Sitting at the intersection where major shipping and aviation routes from East to West converge, Singapore has long held the position of a strategic trading hub. With an extensive network of trade agreements and the title of the world’s second most globally connected economy, the city-state is a gateway to the Asian market.
For surrounding Southeast Asian markets abundant in natural resources, Singapore serves as a key logistics hub for the trade of commodities with the West. Imports of goods from the ASEAN states to those in the European Union saw a new all-time high in 2021, hitting €136 billion (US$143 billion) for the first time.
However, trade relations between ASEAN and the EU are likely to be impacted by divergent approaches to environmental, social, and corporate governance (ESG).
When it comes to sustainability, the EU is taking a leading role in enforcing standards. By 2026, a major piece of trade policy is set to shape all future imports entering the bloc: the Carbon Border Adjustment Mechanism (CBAM), which addresses the practice known as “carbon leakage” carried out by EU companies that outsource operations to non-EU countries to take advantage of lax sustainability standards.
On the face of it, the CBAM is an ambitious climate measure that has the power to raise the bar for national sustainability initiatives, but it has also faced criticism for being “protectionist and discriminatory toward emerging countries.” This means that Asian exporters will need to transform their approach to carbon management to stay competitive in the future.
As Singapore continues to further its ambition to be a leader in the fields of carbon trading and green finance, how can it capitalize on its existing position as a key trading and logistics hub in the region to become the central provider for trusted, accredited, carbon-neutral trade entering the EU?
New rules of engagement
Described as having been designed in compliance with World Trade Organization (WTO) rules, the CBAM stipulates that EU importers need to pay a tariff in the form of carbon certificates that correspond to the carbon price that would have been paid had these goods been produced within the EU under its carbon pricing rules.
Because of the adjustments required, the CBAM will be phased in gradually and will begin by targeting imports that have historically seen a high risk of carbon leakage, such as iron, steel, aluminum and electricity.
This naturally poses a big challenge for importers looking to engage in business with the EU, because it imposes an additional layer of complexity and cost to transactions with the bloc. For Asian producers based in home markets with less developed climate policies, there arises the additional burden to show that the firm has incurred a cost at a “comparable carbon price” for the local production of their goods.
CBAM will also result in greater reporting requirements for both importers and exporters, which will now be held accountable for documenting their carbon emissions. As it stands, the state of carbon reporting is a very manual process that relies on traditional tools such as Excel, even when reporting emissions to the United Nations.
Without uniform standards on how these data are collected and what software is used, human errors and lack of trust in reporting processes could give ground for EU trade officials to claim that carbon emissions have not been “adequately” offset in the market(s) where a particular good was produced.
Singapore as a carbon neutralizer
Singapore is already home to more than 70 organizations that provide carbon services – the highest concentration of service providers in Southeast Asia. As an early mover in the sustainability arena, Singapore was also the first country in the region to introduce a carbon tax, which accounts for about 80% of its total emissions.
The current tax of S$5 (US$3.60) per metric ton of emissions is set to increase to between S$50 and S$80 per ton according to Singapore’s 2030 Green Plan. This local expertise will place it in good stead as ASEAN producers look for leadership in this space in the run-up to 2026.
Thanks to its status as a trading and logistics hub, Singapore is well positioned to help producers in countries across the region to navigate the complexities of trade with the EU as CBAM implementation approaches.
Through intergovernmental collaborations between Singapore and EU, as well as the right partnerships between public and private sector organizations, Singapore is perfectly placed to become the authoritative center for Asia-EU trade, as it develops the infrastructure and services that will enable seamless carbon reporting and cost reductions for all producers engaging in global trade.
However, there is currently little indication that the EU will acknowledge non-EU carbon pricing initiatives. How can Singapore enable Asian businesses and producers to overcome this hurdle?
The solution is to spearhead the development of high-integrity carbon measurement and reporting. Singapore can lead the charge by providing services that enable producers to certify their carbon footprint according to standards set by the International Organization for Standardization (ISO), such as the global benchmark ISO 14097:2021.
This accreditation could then be certified by leading European certification firms such as the British Standards Institute (BSI), allowing businesses to establish the credibility of the carbon footprint of these producers.
By reducing or negating the carbon emissions involved through emission-reduction efforts such as energy-efficiency products and renewable energy substitution, producers can minimize the tariffs imposed on them once their products enter the EU.
Furthermore, Singapore can provide neutralizing services for individual products, providing the seal of approval for import into the EU.
Using “voluntary emission reduction credits” (VERs), businesses can obtain high-integrity carbon-neutrality certificates, certified according to European standards by Singaporean or European certification firms such as Singapore Test Services and BSI, will help to achieve an international standard of carbon neutrality under PAS 2060 (soon to be ISO 14068).
These carbon-neutrality certifications would account for the carbon emitted throughout the entire production supply chain, including transshipment through Singapore.
By offering and streamlining this process for businesses, Singapore can position itself as the linchpin of the global carbon-trading operations to complement its status as a major logistics and trading hub.
This would not only greatly help Asian producers to prepare themselves best and most economically for the CBAM so that their products shipped to the EU can be reliably trusted as carbon neutral, but would also further enhance Singapore as a trade hub in the new era, where the flow of materials, money, and carbon will be more profoundly intertwined.
To secure this position, Singapore needs to tackle a significant issue plaguing the VER market: the challenges surrounding Nationally Determined Contributions (NDC).
As part of the Paris Agreement, all countries – both developed and developing – committed to specific emissions-reduction plans based on NDCs. Article 6 of the Paris Agreement established a cross-border system that puts a greater burden on developing nations to achieve their own NDCs while selling carbon credits to developed countries.
The Singapore government’s emphasis on sustainability and a booming tech entrepreneurial spirit have prepared the city-state to evolve into a green finance center for the region, one with services designed to ease the burden on developing nations.
Frms such as MetaVerse Green Exchange (MVGX) are offering an innovative Carbon Neutrality Token (CNT™) – a digital VER that certifies and tracks carbon credits to ensure that it has all the integrity to meet the highest carbon neutrality standards without encroaching on NDCs issues for developing countries.
This allows ASEAN countries to keep to their commitments toward net-zero emissions, while exporting digital VERs to Singapore for Asian businesses to purchase so they can ensure that their products are verifiably carbon neutral before they head to the EU – all with the assurances that there is no double-counting and that they are directly impacting green projects.
This private-sector solution verifiably enables carbon neutrality at scale, and when applied by Singapore to global trade flows, will enable fellow Asian governments to accelerate and further their commitments as they work toward net-zero emissions in 2030 under COP26’s Glasgow Climate Pact, while helping Asian producers mitigate the challenges posed by CBAM.
Reading between the lines
For this future to materialize, the EU must recognize the important work already being done in Singapore to create reputable and reliable authentication. The standards provided by firms across the country are on a par with those within the EU, creating a level playing field for producers in Asia and those in Europe.
However, it could be argued that, beyond its sustainability aims, the CBAM is a protectionist measure that seeks to maintain the competitiveness of goods produced within the EU market (and under strict and costly EU climate policies), by applying a tariff on goods imported from foreign markets where less stringent climate policies are imposed on local producers.
It has also been argued that CBAM runs afoul of the WTO’s rules of non-discrimination and national treatment, which state that imported products should be given “no less favorable” treatment than domestic products. Questions also persist as to whether the EU will accept regional carbon pricing initiatives within Asia as a means to avoid the tariff imposed under CBAM.
The opportunity for Singapore, which seeks to position itself as the leading carbon hub in the region, lies in maximizing its existing position at the intersection of East and West. By creating a local market for commercial solutions that apply internationally recognized standards in the pricing and offsetting of carbon emissions, it can provide the green stamp for products passing through its port.
Such solutions would also go a long way to address the European Parliament’s concerns that “importers that are already paying carbon prices in their countries of origin [should] not be charged twice.” By creating a vibrant market for carbon measurement and offsetting solutions, Singapore could empower both local and regional firms to overcome some of the challenges posed by increasingly stringent sustainability goals.