Introduction
Singapore has emerged as a major hub for carbon credit trading in Asia in recent years. The city-state has put in place policies and regulations to support the development of its carbon market. A robust carbon credit market is seen as important for Singapore to help reduce emissions and transition to a low-carbon economy.
Regulatory Framework
The key framework governing Singapore Carbon Credit market is its Emissions Trading Scheme (ETS). The ETS was launched in 2019 and covers around 25% of Singapore’s emissions from power generation and industrial facilities. Entities in these sectors must surrender credits equivalent to their annual emissions. Credits can be sourced from the domestic market or internationally.
The ETS is overseen by the National Environment Agency (NEA). Key regulations laid out by NEA include setting an annual carbon tax rate, determining which facilities are regulated under the ETS, and accrediting verifiers to validate offset projects and credits. Rules are aligned with international standards to ensure fungibility of credits. NEA is progressively tightening the ETS to hit Singapore’s climate goals.
Domestic Carbon Market
With the implementation of the ETS, Singapore now has an established cap-and-trade mechanism to put a price on carbon. Participants trade credits through an electronic trading platform run by ICE Futures Singapore. Over 12 million tons of CO2e were traded in 2021, with the credit price averaging around S$25/ton.
Domestic offset projects like energy efficiency retrofits and waste management have also generated millions of carbon credits approved under the ETS. Several Singapore companies have embarked on regenerative agriculture and forestry projects overseas to claim certified emission reductions for compliance. Local firms are showing increased interest in developing nature-based carbon removal projects to meet long-term net-zero goals.
Regional Hub
Regional focus on ETS development and climate goals has contributed to Singapore’s emergence as a carbon trading center in Asia. Its well-regulated market, legal expertise, and position as an international financial center allows it to facilitate carbon trading between international and Asian partners.
Multiple carbon markets in China, South Korea, and other developing Asian countries look to Singapore for offset credits and technical assistance. Major international traders and brokers like Sinocarbon, Bluesource, and South Pole also have regional headquarters in Singapore to capitalize on this growth. Trading of carbon assets denominated in Singapore dollars is ramping up.
Voluntary Market Demand
While the regulated ETS drives much of compliance demand, the voluntary carbon market in Singapore has also grown significantly. Companies without regulated emissions are voluntarily offsetting and removing carbon to achieve climate neutrality goals. A increase in corporate net-zero pledges bodes well for voluntary credit demand.
Projects generating voluntary emissions reductions (VERs) and removals have a separate credit stream approved by NEA and international standards bodies. VERs are gaining traction among consumers through products like sustainable aviation fuel and green electricity tariffs. Startups focused on offsetting travel emissions or consumer product footprints are emerging. This represents a whole new section of the carbon economy developing in Singapore.
Policy Recommendations
While Singapore’s policies have catalyzed growth, further reforms are recommended to establish it as a premier global carbon hub. Key proposals included:
– Expand ETS coverage to include other high-emitting sectors like buildings, transport, waste over time to create a bigger domestic carbon market. This will send a stronger price signal.
– Develop a central carbon registry to increase transparency of credit ownership and transactions taking place on and off regulated exchanges.
– Launch a nature-based solutions fund and incentives to encourage more local and regional projects generating high-quality carbon credits and removals.
– Strengthen rules for VERs and develop a certification system to upholdenvironmental integrity as this market expands rapidly without compliance drivers.
– Provide tax incentives and financing support for local companies pursuing carbon removal technologies like direct air capture and storage. Position Singapore as a testbed for negative emission solutions.
Overall, With political will and the right policy tweaks, Singapore is well-placed to become a premier global marketplace for voluntary and compliance carbon trading. A robust local market will bring opportunities for private sector participation in emissions reduction. With its expertise across trading, finance, and environmental regulation, Singapore is emerging as the carbon hub of Asia and beyond.
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- Source: CoherentMI, Public sources, Desk research
- We have leveraged AI tools to mine information and compile it