Representatives from Singapore and Australia’s trade and industry departments met recently to continue negotiations on the bilateral Green Economy Agreement, first announced in June 2021. A key part of these discussions will be the development of a regional carbon trading market.
Singapore and Australia have a history of cooperation on environmental matters; in October 2020, both countries signed a Memorandum of Understanding for Cooperation on Low-Emissions Solutions. This was developed to encourage knowledge sharing and collaboration in developing emissions monitoring and reduction strategies and technologies, and facilitate renewable energy trade. The countries are also working together on a project to supply solar power to Singapore via an undersea cable from Darwin.
Drivers for a Regional Carbon Trading Market
The push for a regional carbon trading market comes amidst key regulatory and market developments in both countries, such as:
- The change in the Australian government who have a stronger climate policy and net zero targets
- Singapore’s recent announcement of its climate ambition to reach net zero emissions by or around 2050
- The progressive increase in Singapore’s carbon tax, the first in the ASEAN region – from the current S$5/tCO2-e to S$50-80 by 2030
- Carbon credits generated by projects registered under Australia’s Emissions Reduction Fund (ERF) announced as open for sale on the secondary market
- Singapore’s Climate Impact X launching its Project Marketplace to allow firms to purchase carbon credits from nature-based projects around the world
Liable entities under Singapore’s carbon tax – largely those in Singapore’s energy sector – will be allowed to surrender high-quality international carbon credits to offset up to 5% of their taxable emissions from 2024. In addition to entities impacted by the carbon tax, companies in Singapore are seeing a substantial push for net zero commitments, which will need to be backed by robust reduction strategies and offsetting of residual emissions.
Australia’s Emission Reduction Fund (ERF) could be key in both these applications. The ERF is one of the world’s most sophisticated mechanisms for generating high-quality carbon credits from industrial sector emissions reduction projects; and increasingly nature-based sequestration projects. ERF projects are developed according to robust methodologies and a strict audit regime; generating Australian Carbon Credit Units (ACCUs) that are able to withstand a high degree of regulatory and investor scrutiny.
Logistics of Trading Carbon Credits
The international trading of carbon units is still broadly governed under rules implemented as part of the 1997 Kyoto agreement. To date, these rules, and policies adopted by the Australian government have not been conducive to the international trading and use of ACCUs.
In the November 2021 COP 26 discussions however, the Article 6 framework for international carbon trading was adopted; bringing international carbon trading and use under the remit of the 2016 Paris Accord. These developments mean that there exists a real possibility that international firms can begin using ACCUs to meet their global decarbonisation commitments; and is likely to be an integral part of the proposed Singapore-Australia regional carbon market.
In recognition of this, global entities are looking to develop their own carbon offset projects in Australia with the hope and expectation that the offsets produced will eventually be used globally; and valued at global prices (e.g. the recent price of EURs was AU$125/tCO2e). Of these, nature-based sequestration projects are considered to be among the best quality and most scalable.
What this Means for Businesses
Singaporean businesses wanting to participate in the regional carbon trading market with the use of ACCUs to meet their Singaporean Carbon Tax (and other) commitments should start evaluating how to develop their own supply of offsets in Australia. For nature based projects, this typically means selecting an appropriate ERF method (e.g. the increasingly popular Reforestation by Environmental or Mallee Planting method), selecting a suitable site and appointing a suitable service provider.
Given the complexity and nature of these projects, there can be a significant lead time between choosing to undertake an opportunity and delivering the first ACCUs. Accordingly, it is imperative to start assessing prospects now in preparation for the opportunities to may come from Article 6 and the Singapore-Australia regional carbon market.
Work With Us to Develop Your Carbon Project
Our experts at Ndevr Environmental are deeply familiar with the ERF through our experience as auditors, advisors to project developers, and technical experts for carbon market dynamics and due diligence of ERF portfolios. We have been supporting global entities with registering their own projects to generate and monetise high quality, nature based ACCUs across Australia.
Roohi is based in Singapore and is experienced in the areas of environmental research, carbon project assurance, business advisory, sustainable development, and the circular economy.