Singapore sets eligibility criteria for international carbon credits under carbon tax regime

18 October 2023

On 4 October 2023, the Ministry of Sustainability and the Environment (“MSE”) set out in a press release the eligibility criteria (“Eligibility Criteria”) under the International Carbon Credit (“ICC”) Framework (“ICC Framework”). The Eligibility Criteria and other international carbon credit-related developments are detailed below.

Background

Introduced in November 2022, the ICC Framework will allow carbon tax-liable companies to use eligible ICCs to offset up to 5% of their taxable emissions from 1 January 2024. The MSE press release explains that the ICC Framework supports the development of carbon markets, by enabling the demand and supply of high-quality carbon credits to be matched. Companies can gain access to alternative decarbonisation pathways for hard-to-abate emissions and in the process, channel financial resources to support emissions reduction or removal projects globally. The ICC Framework will be aligned with Article 6 of the Paris Agreement (“Article 6”), enabling Singapore to cooperate with other countries to support Singapore’s climate targets. Article 6 recognises that some parties choose to pursue voluntary cooperation in the implementation of their nationally determined contributions to allow for higher ambition in their mitigation and adaptation actions and to promote sustainable development and environmental integrity.

Ensuring high environmental integrity of ICCs

The Eligibility Criteria require ICCs to represent emissions reductions or removals that occur within the timeframe specified under Article 6 and meet seven principles to demonstrate high environmental integrity. Eligible ICCs must fulfil all seven principles under the Eligibility Criteria.

These seven principles were developed in consultation with stakeholders across the industry and non-governmental organisations and take reference from the most rigorous and reputable international standards, such as the Carbon Offsetting and Reduction Scheme for International Aviation.

The seven principles and their definitions are as follows:

  • No double counting: The certified emissions reductions or removals must not be counted more than once.
  • Additional: The certified emissions reductions or removals must exceed any emissions reductions or removals required by any law or regulatory requirement of the host country, and which would otherwise have occurred in a conservative, business-as-usual scenario.
  • Real: The certified emissions reductions or removals must be quantified based on a realistic, defensible, and conservative estimate of the amount of emissions that would have occurred in a business-as-usual scenario, assuming the project or programme that generated the certified emissions reductions or removals had not been carried out.
  • Quantified and verified: The certified emissions reductions or removals must be calculated in a manner that is conservative and transparent, and must have been measured and verified by an accredited and independent third-party verification entity before the ICC was issued.
  • Permanent: The certified emissions reductions or removals must not be reversible. If there is a risk that the certified emissions reductions or removals may be reversible, there must be measures in place to monitor, mitigate and compensate any material reversal of the certified emissions reductions or removals.
  • No net harm: The project or programme that generated the certified emissions reductions or removals must not violate any applicable laws, regulatory requirements, or international obligations of the host country.
  • No leakage: The project or programme that generated the certified emissions reductions or removals must not result in a material increase in emissions elsewhere. If there is a risk of a material increase in emissions elsewhere, there must be measures in place to monitor, mitigate and compensate any such material increase in emissions.

As environmental integrity standards continue to evolve, the Eligibility Criteria will be reviewed periodically to align with developments in Article 6 and high-integrity carbon markets.

As the administrator of the carbon tax regime under the Carbon Pricing Act 2018, the National Environment Agency (“NEA”) will develop processes to determine which ICCs adhere to the Eligibility Criteria before carbon tax-liable companies use those ICCs to offset their taxable emissions. More details on these processes and a list of eligible host countries, carbon credit programmes, and methodologies that adhere to the Eligibility Criteria will be released by the end of 2023.

Establishment of International Advisory Panel for Carbon Credits

An International Advisory Panel for Carbon Credits (“IAPCC”) has been set up to advise the Government on Singapore’s policies relating to carbon credits, including matters on environmental integrity and carbon market development. The IAPCC comprises six members with expertise across the fields of sustainability, international development and finance.

Other developments on ICCs

The MSE press release also sets out other notable initiatives, including:

  • Fostering international partnerships in global carbon market to open new sources of ICCs that meet Eligibility Criteria: Singapore has substantively concluded negotiations with Ghana and Vietnam on implementation agreements setting out the requirements and processes for Article 6-compliant carbon credit cooperation. Carbon tax-liable companies can source for ICCs generated under these implementation agreements to offset their taxable emissions. Memoranda of Understanding (“MOUs”) to work towards implementation agreements have also been signed with the following countries: Bhutan, Cambodia, Chile, Colombia, the Dominican Republic, Indonesia, Kenya, Mongolia, Morocco, Papua New Guinea, Peru and Sri Lanka. Singapore is also in active discussion with several other countries including Brazil, Brunei and Thailand.
  • Developing enabling infrastructure and carbon services ecosystem:As part of the ICC Framework, NEA is developing a national registry to account and track the ICCs surrendered by taxable facilities in compliance with Article 6 rules.
  • Working with carbon credit programmes: NEA has signed MOUs with five carbon credit programmes to leverage off their capabilities to ensure that ICCs issued under their programmes are robustly validated, verified, issued and retired. These programmes include the Gold Standard, Verra’s Verified Carbon Standard, Global Carbon Council, American Carbon Registry and the Architecture for REDD+ Transactions. NEA intends to expand Singapore’s partnerships to more programmes in the future.
  • Partnership with international organisations: Singapore has partnered with the World Bank and the International Emissions Trading Association on the Climate Action Data Trust (“CAD Trust”) initiative. CAD Trust is developing a Data Dashboard to provide an open-source, decentralised blockchain infrastructure that allows the public to access information about carbon credits issued across different registries globally, enhancing transparency and minimising double counting risk. The dashboard is expected to be launched later in 2023.

Reference materials

The press release is available on the MSE website www.mse.gov.sg.