Singapore Embraces Carbon Trading to Drive its Climate Actions

Singapore aims to achieve net-zero emissions by 2050 and has introduced its carbon trading scheme, carbon credit trading can support its green ambitions.

Introduction to Carbon Credit Trading in Singapore

Singapore launched its domestic emissions trading scheme called the Carbon Pricing Act in January 2019, becoming the first Southeast Asian country to introduce an economy-wide carbon tax. Under this act, large emitters emitting more than 25,000 tons of greenhouse gases each year have to measure their emissions and purchase carbon credits from the government to offset these emissions. These entities can trade carbon credits in the carbon exchange announced by the government to be established by 2023.

The Singapore Carbone Credit will be initially given freely to the companies by the government based on their historical emissions. However, the given credits will decrease over time to encourage businesses to reduce their emissions. Companies can cut their emissions and sell excess credits to other businesses that exceed their targeted levels. This market-based mechanism allows businesses flexibility in how they lower emissions in the most economically efficient manner.

Regulatory Framework for Carbon Credit Trading

The Carbon Pricing Act provides the regulatory framework for the carbon market in Singapore. Key aspects of the regulatory framework include:

- Establishing a cap on total emissions from regulated entities
- Granting carbon credits (allowances) to these entities based on past emissions performance
- Requiring regulated entities to surrender enough credits to cover their annual emissions
- Allowing trading of carbon credits in the emission exchange to be established
- Regulating the functioning of the carbon exchange and trading activities
- Gradual lowering of carbon credits given to increase the carbon tax over time
- Revenue collected through carbon credit auctioning to be channeled into green initiatives


Potential of Singapore Carbon Credit

With over 60 large emitters currently regulated under the carbon pricing scheme in Singapore, the potential size of the domestic carbon market is sizable. As the carbon tax increases over time, the need for businesses to trade credits is expected to grow significantly.

According to estimates by Singapore's Centre for Climate Research, the domestic carbon market could be worth up to S$170 million by 2030 as the carbon tax increases. As businesses look for most cost-effective ways to comply, trading of carbon credits is likely to emerge as an important compliance mechanism. Various brokers and traders are expected to participate in the trading system once the exchange gets established.

Not just domestic entities, large multinational companies operating in Singapore may also find it beneficial to participate in Singapore's carbon market to help meet their global emission targets. The liquifity and transparency offered through the exchange-based trading platform can attract participation beyond Singapore as well. This could potentially scale up the size and value of the carbon market over the long-term.

Co-Benefits of Carbon Credit Trading in Singapore

In addition to supporting Singapore's climate change targets, the carbon trading scheme is expected to yield various co-benefits as follows:

Innovation in Low-Carbon Technologies: As the regulatory push to lower emissions intensifies, it will drive more private sector investments in researching and deploying innovative low-carbon technologies. We can expect to see new patents and solutions emerging from Singapore's businesses in areas like carbon capture, renewable energy, energy efficiency etc.

Green Job Creation: Developing the carbon market infrastructure like the exchange, regulatory framework, trading platforms etc. will create new direct jobs in the carbon market as well as green financing sectors. It will also lead to more indirect job openings across low-carbon supply chains and cleantech industries over the long-run.

Capacity Building: Managing carbon assets and trading requires new skills around carbon accounting, risk management, financial modeling and more. This will boost local expertise in emerging carbon market services and even allow for exports of such expertise to other markets.

Attracting Impact Investors: A mature carbon market with increased liquidity can attract more impact investors looking to invest in emissions reduction projects or carbon asset management firms. This will help channel more private capital into the decarbonization efforts.

With its focus on establishing a robust carbon pricing policy framework, Singapore is positioning itself as a regional hub for carbon trading and climate finance. The carbon market holds significant potential to support its transition to a low-carbon, climate-resilient economy.


Conclusion

To conclude, Singapore's carbon trading scheme is an important step within its strategy to achieve net-zero emissions by 2050. By establishing an economy-wide carbon price and enabling trading of carbon credits, the country aims to curb emissions cost-effectively while promoting green growth. The carbon market is expected to evolve into a multi-million dollar opportunity for trading of compliance instruments and projects-based credits over the long-run. In addition to driving its domestic decarbonization efforts, Singapore also aims to emerge as a regional hub for carbon trading and climate investment services through this initiative. If development prudently with robust regulations, the carbon market can continue supporting Singapore's climate ambitions for decades to come.

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