris Agreement.
Carbon credits must also comply with seven principles, including:
Quantified and verified
Not causing net harm
Not resulting in leakage
The principles are developed in consultation with more than 70 stakeholders from both industry and non-governmental organizations. The criteria also take reference from the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which is one of the most rigorous international standards.