Introduction
With growing environmental concerns, many countries are implementing carbon pricing mechanisms to reduce greenhouse gas (GHG) emissions. Singapore has also launched its carbon trading scheme called the Singapore Carbon Pricing Initiative on January 1, 2019. This article explores Singapore’s carbon credit market in detail under multiple headings.
What are Carbon Credits?
Carbon credits, also known as emission reduction credits, represent the removal or reduction of one ton of carbon dioxide or its equivalent greenhouse gases from the atmosphere. Companies and countries earn carbon credits by adopting climate-friendly practices like renewable energy projects, reforestation efforts, implementation of energy efficiency measures etc. These credits can then be traded in carbon markets.
Singapore’s Carbon Pricing Initiative
Under this initiative, Singapore aims to place a price on carbon emissions from large emitters. It covers about 60-65% of Singapore’s total emissions from the power generation, industrial, commercial and transportation sectors. Facilities emitting more than 25,000 tons of carbon dioxide per year have to abide by an emissions cap and surrender one carbon credit for every ton of carbon emitted. Credits can be obtained through internal abatement efforts or purchasing from the market. This puts a financial incentive on companies to lower their emissions.
Key Features of Singapore’s Emission Trading Scheme
- It is a domestic cap-and-trade scheme where emitters must comply with an annually declining emissions cap.
- Facilities can trade carbon credits through auctions, an over-the-counter bilateral market and an electronic trading platform.
- Credits issued under other international carbon pricing initiatives like the Kyoto Protocol can also be used for compliance.
- Penalties will be imposed on companies that fail to surrender sufficient credits annually.
- Revenue collected from the scheme will be used to support Singapore’s transition to a green economy.
Development of Carbon Credit Market
Singapore launched its inaugural carbon credit auction in January 2019 where 5.6 million credits were sold. Since then, trading activity has steadily increased on the electronic trading platform called the Singapore Exchange Carbon (SGX Carbon). Credits are currently selling between $5-10 per ton. Banks like Standard Chartered are also getting involved to provide financing solutions for sourcing carbon credits. This emerging market provides opportunities for companies to comply cost-effectively while stimulating green investment flows.
Role of Voluntary Carbon Markets
A vibrant voluntary carbon market is also taking shape alongside the compliance-driven regulated trading scheme. Organizations can purchase voluntary credits from foreign projects to offset emissions beyond regulatory requirements or for corporate social responsibility goals. Third-party registries like Verra maintain high-quality standards for voluntary carbon credits. An increasing number of Singaporean companies are offsetting part of their emissions through voluntary markets to transition towards carbon neutrality.
Market Outlook
The Singapore carbon credit market is poised to grow significantly as the emissions cap is tightened over time making credits increasingly scarce. Facilities will seek low-cost abatement and offset solutions to optimize compliance costs. This creates demand for offset projects both locally and globally especially in emerging regions with high mitigation potential such as Southeast Asia, India and Africa. Transaction volumes on trading platforms are expected to multiply. Financial institutions may launch new carbon trading services and products to capitalize on this expanding asset class. Overall, Singapore aims to establish itself as a carbon trading hub in Asia, while placing itself at the forefront of sustainable development. For more details on the future outlook of the global carbon markets, refer to the report published on CoherentMI.
