Budget 2022

Large emitters can buy carbon credits to offset carbon tax bill from 2024

Businesses will be able to use “high quality, international carbon credits” to offset up to 5 per cent of taxable emissions, in lieu of paying the carbon tax. Source: ST FILE

From The Straits Times

SINGAPORE – Large emitters in Singapore will from 2024 be able to buy international carbon credits to reduce the carbon tax they have to pay.

Finance Minister Lawrence Wong said on Friday (Feb 18) that businesses will be able to use “high-quality, international carbon credits” to offset up to 5 per cent of taxable emissions, in lieu of paying the carbon tax.

“This will moderate the impact for companies,” he said. “It will also help to create local demand for high-quality carbon credits and catalyse the development of well-functioning and regulated carbon markets.”

Singapore’s carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year.

The current rate, which will be in place until next year, is $5 per tonne of emissions. But this will go up to $25 in 2024 and 2025, $45 in 2026 and 2027, before reaching $50 to $80 per tonne by 2030, Mr Wong announced on Friday.

“I appreciate that some businesses and households may require support as they adjust to the carbon tax increase,” he said.

Partially offsetting tax liabilities with international carbon credits would mean that firms can shrink their tax bill if they buy credits generated by, say, a forest conservation project in Indonesia.

Essentially, it means that a company here would have the option to pay another entity to reduce emissions in another jurisdiction where it may be cheaper to do so.

Mr Wong also said the Government is mindful that firms in emissions-intensive and trade-exposed sectors may face higher costs than those in countries with lower or no carbon tax.

Such sectors include, for instance, the petrochemical sector. Singapore is one of the top 10 exporters of refined oil products in Asia, according to the Economic Development Board.

“Some firms will also need a little more time to make the necessary reduction in emissions or investment in cleaner technologies,” he said.

To this end, the Government will in 2024 be implementing a transition framework to support such firms and manage the near-term impact of the carbon tax on their competitiveness, said Mr Wong.

The framework provides existing companies with allowances for a share of their emissions, which means they would not have to pay carbon taxes for these allowances.

“The allowances will be determined based on efficiency standards and decarbonisaton targets,” Mr Wong said.

“This will help mitigate the impact on business costs, while still encouraging decarbonisation.”

For households, Mr Wong said the higher carbon tax will be felt mainly through an increase in utility bills. At a carbon tax rate of $25 per tonne of emissions, a household living in a four-room Housing Board flat can expect to see a $4 increase in monthly utility bills, he said.

“We will provide support, such as additional U-Save rebates, to help cushion the impact during the transition,” he said.

More details will be announced next year ahead of the carbon tax increase in 2024, Mr Wong said.

The National Climate Change Secretariat urged households to practise energy-saving habits and switch to energy-efficient appliances to mitigate cost impact.

Eligible households can tap the Climate Friendly Households Programme to make the switch to more energy- or water-efficient appliances.

Author: Audrey Tan


Singapore’s carbon tax could increase to $80 per tonne of emissions by 2030

The aim is for emissions to dwindle to net-zero by or around 2050, said Finance Minister Lawrence Wong on Feb 18, 2022. Source: ST File

From The Straits Times

SINGAPORE – The carbon tax rate in Singapore will be increased from the current $5 per tonne of emissions to between $50 and $80 by 2030, a move that will help the nation reach new, more ambitious climate goals announced on Friday (Feb 18).

The aim is for emissions to dwindle to net zero by or around 2050, Finance Minister Lawrence Wong said in his Budget speech on Friday.

By then, the country will be taking out as much planet-warming greenhouse gases from the atmosphere as it releases.

The carbon tax hike will be done in phases to give businesses more certainty, Mr Wong said.

The current rate of $5 per tonne of emissions will be in place until next year (2023).

It will go up to $25 in 2024 and 2025, and $45 in 2026 and 2027, before reaching $50 to $80 per tonne by 2030, Mr Wong said.

“When we introduced the carbon tax in 2019, we kept the initial tax low… to give our businesses time to adjust,” Mr Wong said.

“To move decisively to achieve our new net-zero ambition, we will need a higher carbon tax.”

The Government does not expect to get additional revenue from the carbon tax increase in this decade, however.

Instead, it will be used to support decarbonisation efforts and the transition to a green economy, and cushion the impact on businesses and households, said the National Climate Change Secretariat (NCCS) in a separate statement.

Singapore’s carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year. This covers 30 to 40 large emitters such as oil refineries and power generation plants, which contribute 80 per cent of Singapore’s greenhouse gas emissions.

Greenhouse gases, including carbon dioxide and methane, are produced by human activity such as the burning of fossil fuels.

When they accumulate in the atmosphere, they trap heat on the planet, throwing Earth systems out of whack and causing climate change. The result: rising temperatures and sea levels, and more intense extreme weather events that imperil lives and livelihoods.

A carbon tax is a means of assigning costs to the release of these planet-warming emissions.

The International Monetary Fund (IMF) has recommended that by 2030, economies should each implement a carbon price floor based on a tiered system, to reduce emissions enough to keep global warming below 2 deg C – the threshold to avoid catastrophic climate change outlined in the Paris Agreement, the world’s climate pact.

Based on the IMF’s recommendation, the 2030 price floor should be US$75 (S$100) per tonne of emissions for advanced economies, US$50 for high-income emerging-market economies such as China, and US$25 for lower-income emerging markets such as India.

Singapore’s carbon tax scheme was announced in 2018.

Then, the Government had said that the rate will initially be $5 per tonne of greenhouse gas emissions from 2019 to 2023.

It also said then that the rate will be reviewed by 2023, and that there are plans to increase it to between $10 and $15 per tonne of emissions by 2030.

But with Singapore upgrading its climate target so its planet-warming emissions reach net zero by or around 2050, a higher carbon tax rate is needed to send a signal to large emitters to take stronger action to reduce their emissions, said Mr Wong.

The Republic had earlier planned to reach net-zero emissions “as soon as viable in the second half of the century”.

Mr Wong said advances in technology and new opportunities for international collaboration in areas such as carbon markets has allowed Singapore to bring forward its net-zero timeline.

Carbon markets, or the international trade in carbon credits, can offer countries another route to reducing their emissions other than decarbonisation efforts within their own borders.

The Straits Times had earlier reported that Singapore is considering buying carbon credits – which can be from forest conservation or renewable energy projects elsewhere – to meet its climate goals, even though the country will prioritise domestic efforts to cut emissions.

Climate scientists have recommended that for the world to have a better chance at limiting warming to the threshold set out in the Paris Agreement, emissions must be nearly halved by 2030 from 2010 levels, and reach net zero by 2050.

Almost 200 countries, including Singapore, were asked during the United Nations climate change conference COP26 last November to revisit and strengthen their 2030 climate targets to align with the Paris Agreement temperature goal by the end of this year.

Mr Wong added that the Government will consult closely with industries and citizens to firm up and finalise its plans before making a formal revision of the country’s long-term low-emissions development strategy to the United Nations Framework Convention on Climate Change.

OCBC Bank economist Howie Lee said he was “positively surprised” by the revised carbon tax rate. 

“This is a strong message of intent and commitment towards our net-zero goals,” he said.

“We now have a clearer net-zero path and one of the highest carbon taxes in Asia. Companies will do well to heed to this change.”

Author: Audrey Tan