How Singapore’s carbon trading pacts can impact local firms and the economy

Besides meeting climate goals, firms can use carbon credits to save money, boost green project investments

- Shabana Begum Correspondent and Ang Qing Correspondent

Singapore's efforts to source for carbon credits from all over the world are paying off, with 10 such deals inked since end-2023.

As at early October, the Republic has signed implementation agreements with Ghana, Papua New Guinea, Chile, Bhutan, Peru, Rwanda, Paraguay, Thailand, Vietnam and Mongolia.

These agreements pave the way for carbon taxpaying companies in Singapore, as well as the Government, to buy credits from carbon projects in these countries to offset some of the companies’ planet-warming emissions.

But these credits are shaping up to be more than just a way for the Republic or companies here to meet their climate commitments.

Experts say that carbon trading could also help companies save money and boost investments in climate-friendly projects in developing countries. Carbon credits could also become an investible asset class, similar to other commodities.

The Straits Times speaks to carbon market industry watchers to pin down the economic implications of the international carbon market for Singapore and Southeast Asia.

WHAT ARE CARBON CREDITS?

One carbon credit represents one tonne of carbon dioxide (CO2) that is either prevented from being released — by saving a forest from the axe, for example - or removed from the atmosphere, such as from a direct air capture plant.

For companies, buying carbon credits is one way to reduce their carbon footprint, in order to meet their voluntary targets, or to fulfil regulatory requirements.

For example, carbon taxpaying companies in Singapore are allowed to buy carbon credits to offset up to 5 per cent of their tax bill.

These credits would come from carbon projects that Singapore has carbon trading deals with.