Singapore Issues Draft Guide On Carbon Credit Use

In a strategic step toward enhancing its climate action framework, Singapore has unveiled a draft guidance document to support companies in responsibly utilizing carbon credits as part of their decarbonization journeys. The announcement was made jointly by the Ministry of Trade and Industry (MTI), the National Climate Change Secretariat (NCCS), and Enterprise Singapore (EnterpriseSG), marking a significant policy development aimed at fostering clarity, transparency, and integrity in the country’s voluntary carbon market (VCM).

This new initiative addresses mounting concerns voiced by industries regarding the lack of standardization in the voluntary carbon market and the resultant hesitancy among businesses to invest in carbon credits. The guidance comes after extensive consultations with corporate stakeholders and environmental experts, who stressed the need for clear government direction to ensure the credibility of corporate emissions reduction efforts.

The draft guidance outlines a comprehensive approach for companies to assess and use carbon credits effectively and responsibly. It emphasizes that carbon credits must only supplement, and not substitute, genuine emissions reduction efforts undertaken within the company’s operational boundaries. In line with international best practices, the guidance reiterates that the use of carbon credits should follow the prioritization of all feasible emissions abatement measures within an organization. This sequencing is crucial to ensure that companies do not rely on carbon offsets at the expense of real and necessary operational changes.

One of the key contributions of the guidance lies in its criteria for evaluating the quality and environmental integrity of carbon credits. To ensure that credits truly represent tangible climate benefits, companies are advised to assess whether the credits meet essential standards such as additionality, permanence, verifiability, and avoidance of double-counting. The guidance also cautions against the use of credits that result in emissions shifting—where emissions are reduced in one place only to increase elsewhere—thus underlining the importance of a systemic approach to emissions accounting.

Additionality remains a central principle in this framework, with agencies advising that the underlying carbon mitigation projects should be ones that would not have occurred in the absence of the carbon credit mechanism. This ensures that the emission reductions represented by the credits are truly incremental, and not merely accounting reclassifications of existing efforts.

The guidance also recommends companies adopt a risk-managed portfolio approach when selecting carbon credits. Recognizing the nascent and often volatile nature of carbon markets, it encourages firms to consider credit ratings, labels from independent agencies, and even insurance products to hedge against uncertainties associated with credit performance and credibility. This portfolio strategy reflects a growing recognition that carbon credits, much like financial assets, carry varying degrees of reputational, legal, and environmental risk.

Another important dimension of the guidance is its strong emphasis on transparency and disclosure. Companies are encouraged to publicly report their use of carbon credits, specifying key details such as the volume and type of credits used, the geographic location of the underlying projects, the carbon registries involved, and the purpose for which the credits are applied. If available, third-party evaluations or ratings of the credits should also be disclosed to foster confidence among stakeholders, including investors, consumers, and regulators.

Transparency in reporting is seen as a pivotal mechanism for rebuilding market trust, particularly at a time when skepticism around greenwashing and the misuse of offsets is growing. By setting a norm for disclosure, Singapore aims to not only guide domestic companies but also contribute to the global movement toward more robust climate accountability.

To further refine and finalize the draft guidance, the Singaporean government has launched a public consultation, inviting feedback from industry, academia, civil society, and the public. The consultation period will remain open until July 20, 2025, reflecting the government’s intent to ensure that the final version of the guidance benefits from broad and inclusive input.

Singapore’s move to formalize its approach to voluntary carbon markets comes as the country seeks to position itself as a trusted hub for sustainable finance and environmental innovation in Asia. The guidance reflects a careful balance between promoting the voluntary use of carbon credits and enforcing the environmental rigor necessary to meet national and global climate goals. By introducing these measures, Singapore not only seeks to advance domestic corporate climate responsibility but also aims to set a regional benchmark for credible carbon market engagement.