Published Date: Dec 2023


As one of the early adopters and advocates of fighting climate change, Singapore has taken significant steps in reducing its carbon footprint over the years. With its latest move to launch a carbon credit system, the island nation aims to further spur climate action from private and public sectors.

Carbon Credits - How Does it Work?

The carbon credit system, also known as carbon trading, allows companies and individuals to buy, sell or trade carbon credits. One carbon credit represents one tonne of carbon dioxide or its equivalent greenhouse gases. Entities that emit less than their allotted carbon limit can sell their excess credits to those who emit more. This provides a financial incentive for reducing emissions while allowing flexibility.

Singapore's system will be modeled after existing cap-and-trade programs globally. Key authorities like the National Environmental Agency (NEA) and Energy Market Authority (EMA) are working to set up the necessary infrastructure and regulations. Emission reporting, verification and credit issuance procedures will follow international best practices to ensure transparency and environmental integrity.

Piloting With Voluntary Phase

Singapore will first launch a voluntary pilot phase of the carbon credit system later this year. This will allow interested companies and sectors to test out credit trading on a small scale before the mandatory phase kicks in. Participants in the pilot can generate early credits that can be banked for future compliance.

The pilot phase is aimed at ironing out any operational or technical challenges. It will also help familiarize participants with carbon accounting, credit issuance and transactions. Valuable lessons from the pilot will be used to refine the program before full-scale mandatory implementation across key emission-intensive sectors.

Key Sectors Included Under Mandatory Phase

When the mandatory compliance phase begins in 2023, large emitting facilities and entities will have to meet annual carbon caps or buy credits to make up the difference. The following key emission sectors are expected to be initially covered:

- Power Generation: Electricity producers will face caps based on their generation capacity and fuels used.

- Energy-Intensive Industries: Facilities like petrochemical plants, refineries and cement works will have tailored sector-specific limits.

- Commercial & Residential Buildings: Large complexes above a certain size threshold will be included to drive better energy efficiency practices in construction and operation.

- Waste Management: Landfills and waste-to-energy plants will face carbon accounting and have reduction targets to pursue alternative waste treatment options.

More sectors may be phased into the program over time as regulations are expanded. The government aims to have the cap-and-trade scheme cover around 90% of Singapore's total emissions by 2030. This is a significant step in the country's long-term goal of achieving net-zero emissions by or around mid-century.

Driving Low-Carbon Investments And Technologies

A key objective of Singapore's carbon market is to drive more private capital towards low-carbon solutions, technologies and infrastructure needed to transition to a greener economy. With a monetary value attached to every tonne of emissions avoided or removed, the carbon credit system is expected to spur more research and deployment of key solutions like:

- Renewable Energy: Projects involving solar, offshore wind and other clean power sources will generate tradeable credits helping scale up their adoption.

- Carbon Capture And Storage: Emerging CCUS technologies can earn credits by preventing industrial and power plant emissions from entering the atmosphere. This will accelerate their commercialization.

- Energy Efficiency Upgrades: Buildings, industrial processes and transport systems retrofitted with more efficient alternatives will earn saleable emissions reductions.

- Nature-Based Solutions: Reforestation, soil carbon sequestration and other nature-based projects can qualify for credits motivating conservation efforts.

- Low-Carbon Fuels: Production of renewable fuels like biomass, hydrogen and ammonia from non-fossil sources will see credits as an additional revenue stream.

Overall, analysts estimate the size of Singapore's carbon market could expand to billions of dollars over the next decade as participation increases and credit prices are set by supply and demand. This will help channel investment flows towards transition technologies critical for decarbonizing the city-state's economy.

Ensuring Social And Economic Fairness

As with any new environmental policy, there are also concerns around potential social impacts and costs that the government is addressing proactively. Specific assistance schemes are being formulated for hard-hit lower-income groups and small businesses.

Key industrial players have welcomed the program claiming it provides much-needed certainty and incentives to future-proof their operations. Employment opportunities are also expected to rise in the carbon management, auditing and consulting domains. Overall, the carbon market is projected to boost Singapore's position as a center for low-carbon innovation, technologies and services across Asia.

Through prudent policy design and implementation, Singapore aims to demonstrate that ambitious climate action and economic growth can progress hand in hand. If successful, its pioneering carbon credit system could serve as a model for other nations and jurisdictions looking to accelerate decarbonization through market mechanisms. Only time will tell if this innovative approach truly delivers on its climate and sustainable development promises.

In conclusion, Singapore is positioning itself as a leader in Asia's transition to a greener future by launching one of the region's first compliant carbon trading programs. With careful piloting and oversight, its carbon credit market holds potential to drive significant emissions reductions while stimulating billions in low-carbon investments vital for tackling the climate crisis.