Singapore-based companies may be able to access Article 6.2 compliant carbon credits within the next year to offset emissions under the carbon tax policy, as the city state's agreements with project countries start to take effect, Zhang Weijie, Divisional Director of Energy and Climate Policy with Ministry of Sustainability and the Environment, said in an interview.
Next year, Singapore's carbon tax will increase from current S$5/mtCO2e ($3.77/mtCO2e) to S$25/mtCO2e. The government allows taxpayers to purchase Article 6-compliant credits to offset up to 5% of their liable emissions.
"By the time they are required to pay that carbon tax and the tax bill is finalized [for their emissions in 2024], I am quite hopeful that they will have credits available," Zhang said.
Article 6 negotiations failed to reach consensus at the just-concluded COP28. Nevertheless, Singapore continues to play a proactive role in facilitating Article 6.2 implementation.
Article 6.2 sets a decentralized framework that allows countries to set up bespoke, bilateral agreements for carbon trading, which has become increasingly important given that the centralized carbon crediting system under Article 6.4 is yet to be established, and the negotiation progress remains sluggish.
"We've advanced a lot of Article 6.2 collaboration so far, because those rules got finalized earlier. And when Article 6.4 is finalized, we will study it in detail, and will seek to advance carbon market collaboration through that mechanism," Zhang said.
At the UN Climate Change Conference, Singapore signed its first-ever Article 6.2 implementation agreement (IA) with Papua New Guinea and has substantively concluded negotiations for IAs with Bhutan and Paraguay. Before this COP, negotiations for IAs have already been substantively concluded with Ghana and Vietnam, Zhang shared.
Singapore, as a city-state, has limited demand for carbon offsets. However, the country has become a first-mover in creating both the rules and the market for Article 6.2, which set an interesting paradigm for future market players.
Implementation Agreements
Before landing the implementation agreements, Singapore already signed Memorandum of Understandings (MOUs) with more than 10 countries. Four more MOUs with Costa Rica, Fiji, Rwanda, and Senegal were signed at COP28, Zhang said.
"MOU is the start of the conversation. It says, 'I'm an interested partner country, let's start and let's discuss'. The implementation agreement is the next step."
IAs are legally binding and cover necessary details for implementation, such as quality standards for credits and measures to avoid double counting of mitigation outcomes.
When asked whether IAs will sort out how credits from an Article 6 project will be distributed between Singapore and project host countries, Zhang said "these are all negotiated in the process of getting to the implementation agreement".
Zhang added Singapore has also discussed how to distribute revenues from carbon trading with host countries, while such details will not be made publicly available.
One challenge related to Article 6.2 cooperation is the revocability of authorization, which provides project host countries the flexibility to alter their decisions for participating in the Article 6 markets. Buyer countries and project investors are wary of uncertainties brought by such flexibility.
Zhang said Singapore, as a buyer country, has adopted measures to "minimize surprises".
"For things like revocability, we have negotiated and discussed with the host countries. These are anchored in a set of dispute resolution mechanisms."
Creating a market
Zhang disclosed that the white-list for eligible carbon credits that can be used to offset tax-liable emissions will be released "very soon", so that taxpayers can start to look at what credits to procure. Landing the IAs enables Singapore to operationalize Article 6.2 and nurture a market, he added.
"In Singapore's case, there are about 50 tax-liable companies in Singapore. Some of them also have operations in the host countries that we signed IAs with, and they would have links on the ground with project developers."
"We want them to go and discuss with the project developers, and make these projects implemented."
Zhang said the government plans to establish a national carbon registry to facilitate transactions under the Article 6 framework.
"That registry will have links to carbon crediting programs like the Verra and the Gold Standard, so that, when companies buy and retire those credits, that transaction will be registered, then reflected and computed in terms of the tax obligations."
Singapore's carbon tax will remain at S$25/mt until 2025, then increase to S$45/mt for 2026-2027, and land at S$50-80/mt by the end of this decade. Zhang said such a clear signal facilitates the country's success to establish Article 6.2 partnerships.
"I think that gives host countries certainty about what that trajectory will be. And then it enables project developers, companies to make their calculations -- what would be the clearing price? I think that is incredibly helpful in providing a clear demand signal."
