For some time now, Singapore has been relentlessly transforming itself into a global carbon trading hub. What does this entail?
In Singapore, a company that directly releases 25,000 tons or more of carbon dioxide equivalents (tCO2e) per year is considered a large emitter.
A carbon dioxide equivalent (CO2e) is a metric that converts other emitted gases, such as nitrogen oxides, into the equivalent amount of carbon dioxide, based on how much they contribute to global warming.
Since January 1, 2019, companies that emit significant amounts of CO2e have to pay a carbon tax to be held accountable for their emissions. This scheme, introduced through the country’s Carbon Pricing Act, is the first carbon pricing strategy to be established in Southeast Asia.
The current carbon tax is 5 Singapore dollars (SGD)/tCO2e. This means a company that emits at least 25,000 tCO2e per year will have to pay a minimum of 125,000 SGD annually.
Singapore’s current carbon tax is lower than many countries, but is set to drastically increase in the next few years.
In February 2022, the government announced that the carbon tax will increase over the next few years to keep up with Singapore’s climate goals.
Those are huge jumps, signifying bigger costs for these companies.
To help companies offset their carbon tax, the government announced that, from 2024 onwards, large-emitters can opt to purchase carbon credits. This allows them to offset around 5% of their taxable emissions, reducing the amount of tax they have to pay.
All of this sounds good on paper, but the markets for carbon credits have historically been complicated and controversial.
What are carbon credits?
Carbon credits are essentially permission slips that allow the buyer to emit a specific amount of greenhouse gases. They are bought and sold in two markets: the mandatory (or compliance) and voluntary market. The former is created by law, while the latter functions voluntarily.
Presently, the market Singapore is encouraging their companies to join is the voluntary carbon market.
Here, a company or individual can voluntarily buy carbon credits from a specific project. These projects largely aim to improve the environment by protecting ecosystems, implementing sustainable solutions, or reducing carbon emissions. These eco-projects are typically located in less developed regions, where environmental preservation is desperately needed.
Typically, one carbon credit equals one metric ton of emissions. In theory, when companies buy these credits, they are investing in projects that help improve the environment elsewhere, offsetting their own net carbon footprint.
The voluntary carbon market has encouraged the flow of significant investments in recent years, reaching a value of US$2 billion in 2021.
“At a very basic level, a company is trying to fight climate change and can’t do anything more, either scientifically or economically, so it decides to pay someone else to do that. At a more macro level, some people choose to think of carbon credits as a transfer of wealth from the global north, which has been historically responsible for more carbon emissions, to the global south,” said Mikkel Larsen, Chief Executive Officer of Climate Impact X, a Singapore-based global carbon credits marketplace and exchange, during a panel at the Singapore Convention Week 2023.
The questionable standards of voluntary carbon credits
Both carbon credit markets seem like brilliant ideas; a win-win for many stakeholders. The mandatory market, in particular the cap-and-trade scheme, where governments set a strict emissions cap on companies and issue a suitable number of credits accordingly, has proven to be successful, if implemented properly.
On the contrary, the effectiveness of the voluntary market has been debatable. This is because in reality, it can be easily manipulated, due to its non-compulsory nature.
The failure of REDD+ projects demonstrates this problem
Too many credits from REDD+ projects
Of all the projects involved in the voluntary carbon market, Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects are most common. These projects are specifically related to the preservation, management, and enhancement of forests, and were created under the REDD+ framework under the Paris Agreement, an international treaty on climate change.
REDD+ projects are popular as they are seen as the most crucial, since tropical forests store around 180 billion metric tons of carbon that will be released if they are cut down. As such, they provide the highest number of credits. In 2021 alone, about 151.8 million carbon offsets, worth about US$1.3 billion, were established from REDD+ projects. As of 2023, about one out of four carbon credits in existence links back to a REDD+ project.
Since 2013, local researchers have pushed for Singapore’s mangroves to be protected under the REDD+ scheme. However, the process has been slow-going, due to uncertainties surrounding the exact amount of carbon captured and stored by carbon mangroves, and subsequent difficulties in monitoring such values. Apart from a few initial reports at the start of the 2010s, there has been no further development on this front.
Moreover, there have been long-standing doubts about the precise impacts of REDD+ projects. In fact, a September 2023 report by UC Berkeley funded by the Carbon Market Watch concluded that REDD+ projects are not suited for the voluntary carbon credits market at all.
In a sample study of several REDD+ projects in Peru, Colombia, Democratic Republic of Congo, Tanzania, Zambia, and Cambodia, it was found that only 1 in 13 carbon credits were legitimate. More than half of the projects did not prevent deforestation, despite having issued carbon credits. Many other researchers have reached the conclusion that these projects often fail and don’t reduce emissions to the extent promised.
How exactly do REDD+ projects fail? Most of them suffer from over-crediting. It is easy for this to happen; project developers simply have to submit inaccurately high baselines.
Developers of carbon offsetting projects have an incentive to oversell carbon credits—by selling more credits than the project deserves, they can claim to have a much bigger impact on the climate than they actually have. The auditors who judge the quality and legitimacy of the project work for the project developers, so they have an incentive to be lenient to ensure a continued working relationship with the developer.
As a result, businesses or individuals who buy these excess carbon credits end up greenwashing—going through the motions without actually contributing to emissions reductions.
Concerns about human rights violations
Perhaps more worryingly, several REDD+ projects have been investigated for human rights violations, specifically the poor treatment of local communities.
On June 7 of this year, Singapore-based carbon credits marketplace Climate Impact X launched its voluntary carbon exchange, which uses credits from a huge REDD+ project in Southern Cardamom, Cambodia.
Notably, this project has been monitored by the Human Rights Watch for its possible violation of human rights. Locals from the remote mountainous area of Chi Phat report having run-ins with project developers and enforcers, experiencing abuse, and even eviction from their homes.
Following these allegations, Human Rights Watch initiated a review of the project in April 2022, after which the offsetting project was suspended. Verra, the world’s biggest carbon credit certifier, also began their own investigations in June 2023, and has since put a pause on trading credits of the project. However, Climate Impact X continues to use its credits, claiming to employ a wait-and-see approach.
In an email to Kontinentalist, a spokesperson elaborates that their “investigations to date, including conversations with the project proponent, do not offer sufficient evidence that the allegations made against the Southern Cardamom project fully reflect reality.” Stressing that they have “a dual responsibility to both buyers and project developers,” they say they are “awaiting further information, including the outcomes of Verra’s review.”
Interestingly, in the same statement, Climate Impact X insists that they “[operate] independently of the Singapore government,” despite one of their founders being Temasek, a global investment company owned by the government. Another founder is Singapore Exchange, of which Temasek is the biggest shareholder.
“The identification of some underperforming projects does not warrant a conclusion that all projects are of poor quality. We still believe high-quality projects exist,” said a spokesperson for Climate Impact X, in an email to Kontinentalist.
Controversies regarding carbon credit suppliers further worsen the issue
Verra: Worthless forest credits
Carbon credits and the projects that supply them have to be certified in order to be considered legitimate. They must comply with strict criteria and be registered with an internationally recognized carbon crediting program. Two of the most popular programs are Verra’s Verified Carbon Standard (VCS) and Gold Standard. Others include the Global Carbon Council and the American Carbon Registry.
Verra, in particular, is the world’s leading credit certifier. It verifies around three-quarters of all carbon credits in circulation and so far has issued over one billion credits.
In January 2023, a groundbreaking nine-month investigation by the Guardian, German newspaper Die Zeit and London-based publication SourceMaterial revealed cracks in Verra’s carbon credit scheme. Researchers uncovered that 94% of rainforest-related carbon credits issued by Verra are essentially worthless. After investigation results were published, the Chief Executive Officer of Verra resigned from his post.
Moreover, it was discovered that Verra’s methodologies all allow project developers a significant amount of flexibility when they calculate the impact of their projects. While Verra has required developers to be conservative with their estimates, this was often not the case, and project developers often took advantage of the flexibility to generate a large number of credits.
Verra has strongly argued against the findings, claiming that the investigations could not truly reflect what actually happens at the location. They insisted that local, on-the-ground conditions, threats and impacts could not be accurately measured by the standardized approach used by the researchers.
Despite this pushback, the investigations show that there are enormous differences between what’s happening at the project sites compared to what Verra was approving, which needs to be addressed.
“There are strong discrepancies between what we’re calculating and what exists in their databases, and that is a matter for concern and further investigation. I think in the longer term, what we want is a consensus set of methods which are applied across all sites,” said David Coomes, Professor of Forest Ecology at the University of Cambridge, in an article in the Guardian.
Global Carbon Council: Greenwashing the World Cup
Perhaps more controversial than Verra, however, is the Global Carbon Council (GCC), and this ties back to the 2022 FIFA World Cup in Qatar.
As a rather small nation, Qatar had to pour massive amounts of money—with a budget of US$8 billion—into building infrastructure for the World Cup.
This enormous construction feat, on top of the environmental impacts of other factors typically associated with the World Cup such as traveling and hospitality, ended up generating insane amounts of emissions. Officially, the total amount of emissions adds up to 3.6 million tCO2e, but this was likely a huge underestimation, and the actual value may be closer to 10 million tCO2e—more than what the country of Jamaica emits in an entire year.
Faced with serious backlash, the organizers ambitiously announced that the 2022 World Cup would be carbon neutral. Their plan was to purchase credits that will support environmentally-beneficial projects in Qatar and the wider region to offset their emissions. For this plan, they initiated a new carbon credit standard, which we now know as the GCC.
Since its inception, the integrity of the GCC has been called to question. Perhaps the most damning evidence of its poor integrity lies in the fact that the GCC allows for the registration of “non-additional projects”.
In particular, grid-connected renewable energy projects are highly likely to be non-additional. This is a recent development; in the past, since fossil fuels were most commonly used while renewable energy was an afterthought, such renewable energy projects would not have happened without carbon credits as incentive. However, as grid-connected renewable energy becomes more competitive globally in recent years, such projects are now mainly non-additional—most of these projects would have happened regardless of whether they managed to sell any carbon credits at all.
Verra and Gold Standard have not supported or approved these types of projects since 2019. But a quick check of the GCC database shows that almost all approved projects are “grid-connected renewable energy projects of unclear environmental integrity”, with all of them registered from 2021 to present.
These controversies suggest how the voluntary carbon market is highly flawed, and not as environmentally helpful as it was intended to be. Unfortunately, it seems like the voluntary carbon market benefits stakeholders who wish to operate behind a smokescreen.
Singapore’s push to become a carbon trading hub
Amidst all of these scandals, many stakeholders have backed out of the voluntary carbon market. While it was worth US$2 billion in 2021, the market shrank for the first time in seven years to less than US$500 million in 2023.
However, Singapore has been moving against recent trends. In fact, the government has been positioning the country as a global voluntary carbon trading hub. This goal was derived from the self-proclaimed desire to support global emissions reductions and help companies looking to manage their carbon footprint. As a Southeast Asian country, Singapore is also well-positioned to provide support in a region that has a high potential for natural carbon preservation.
Since 2021, and especially 2022 onwards, Singapore has been taking more actions to become a carbon trading hub.
Timeline of moves made by the Singapore government
Notably, the National Environment Agency (NEA) signed MOUs with Verra and Gold Standard in August 2022, as well as the GCC in November of the same year. While these agreements were signed before the investigation on Verra was revealed, it is still highly likely local businesses can continue to purchase carbon credits issued by these standards.
When Verra’s controversies were brought up in Parliament, Minister for Sustainability and the Environment Grace Fu commented that the government was aware of the report, adding that they would “take these developments into account as [they] finalize the environmental integrity criteria for the international carbon credits that are eligible for carbon tax offset”.
Ms. Fu also elaborated that the MOUs the government signed with Gold Standard and Verra are “not legally binding”, and that the presence of these MOUs does not mean the government approves of all carbon credits issued by both carbon crediting programs. Whether her claims are true remains to be seen.
There are also concerns about the Singapore government’s MOU with the GCC. Businesses will likely be able to use credits from the certification program, but a more alarming fact is that the Chief Operating Officer of the GCC, Kishor Rajhansa, sits on the board of the Climate Action Data Trust (CAD Trust), a joint effort between the Singapore government, International Emissions Trading Association (IETA), and World Bank.
The CAD Trust was established to push for more transparency and act as a database for carbon credits traded all over the world. If its goal is truly about transparency, then having a member of the GCC on its board feels like a step in the wrong direction.
Ms. Fu has, thus far, not commented on the GCC’s controversies.
Even more recently, on October 4, the Singapore government released their Eligibility Criteria for international carbon credits. The criteria states the basic seven principles carbon credits need to comply with:
However, this criteria is vague, and lists foundational qualities that are already expected of credits. More exact details, including the process of deciding which credits are acceptable, list of eligible project host countries, as well as accepted carbon credit programs and methodologies, are promised to be published by the end of 2023.
Despite the lack of clarity at this stage, the government continues to push for other countries to participate in the voluntary carbon market, positioning itself as a leading force.
“Singapore has a clear understanding of what it wants. They want to become the voluntary carbon market hub of the world. It’s clear that the demand side for credits that come through the Singaporean turning plate is not environmentally driven. In my view, [they] want to have as broad a range of credits as possible. They’ve been warned on this, but they don’t care,” said Axel Michaelowa, the head of International Climate Policy at the University of Zurich, in an interview with Süddeutsche Zeitung.
Asking the right questions
Clearly, a lot of clarification is required of the voluntary carbon market, and of Singapore’s carbon market-related decisions.
For now, Singapore powers on. The government is eyeing agreements with more countries, and are already in discussion with Brazil, Brunei, and Thailand, among others.
The voluntary carbon market is complicated, and tough for the uninitiated to map out how and if it really works. Singapore, in its bid to become a carbon trading hub, claims to want to provide more transparency, but at the moment this transparency seems to be more about having credits properly recorded than investigating the impact of the voluntary carbon market.
As consumers, this can be equal parts boring and frustrating to dissect. But there’s a need to probe and ask our leaders the right questions, and this starts with having a good understanding of complex environmental solutions like these.
Businesses have a key part to play too, as even the most vigilant consumers can be misinformed. Recently, Carbon Trust, one of the top environmental certification schemes, acknowledged the subpar quality of carbon credits, and terminated their “carbon neutral” labeling scheme to prevent consumers from being misled by the label.
Clearly, the voluntary carbon market relies on the integrity of its stakeholders. While the global environmental movement is an important one, it is often sabotaged by greed and profiteering. It is therefore crucial for leaders to step in and make sure they are truly making the right decisions, on paper and in practice.
This story was produced with support from Internews’ Earth Journalism Network for the “It’s a Wash” special report and was lightly edited for length and clarity. The original story can be found here.
Credit: Code / Siti Aishah, Design and Illustrations / Amanda Teo, Editing / Nabilah Said, Loh Pei Ying.
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