Singapore inks carbon credit pact with Vietnam, its second South-east Asian partner

(Photo credit: ST Photo/Lim YaoHui)

Source: The Straits Times

Vietnam has become the second South-east Asian country to seal a carbon trading agreement with Singapore after Thailand, expanding the Republic’s market for carbon credits generated in the region.

The bilateral agreement makes Vietnam the ninth country that the Singapore Government and carbon tax-liable companies here can buy eligible credits from, to offset a fraction of their planet-warming emissions.

The pact, dubbed an implementation agreement, was signed virtually on Sept 16 by Singapore’s Minister for Sustainability and the Environment and Minister-in-Charge of Trade Relations Grace Fu and Vietnam’s Acting Minister of Agriculture and Environment Tran Duc Thang.

The eight other countries that have such implementation agreements with Singapore are Bhutan, Chile, Ghana, Papua New Guinea, Peru, Paraguay, Rwanda and Thailand.

An implementation agreement is a legally binding document that governs the international transfer of carbon credits between two countries.

Under the Paris Agreement – an international treaty adopted by 195 parties to limit global warming – countries can buy carbon credits generated in other jurisdictions to meet domestic climate targets to reduce emissions.

The carbon markets will benefit carbon credit buyers as buying credits from elsewhere can occasionally be cheaper than reducing emissions on their own.

Countries hosting these projects also stand to gain as credits generate revenue for climate-friendly projects.

The Ministry of Trade and Industry (MTI) said in a statement that Singapore is committed to channelling funds, equivalent to 5 per cent of carbon credit transactions, towards measures that help Vietnam to adapt to climate change.

Such a contribution is not mandatory for bilateral carbon credit agreements under the Paris Agreement and is voluntarily undertaken by Singapore.

Under the pact with Vietnam, Singapore is also committed to cancelling 2 per cent of carbon credits authorised at first issuance.

Neither Singapore nor Vietnam can claim the cancelled credits towards their own climate targets. Such a cancellation of credits ensures that overall emissions are gradually forced to taper down over time, instead of just being offset somewhere else.

Said Ms Fu: “The signing of this implementation agreement marks an important new area of cooperation between our countries and creates new opportunities in our transition to a low-carbon economy.

“I am confident that this agreement will catalyse the development of climate change mitigation activities that reduce emissions, foster more regional cooperation to address the pressing challenges of climate change, and open up additional pathways towards sustainable development.”

Mr Thang said the agreement will establish a framework that marks a “turning point” that will open up new climate finance opportunities in areas like clean energy and sustainable smart agriculture.

“We also hope Singaporean enterprises will actively cooperate and invest in projects in Vietnam to generate high-quality carbon credits that meet international standards,” he added.

Associate Professor Daniel Lee, director of the Carbon Markets Academy of Singapore at Nanyang Technological University, said the finalisation of the pact builds momentum for greater collaboration within the region.

“I’m confident there will continue to be more such implementation agreements within South-east Asia,” he added, calling the deal a tangible sign that a regional ecosystem can be realised to support more impactful action that prevents or reduces greenhouse gas emissions.

Implementation agreements are signed between countries to prevent double counting, a situation where both the buyer and host country count the same emissions reductions or removals towards their own targets.

A host country must agree to make a “corresponding adjustment” to add the sold emissions back to its national inventory.

One carbon credit represents one tonne of carbon dioxide that is either prevented from being released, or removed from the atmosphere.

Credits used to offset Singapore’s national emissions can be bought only from projects in countries with which the Republic has implementation agreements.

The Republic has estimated that it would use high-quality carbon credits to offset roughly 2.5 million tonnes of emissions a year from 2021 to 2030.

Singapore’s constraints as a land-scarce island-state mean that it will likely have to turn to carbon credits to offset its carbon footprint.

The energy sector is the largest contributor to global greenhouse gas emissions, and the Republic is almost entirely dependent on natural gas, a fossil fuel, for its energy needs, with limited sources of renewable energy.

The MTI said the carbon projects authorised under the implementation agreement will promote sustainable development and deliver tangible benefits to local communities.

These include the creation of jobs, improved access to clean water, enhanced energy security, and reduction of environmental pollution.

Locally, the main buyers of carbon credits generated under the Paris Agreement framework are either carbon tax-liable companies, which can buy credits from projects in countries that Singapore has implementation agreements with to offset up to 5 per cent of taxable emissions, or the Singapore Government.