Carbon credits to offset Singapore emissions tax are subject to eligibility criteria

ONLY prescribed types of international carbon credits can be used by companies here to offset up to 5 per cent of their taxable emissions from 2024 onwards, the government spelt out as Parliament passed a bill to amend the Carbon Pricing Act on Tuesday (Nov 8).

The Ministry of Sustainability and the Environment (MSE) said it intends to publish a whitelist of acceptable credits highlighting eligible host countries, carbon crediting programmes and methodologies. "This will provide more clarity to companies and to the public on what our eligibility criteria entails," it said.

Giving a glimpse of the criteria as she opened the bill for debate on Tuesday, Minister for Sustainability and the Environment Grace Fu said it will "minimally reference" the Corsia standards for now, given that the carbon market is nascent and growing.

Corsia, short for Carbon Offsetting and Reduction Scheme for International Aviation, has applied to international aviation since 2019 when all airlines were required to report their carbon emissions on an annual basis. Fu said the standards are "widely regarded as some of the most rigorous" in the industry.

Moving forward, "we will review our eligibility criteria periodically to align with (carbon market) developments", she added.

Underlying the criteria is a framework that the government will set up under the bill to ensure that all credits surrendered are of high environmental integrity and compliant with Article 6 of the Paris Agreement. The Article sets out how countries can trade emission reductions and removals with one another through bilateral or multilateral agreements to avoid double counting.

Progress had been made on this front, Fu said, with memorandums of understanding signed between Singapore and Indonesia, Morocco, Colombia and Vietnam. With Ghana, Singapore has also exchanged letters of intent to affirm a shared commitment to advancing cooperation and capability building on carbon markets, she noted.

With the passing of the bill, Fu said the National Environment Agency (NEA) will call a tender later this week to develop a registry that will serve as a record-keeping system to track and account for the credits used under the regime.

Fu, meanwhile, clarified that the framework applies only to companies that are carbon tax-liable in Singapore, which currently refers to facilities that directly emit at least 25,000 tonnes of greenhouse gas emissions annually. In 2024, the year the mechanism is expected to kick in, the tax rate is set to rise to S$25 per tonne, from S$5 currently. 

The framework does not apply to the voluntary carbon market, where any company can purchase carbon credits to offset their own carbon footprint voluntarily and as part of their corporate climate targets, the minister said.

Transitory allowances

Among provisions hotly debated on Tuesday was a transition framework that will grant transitory allowances to companies in emissions-intensive trade-exposed (EITE) sectors that face intense competition in the global market. Chemical and semiconductor companies come under this umbrella.

As this will mean that some companies will be given permission to emit a certain number of units of reckonable emissions without being charged the carbon tax, Members of Parliament (MPs) Don Wee and Leon Perera asked if the framework will erode the price signal for companies to decarbonise. The government had previously announced that the carbon tax will be progressively raised to reach S$50-80 per tonne. 

Perera, from the Workers' Party (WP), went on to table amendments to the bill to limit the scope and extent of allowances, while fellow WP MP He Ting Ru proposed public disclosure of ministerial decisions to permit registered persons of taxable facilities to surrender eligible international carbon credits beyond the prescribed limit. Parliament voted against the WP amendments.

When addressing Wee's and Perera's concerns, Minister of State for Trade and Industry Low Yen Ling said the allowances will be limited to only a portion of the companies' emissions, and are not meant to give any company a "free pass". After all, the Government is accountable to its internationally-pledged climate commitments, she stressed.

Low also clarified that the allowances will not be tradeable.

Fu, meanwhile, said the amount of allowances awarded to each facility will be determined based on their performance on specified energy efficiency or carbon intensity benchmarks, or their decarbonisation plans.

She also said the framework, which will be administered by the Minister for Trade and Industry, will minimise the risk of carbon leakage, where companies relocate to another jurisdiction with less stringent climate policies.

Low added that it is key to safeguard the competitiveness of the EITE sectors, as they contribute S$21 billion in value-add, employ about 29,000 workers in Singapore, and provide an important ecosystem for local small- and medium-sized enterprises to thrive as their suppliers and business partners.

Meanwhile, MP Poh Li San and Nominated MP Janet Ang were concerned that the 5 per cent limit for the use of international carbon credits for tax offset might be too low, considering the current limitations in technologies that can achieve emissions reduction at scale and the need to support a vibrant carbon market.

In response, Fu said: "Are we right? Does it have to be 5 per cent? Can it be 8 or 3? Nobody knows. We are in a new area. So what we will do is start at 5, at a limit where we think we can manage, and then as the market develops, we will see how it goes, and we will make changes along the way."

"In this phase, let's not be too prescriptive," she added. "Let us have an effective system that can help us grow this system from a very nascent stage into something that we can be proud of. If we start putting too many rules, I think you may make a scheme ineffective, even if it can be the most transparent one in the world."

On He's proposed amendment, Fu said it cannot be supported as it will breach the confidentiality of carbon tax data which companies are accorded under the Carbon Pricing Act.

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