COS 2022: Carbon Offsets that Work

MP Jamus Lim

Assoc Prof Jamus Jerome Lim (Sengkang): Presently, most carbon offset programmes often serve as little more than a palliative. Typically, parties interested in reducing their carbon footprint, the climate-conscious non-profit hoping to attend an environmental conference on the other side of the world, say, will purchase offsets from a vendor or exchange equivalent to the amount of carbon that they expect to generate. Unfortunately, such vendors are seldom closely regulated and depend on the goodwill and enterprise of the operators.

Too often, even among well-meaning vendors, the strategy is to simply pay off some rancher, who would otherwise cut down trees on their land, using the cash from the non-profit with a small fee paid to the vendor for the effort. The system works well, of course, for just about everyone involved. The ranchers benefit from a stream of income for not developing their land, the non-profit believes that they have done their part in reducing their carbon footprint. And the vendor has earned a transaction fee, all while believing that they are doing good. Just about everyone, except the Earth.

The typical scenario sketched out above is such that net emissions will actually have increased. So, go on, do the math quickly in your head.

Now, making carbon offsets that truly work requires that the amount paid for said offsets actually goes toward reducing the total amount of carbon emitted into the atmosphere. This is where a credible system of offsets, paired with an actual cap-and-trade exchange, comes in. Recall, carbon cap-and-trade systems are typically seeded with a fixed amount of carbon emissions distributed via permits. These permits, of course, are finite. Hence, a credible exchange would direct the funds from the carbon offset toward the purchase of permits, which are then retired from circulation.

The major difference between this approach and that of a green vendor is that there it is no longer a counterfactual of otherwise increased carbon emissions that are being funded. Rather, it is now used to fund activities that have to be backed up by actual verifiable emissions reductions. This is where trusted governments can take a lead. A private-public partnership (PPP) led by private sector initiative and efficiencies, but encompassing active public sector involvement to ensure that the programme’s purported goals are being met, strikes me as the best way forward for such an endeavour. A separate agency operating under the umbrella of NEA can take the lead on the Government side.

I have previously spoken about why carbon taxes tend to trump cap-and-trade systems. I still hold to that position, which is shared by the majority of economists who have studied the merits of both systems. Still, I see little reason why, if we are going to operate a carbon emissions trading system alongside a carbon tax regime, the system should not also be operated in a manner that complements our carbon reduction efforts. Moreover, a PPP of this nature is consistent with the stated goals of the Singapore Green Plan to develop Singapore as a carbon services and trading hub. Credible carbon offsets can be a major project to help develop Singapore’s trusted reputation in the region. Of course, all markets require liquidity and the best way to get the programme off to a solid start is to provide a steady stream of income.

To this end, I would like to suggest that MSE consider requiring the purchase of credible carbon offsets along the lines of what I have described for all official international travel by civil servants. These will operate in line with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Even better, if the Government takes on the proactive role of permanently retiring offsets that it purchases, then I think the world, the Earth in particular, will be much better off. 

7 March 2022
Ministry of Sustainability and the Environment

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