Singapore signs milestone agreement with Papua New Guinea to offset Carbon Tax Liability

Singapore has entered into its first-ever agreement with Papua New Guinea, paving the way for companies in the Republic to purchase carbon credits from projects in Papua New Guinea.

The groundbreaking accord, signed on Friday (8 Dec) at the COP28 climate conference, aims to enable Singaporean businesses to offset a portion of their carbon tax liability.

The agreement was inked by Singapore's Minister for Sustainability and the Environment, Grace Fu, and her counterpart from Papua New Guinea, Simo Kilepa, the Minister for Environment, Conservation, and Climate Change.

The significance of this agreement lies not only in its environmental impact but also in the diplomatic ties between the two nations. Both Singapore and Papua New Guinea are members of the Alliance of Small Island States (Aosis), a coalition advocating for the unique challenges faced by small island nations in the face of climate change.

Under the terms of the agreement, project developers will be required to cancel 2 per cent of the authorized carbon credits to contribute to global emissions mitigation. Additionally, 5 per cent of the share of proceeds from authorized carbon credits will be allocated to climate adaptation efforts in Papua New Guinea.

Minister Grace Fu emphasized the dual focus on mitigation and adaptation actions necessary for achieving the goals outlined in the Paris Agreement.

Speaking at the Singapore Pavilion, Minister Fu stated, "This ensures that we can advance both mitigation and adaptation actions required to deliver the Paris Agreement goals."

She further highlighted that the carbon crediting projects resulting from this collaboration would not only contribute to global emissions reduction but also bring sustainable development benefits to local communities. These benefits include the creation of sustainable jobs, improved energy security, and reduced pollution.

Starting from 2024, Singapore's carbon tax is set to increase from $5 per tonne to $25 per tonne. Singapore, through its international carbon credit (ICC) framework, allows tax-liable companies to offset up to 5 percent of their taxable emissions by purchasing eligible ICCs generated under such implementation agreements.

To diversify its portfolio of credits, Singapore has also concluded similar implementation agreements with other nations, including Bhutan, Paraguay, Ghana, and Vietnam.

Minister Fu underscored the importance of maintaining high standards in carbon markets, stating, "High-integrity carbon markets can contribute to much-needed climate action globally, and the environmental integrity of carbon credits under the implementation agreement must meet internationally recognized standards."

The agreement with Papua New Guinea is not only about offsetting emissions; it establishes a bilateral framework allowing for the transfer of carbon credits between the two nations. Crucially, measures are in place to prevent double counting, ensuring transparency and accountability in the carbon credit market.

Minister Fu highlighted the potential for financing worthwhile climate mitigation projects through this bilateral framework.

Explaining the concept of carbon credits, officials emphasized that these are generated through activities aimed at reducing, removing, or avoiding carbon emissions.

Examples include restoring forests or investing in renewable energy. One carbon credit represents a reduction of one tonne of carbon dioxide emission.

Officials stated that trading these credits through Singapore would unlock new business opportunities, particularly in areas such as carbon services and sustainability solutions. This move is expected to strengthen Singapore's position as a hub for carbon services and trading, contributing to the nation's efforts to become a leader in sustainable practices.

Minister Fu expressed her satisfaction with the agreement, stating, "We are delighted to sign our first implementation agreement with Papua New Guinea, a fellow Alliance of Small Island States member. We look forward to working with Papua New Guinea to advance climate action together."