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Singapore will progressively increase its carbon tax per tonne for greenhouse gas emissions in phases, Minister for Sustainability and the Environment Grace Fu announced in Parliament on Nov. 8.

The increase is part of the changes proposed in the Carbon Pricing (Amendment) Bill, which was read for a second time in Parliament.

According to Fu, the carbon tax will be raised to S$25 per tonne for 2024 and 2025, then S$45 per tonne in 2026 and beyond, with the trajectory of the increase eventually reaching about S$50 to S$80 per tonne by 2030.

Fu elaborated, "We have decided to raise the carbon tax level progressively in phases and with advanced notice to give our businesses time to plan and carry out their low carbon transition."

Carbon price is an "effective motivator" to get emitters to take action

In highlighting the importance of the carbon price, Fu added, "We need an effective carbon price to activate carbon mitigation solutions that will help us achieve our net zero ambition. The carbon price provides an effective policy to motivate emitters to take action to reduce their emissions."

In addition, setting the price at the right level requires careful collaboration, she said.

Should the price be too low, it will not provide sufficient incentive for emitters to make the necessary changes to achieve Singapore's emissions target, the minister explained.

However, if the price is too high, it will make the change too steep, erode competitiveness and destabilise the corporate sector.

The proposed carbon tax was therefore set after "careful" balancing of the environmental, economic and social needs of Singapore, Fu said.

"We have considered the availability of cost-effective green technologies and products, the pace of change we need to have and that our private sector can manage, and the support we need to give our companies and people to cushion the impact where necessary. All that within the intention of reaching our net-zero pathway."

The minister further noted that thus far, carbon pricing instruments have been implemented in close to 70 jurisdictions worldwide, covering about a quarter of global emissions.

"Major economies, such as the EU, are driving global convergence through the imposition of carbon border adjustment mechanisms, intending to place equivalent tariffs on imports from countries with low or no carbon prices," she said.

Currently, Singapore's carbon tax rate is at S$5 per tonne until 2023.

It is applied on facilities that directly emit at least 25,000 tCO2e of greenhouse gas (GHG) emissions annually.

Framework for providing transitory allowances to certain companies will be set up

The bill will also establish the "broad parameters" of an industry transition framework that will provide transitory allowances to companies in Emissions-Intensive Trade-Exposed (EITE) sectors that face "intense" competition in the global market, the minister highlighted.

She clarified:

"We are mindful that our EITE companies will face higher costs than their counterparts in jurisdictions with no or lower effective carbon prices. These transitory allowances will not offset the entire carbon tax obligation of the EITE companies."

The allowances will therefore be limited to only a portion of companies' emissions, help to short-term competitive competitiveness concerns, and provide a form of support to firms as they work on reducing emissions and investing in cleaner technologies.

This minimises the risk of carbon leakage in which companies relocate to another jurisdiction with less stringent carbon policies, she said.

The amount of allowances awarded will be determined based on the companies' performances on specified energy efficiency or carbon intensity benchmarks, or their decarbonisation plans.

Establishing a framework for International Carbon Credits

Another framework the bill will establish is for International Carbon Credits (ICC) — tradable certificates that represent the reduction or removal of emissions from the atmosphere, generated from projects and programmes outside Singapore.

These carbon credits are generated by emissions reduction or removal projects that would not have materialised under a business-as-usual scenario, but are made possible due to financing from carbon markets, she said.

This includes reforestation projects which sequester more carbon from the atmosphere for instance.

"Under the ICC framework, companies will have the option to tap on eligible ICC to fulfil part of their carbon tax liability," Fu added.

Companies will also be able to surrender eligible ICC as a valid alternative mode of carbon tax payment.

The framework will also ensure that the surrendered ICC are of "high environment integrity" and in compliance with Article 6 of the Paris Agreement.

Fu subsequently added in her concluding speech that no double counting will occur under the ICC framework.

Double counting occurs when an eligible ICC accrues to both Singapore and the host country producing this ICC.

"To prevent this ICC from being double counted, the host country must authorise a corresponding adjustment to give up the emissions reduction to Singapore," she said.

These are standards which must be mutually agreed upon when Singapore concludes carbon credits collaboration with partner countries.

The government will also publish a whitelist of ICCs is that acceptable, which will highlight the eligible host country's carbon crediting programs and methodologies, so as to provide more clarity to the public.

The National Environment Agency (NEA) will also be calling a tender for the development of the ICC registry, so as to keep track and account for the usage of ICC by companies liable for carbon tax to offset their taxable emissions.

The minister pointed out further:

"I should emphasise that while the ICC framework provides a complementary pathway for companies to decarbonise, reducing emissions through domestic abatement efforts will remain our priority."

Establishing Singapore as a carbon trading hub

Fu added further in her concluding speech that the government's intent is for the ICC framework to catalyse local demand in carbon markets and support the vision of establishing Singapore as a carbon services and trading hub.

"Carbon services are a promising potential growth area for Singapore that can create good green jobs for Singaporeans. While contributing to the global agenda on climate change," she said.

The growth in the carbon market will drive demand for jobs related to low carbon project development, financing, and consultancy, among various roles.

As a notable example, Fu pointed out that the Climate Action Data Trust, which will be officially launched in December 2022 as a global market infrastructure, will be anchored in Singapore .

This is to provide an open source system to link and harmonise information about carbon credits and projects across registries globally.

Such an initiative will drive market transparency, strengthen trust and advance global climate action, she said.

"As we transit to a low-carbon economy, we must keep an eye on our economic competitiveness, so that Singapore remains an attractive investment and business destination, and generates green growth opportunities and good jobs for Singaporeans. And we must strive to deliver an inclusive transition for our society, and spur action across the whole of society and catalyse partnerships across the people, public and private sectors."

Top screenshot from gov.sg/YouTube