In recent times, the term “carbon credits” has become a frequent headline in news outlets worldwide. From environmental discussions to economic forums, they seem to be on everyone’s agenda.
Yet, for all the buzz they generate, most news pieces offer only a cursory glance at the topic, rarely delving into the complexities of what carbon credits truly are, their origin, and their multifaceted benefits.
This lack of depth often leaves businesses and individuals with more questions than answers. Beyond their environmental significance, how can carbon credits impact the financial health of a business? How can companies leverage them not just for ecological responsibility but also for tangible economic gains?
This article aims to bridge that knowledge gap. We will explore carbon credits, explaining their nuances, their pivotal role in the global sustainability movement, and how businesses, especially those in Singapore, can truly leverage their potential for environmental stewardship and bottom-line enhancement.
What Are Carbon Credits and Carbon Offsets?
Carbon credits are essentially permits or certificates that grant the holder the right to emit a specific amount of greenhouse gases, typically one metric tonne of carbon dioxide equivalent (tCO2e).
These credits are often issued by regulatory authorities or international bodies as part of efforts to regulate and cap the total amount of greenhouse gases emitted into the atmosphere.
Companies can acquire these credits, either through allocations based on their historical emissions or by purchasing them in the carbon market.
By holding these credits, businesses show they comply with emission regulations and can trade surplus credits to other entities that might be exceeding their emission limits.
On the other hand, carbon offsets represent actual reductions in greenhouse gas emissions which can be achieved through initiatives such as reforestation projects, renewable energy installations, or methane capture.
When a company invests in or supports these kinds of projects, it earns carbon offsets equivalent to the amount of greenhouse gases the project prevents from entering the atmosphere.
These offsets can then be used by the company to “offset” or neutralise their emissions. Ultimately, while carbon credits give the right to emit, carbon offsets provide a mechanism to counteract or balance out those emissions.
Singapore’s Stance on Carbon Credits
Singapore has been proactive in its approach to carbon management:
- Carbon Tax Introduction: In January 2019, Singapore introduced a carbon tax to support its commitment to a sustainable future.
- Tax Increment Plans:
- The carbon tax will increase to S$25/tCO2e in 2024 and 2025.
- It will then rise to S$45/tCO2e for 2026 and 2027.
- The long-term vision is to raise the tax to between S$50-80/tCO2e from 2030 onwards.
- Business Impact:
- Facilities emitting 25,000 tCO2e or more annually are liable to pay the carbon tax.
- Those producing direct emissions of 2,000 tCO2e or more annually are exempt from the tax but must register as reportable facilities.
- SMEs and individuals with emissions below 2,000 tCO2e are not impacted by the Carbon Pricing Act. However, they are encouraged to voluntarily recognise and reduce their carbon footprint.
- Global Context: Singapore’s efforts are in step with global trends. Japan will introduce a carbon tax by 2028, while countries like Canada, Sweden, and the UK have already introduced similar plans.
The Dual Purpose of Carbon Credits
Carbon credits offer businesses two primary advantages:
1. Environmental Responsibility
- Reputation: Businesses offsetting emissions can bolster their image in an eco-conscious market.
- Compliance: Buying carbon credits helps firms meet global emission standards, avoiding penalties.
- Future-Proofing: Offsetting now prepares businesses for likely stricter future regulations.
2. Economic Benefits
- Monetising Credits: Firms can sell surplus credits on exchange platforms, providing additional revenue.
- Investment: The dynamic carbon market offers investment opportunities for businesses anticipating price shifts.
- Innovation: Profit potential spurs green tech development, positioning businesses as sustainability leaders.
- Stakeholder Relations: Active participation in the green economy strengthens ties with investors and partners.
What Are the Three Scopes of Carbon Credits?
Scope 1 Emissions
These are direct emissions from owned or controlled sources. For instance, if a company has on-site facilities that burn fuels, the emissions from these sources fall under Scope 1.
Scope 2 Emissions
These are indirect emissions resulting from the generation of purchased or acquired energy, primarily electricity. It also includes steam, heating, or cooling consumed by the reporting company.
Scope 3 Emissions
These encompass all other indirect emissions not covered in Scope 2. They occur throughout a company’s value chain, including upstream and downstream emissions.
Upstream emissions refer to indirect GHG emissions linked to goods and services bought, while the latter refers to indirect GHG emissions linked to goods and services sold.
Such emissions can be challenging to measure and verify. However, with InCorp, our experienced ESG team can assist your business in navigating these complexities more efficiently.
|Carbon Emissions Scopes||Emission Sources||Examples|
|Scope 1||Onsite fuel-burning facilities||Natural gas, coal, fuel oil for heating, diesel fuel for backup generators, biomass fuels|
|Gases bought||Industrial gases used for testing, laboratories, and manufacturing|
|Refrigeration||Cold storage, air conditioning|
|Fugitive emissions||Emissions accidentally released. May be a result of equipment leaks or defective joints|
|Vehicles owned/leased||Cars, trucks, aircrafts, forklifts|
|Scope 2||Electricity, heat, or steam purchased or acquired||Purchase or acquiring of electricity and steam for industrial processes, heating or cooling|
|Location- or market-based||Purchase of renewable energy certificates (RECs)|
|Scope 3||Processing of sold products||Processing of intermediate products sold in the reporting year by downstream companies|
|Investments||Investment operations, including equity and debt and project finance investments|
|Employee commute||Transportation between an employee’s home and workplaces in public transport or vehicles not company-owned|
|Transportation and distribution (Upstream and downstream)||Cargo ferries transporting goods from one place to another|
|Waste created from operations||Disposal and waste treatment created in facilities not owned nor controlled by reporting company|
|Goods and services purchased||Production and transportation of goods and services purchased|
|Capital goods||Production and transportation of goods and services purchased|
|Business travel||Airline flights, cars, buses, trains|
|End-of-life treatment of products sold||Waste disposal and treatment of products sold|
|Use of sold products||End use of goods and services sold|
|Fuel and energy-related activities||Extraction, production, and transportation of fuel and energy purchased or obtained|
|Assets and franchises leased||Operations of assets and franchises leased|
How to Calculate Your Carbon Footprint
Calculating your carbon footprint is essential for understanding your environmental impact. Whether you are an individual or a business, the process begins with the emission factor.
This factor converts activity data, such as the amount of fuel used or electricity consumed, into a carbon output value measured in Kg CO2e (kilograms of carbon dioxide equivalent).
At InCorp, we are capable of helping your business compute your carbon footprint with our carbon accounting service.
What Are Carbon Markets?
Carbon markets play an important role in the global effort to reduce greenhouse gas emissions, and function as platforms where carbon credits are traded, allowing businesses to balance out their emissions.
Types of Carbon Markets
- Voluntary Markets: These are platforms where entities, out of their own initiative, buy carbon credits to showcase their commitment to sustainability — usually driven by corporate social responsibility rather than regulatory mandates.
- Compliance Markets: These are regulated markets where businesses are legally required to buy carbon credits to meet government-set reduction targets.
Key Components of Carbon Markets
- Cap-and-Trade Systems: Governments or regulatory bodies set a ‘cap’ on allowable emissions. Companies that emit below their cap can sell surplus allowances to those exceeding their limits.
- Carbon Pricing: This is the cost applied to carbon pollution to encourage emission reductions. It can take the form of a carbon tax or a requirement to purchase a permit to emit.
- Role of Carbon Brokers and Exchanges: Just like stock exchanges, platforms like InterOpera facilitate the buying and selling of carbon credits, ensuring liquidity and transparency in the market.
Embrace the Future with InCorp’s ESG Services
It is clear that carbon credits and carbon markets are more than just buzzwords — they represent tangible opportunities for businesses to align with global environmental goals while also enhancing their economic prospects.
As the world moves towards a greener future, understanding and leveraging these tools will be crucial for businesses to stay ahead of the curve.
InCorp’s environmental, social, and governance (ESG) services, especially carbon accounting, are designed to provide clarity, compliance, and strategic advantage.
Using the globally recognised greenhouse gas accounting (GHG) accounting policy, we ensure accurate measurement and calculation of emissions, empowering businesses with the data they need to make informed decisions.
Do not let the complexities of carbon credits and sustainability deter you. Reach out to InCorp today and let us help you navigate the green revolution, ensuring that your business is not only environmentally responsible but also economically sound.
- Carbon offsets represent tangible reductions in greenhouse gas emissions through initiatives like reforestation, while carbon credits are permits to emit.
- Carbon markets facilitate the trading of carbon credits, helping businesses balance their emissions and meet regulatory standards.
- InCorp offers ESG services, including carbon accounting using the greenhouse gas (GHG) accounting policy, to help businesses measure, reduce, and offset their emissions.