Companies looking to offset carbon tax will have to wait some time more for worthy projects
SINGAPORE – As a higher carbon tax kicks in, companies eager to have a slice of the carbon markets pie in Papua New Guinea, the only country with which Singapore has a carbon trade agreement, may have to wait a little longer.
This is because high-quality projects that truly benefit the climate have yet to become available, although some are currently in the works.
Singapore has concluded negotiations on similar agreements with Ghana, Vietnam, Paraguay and Bhutan, but agreements have not yet been inked with these countries.
The Republic increased its carbon tax in 2024 to $25 per tonne of emissions from $5 a tonne previously.
Companies that have to pay the carbon tax can offset up to 5 per cent of their tax liability by purchasing government-approved carbon credits, which can also count towards Singapore’s national climate targets.
Each credit represents a tonne of carbon emissions that have been removed from the atmosphere.
In order for the emission removals from a carbon project to be transferred from one country to another, an agreement must be in place between the buyer country, such as Singapore, and the host country of the carbon project.
Mechanisms must also be in place to ensure that the emission removals are struck from the host country’s system to prevent double counting.
The Government has also published a set of eligibility criteria and included a list of specific types of projects, or methodologies, in Papua New Guinea that it would be willing to accept.
Broadly speaking, the projects must have real benefits for the climate, bring about sustainable development benefits to the surrounding communities, and represent additional emissions reductions, compared with if the projects had not taken place, for instance.
This means only very specific types of forest conservation projects are eligible, to ensure that these truly bring about the environmental benefits that they promise.
Certain types of renewable energy projects, such as the development of offshore wind technology, waste-to-energy technology or energy storage systems, are also permitted, as these are expensive and difficult to finance without carbon credits, said the National Environment Agency (NEA).
Checks by The Straits Times on Jan 5, however, found that none of the carbon credits currently available for sale in Papua New Guinea would meet the criteria set by the Singapore Government.
But companies need only inform the NEA by June 30, 2025, of the credits they intend to use as tax offsets for 2024, by which time some projects in the pipeline may be eligible, said the agency.
Also, while the current projects may not be feasible, the published methodology is a guide to developers on creating future projects that would meet the Government’s requirements, said Mr Law Heng Dean, managing director of climate change investment and advisory firm Pollination Group.
“The Singapore Government has indicated that the quality of the credits will be key. That’s something that is going to be important for Singapore’s carbon trading ambitions going forward and is also a key global trend,” he added.
Companies buying carbon credits to meet their climate targets are also increasingly scrutinising projects and will want to make sure that they purchase credits of high quality and integrity, said Mr Law.
Various organisations are in the midst of developing carbon projects in Papua New Guinea, some of which could potentially be eligible for use. For instance, two upcoming projects listed on carbon crediting programme Verra involve the supply of fuel-efficient cooking stoves to communities in various provinces around the country. Compared with open-fire wood-fuelled cooking methods, fuel-efficient stoves will reduce the amount of wood cutting needed, and can combust biomass more efficiently, thus lowering the amount of greenhouse gas emissions produced.
One project is being developed by social impact project developer and carbon finance business C-Quest Capital, and the other is by carbon credits provider Tasman Environmental Markets Asia Pacific. ST has asked both organisations if their projects will meet the Government’s eligibility criteria.
Ms Ruth Konia, Papua New Guinea country director at The Nature Conservancy, said the non-governmental organisation is working with the country’s Climate Change and Development Authority to cultivate the essential conditions for high-integrity, locally-led carbon projects in Papua New Guinea.
“Our engagement involves scoping potential sites for the development and demonstration of carbon projects in Papua New Guinea, focusing on the areas of forest conservation, reforestation, community-based conservation, and renewable energy,” she added.
Papua New Guinea primarily relies on the export of minerals like gold and copper, and energy extraction, such as of oil and gas, as its main sources of income. Most of its population, which stands at around 9.4 million, work in the agriculture, forestry and fishery sectors.
NEA, as the administrator of Singapore’s carbon tax regime, said it will review the eligibility list annually, based on the latest science and evidence.
This means that carbon crediting programmes that are later found to have lapses, or lack environmental integrity, could be delisted.
Meanwhile, companies have also begun developing carbon projects in anticipation of selling credits when agreements with other countries are formally inked.
For instance, agritech start-up Rize – launched by Singapore’s investment company Temasek, investment platform GenZero and other partners – is looking to introduce sustainable rice farming in Vietnam that can help reduce greenhouse gas emissions, and potentially generate carbon credits that meet the eligibility criteria.
Rice cultivation typically produces methane emissions, a greenhouse gas that is 28 times more potent than carbon dioxide. Globally, around 8 per cent of agricultural greenhouse gas emissions are produced by growing rice.
GenZero is investing in a forest restoration project in Ghana that is expected to start issuing credits in 2028.
While countries are already collaborating on carbon markets, work has been under way over the past few years to finalise the details that would make such bilateral trade of carbon credits more transparent and have safeguards.
But negotiations for Article 6.2 of the Paris Agreement, as it is known, came to a standstill at the COP28 climate conference held in Dubai from Nov 30 to Dec 13, 2023, as countries were unable to agree on a number of issues. As a result, no real process was set out to check if the carbon credit deals signed are “good” or “bad”, and there were no limits to how many times a government could change its mind and renege on a deal.
In her closing interview at COP28 on Dec 13, Minister for Sustainability and the Environment Grace Fu said that given the lack of progress at COP28, Singapore will have to rely on rules and guidelines that were set at COP26 and COP27.
“But to facilitate high integrity and robust carbon markets, we will want to work with like-minded countries and partners to develop the framework needed, building on our existing efforts… and agreements,” said Ms Fu.
Mr Andrea Bonzanni, international policy director at the International Emissions Trading Association, said that as a precaution, Singapore should have safeguards in its bilateral agreements to ensure that authorised deals are not reneged on or renegotiated for no good reason.