Carbon Tax News: Updates from Singapore, EU, and Malaysia

Last Friday, Singaporean Finance Minister Lawrence Wong announced in his budget speech that the island nation’s carbon tax rate will be increased as part of Singapore’s efforts to reach net-zero emissions by or around 2050. At the moment, the current tax of S$5 per tonne of emissions will continue to be in force until 2023, and will be increased incrementally before reaching a rate of somewhere between S$50–80 per tonne by 2030. This was higher than initial expectations of a carbon tax increase to anywhere between S$10 and S$15 per tonne, with one expert, PwC’s Chris Woo, remarking “if we don’t tax that supply chain, another country will.”

Over at the EU, carbon prices on its emission trading scheme (ETS) have risen beyond expectations over the past year. This has prompted calls for authorities to address design flaws in the ETS, with recommendations from the European Green Party and Potsdam Institute for Climate Impact Research including reforms aimed at curbing excessive financial speculation. Traders are now reportedly becoming wary following the European Commission agreeing to look into ways to make trading activities more transparent.

From Trading Economics (accessed 21 Feb 2022): “EU carbon permits traded close to €90, down from a record €98.5 reached on February 8th, following news that EU lawmakers were mulling key reforms in the bloc’s carbon market, and higher energy output from non-polluting sources.”

In Malaysia, eyes are now on how national policy and regulators will deal with the Sabah state government’s proposal for the National Conservation Agreement (NCA), a 100-year mega carbon asset concession project in collaboration with Singaporean-based company Hoch Standard Pte Ltd. Social media is alight with the purportedly leaked document of the aforementioned agreement, with interesting comments—including remarks on the statement made by the Sabah Deputy Chief Minister just last week—from investigative website Sarawak Report.

On that note, the Sarawak government has also announced intentions to venture into a carbon credit project, with Mambong assemblyman Dr Jerip Susil revealing that the state may pass a legislation allowing for carbon credits trading to take place this year. In the meantime, the Malaysian government has agreed to the development of a Voluntary Carbon Markets to facilitate international carbon credit transactions.

Questions Surface over Leon’s Carbon-neutral Burgers and Fries

Earlier this year, Leon announced that it would be the first UK-based chain restaurant to offer carbon-neutral burgers and fries via its carbon offsets programmes. However, scientists, journalists, and NGOs are raising questions of credibility of its Redd+ projects. There are concerns that these carbon projects do not truly have a significant impact of reversing carbon emissions, potentially misleading consumers into thinking they are making a beneficial change to the environment. 

For one, since carbon offsets programmes are generated based on hypothetical predictions of deforestation if the programme doesn’t exist, there are justifiable doubts as to whether threats of deforestation and carbon reductions are fully captured. This concern is well-documented—an investigation of accredited forest protection schemes by the Guardian and Greenpeace's Unearthed, for example, found instances of possible understated deforestation risks and overstated emission reductions. In response, Verra, the organisation responsible for accrediting these schemes, issued a rather fiery statement defending itself, bringing the matter to a stalemate and indicating that this concern will likely remain unresolved for the time being. 

Another issue regarding carbon-neutral programmes is risk management. In this instance, the “buffer pool” mechanism employed by carbon offset projects comes to mind. A buffer pool is essentially a form of insurance where some of the credits generated from a project are set aside and cannot be sold; in instances of carbon emissions due to fires or other events, credits will be taken out from the pool and cancelled. 

Forests are not only prone to fire, but also drought and pests. CarbonPlan (accessed 2 Sep 2021) uses data analytics to map out these risks based on previous historical forest data.

Among the various criticisms of this mechanism, which include out-of-date calculations and permanence, one notable criticism is how much buffer pools “insure” carbon forests in the first place. Experts have pointed out that buffer pools comprise only a fraction of the credits associated with the offset, meaning that projects are underestimating the forest-associated risks, particularly that of fires. For example, in the fire-prone Colville Indian Reservation, only 2% of credits were contributed to the buffer pool, suggesting that the pool is not created in a way that takes into full account real climate-related threats faced by Colville’s forests.

Maps of offset projects on the west coast of the US (left; Forest Trends, accessed 2 Sep 2021) compared with detected fires/hotspots of the same within the last 30 days (right; FIRMS/NASA, accessed 2 Sep 2021). California is home to a number of carbon offset projects, primarily in the northern region. Surprisingly, this is also an area where significant fire risks can be found.

Concerns about risk management are relevant in our home region of Southeast Asia as well. Currently, Indonesia is making an effort to introduce more offset projects for conservation efforts and foreign direct investment involving forests in Kalimantan, Sulawesi, Maluku, and Papua. Considering that much of the archipelago consists of peatlands and fire-prone forests, risk management is a highly important—and complicated, since efforts to mitigate disasters vary from region to region—issue to tackle.

Maps offset projects (left; Forest Trends, accessed 2 Sep 2021) and detected fires/hotspots in the eastern region Sumatera (right; FIRMS/NASA, accessed 2 Sep 2021).

Ultimately, it would seem that the proof of concept for carbon offset forestry programmes includes at least two important factors: transparent data reporting and proper risk management systems.

By MUHAMMED Hazim, Segi Enam intern, 2 Sep 2021 | LinkedIn

Edited by Nadirah SHARIF

SIIA Haze Outlook 2021: Opportunities for Climate Action and Green Recovery

The SIIA Haze Outlook 2021, published last month and co-authored by the Singapore Institute of International Affairs (SIIA) and Segi Enam Advisors, has something a little different than last year’s report—a segment exploring opportunities for climate action and green recovery, with particular focus on nature-based solutions (NBS) and carbon markets.

Theoretically, nature-based projects could lead to carbon emissions reduction and carbon offsets, while providing opportunities for investments. While the sector is still in its early stages of development, interest in carbon credits generated form Indonesia-based NBS projects is growing. The Katingan Mentaya Project managed by PT Rimba Makmur Utama illustrates this interest—a forest restoration and protection initiative located in Central Kalimantan, it generates an average of 7.5 million triple gold certified carbon credits a year, and carbon credits generated from the project have already been purchased by major global multinational firms.

Accordingly, many plantation companies that spoke to SIIA have expressed some interest in generating carbon credits from their own conservation projects, both current and future. Ultimately however, it is still too early to assess how willing project developers are to sell credits internationally compared to domestically.

Our previous posts on the SIIA Haze Outlook 2021: (1) Reviewing 2020; and (2) Issues to Watch in 2021

Read the full report here: SIIA Haze Outlook 2021