Knowledge Highlights 27 January 2025
Bill introduced to amend Carbon Pricing Act 2018: Increase in carbon tax, industry transition framework and option to use eligible international carbon credits
On 3 October 2022, the Carbon Pricing (Amendment) Bill (“Bill”) was introduced for first reading in Parliament. This follows the Ministry of Sustainability and the Environment (“MSE”) public consultation on a draft of the Bill which concluded in August 2022.
Among other things, the Bill will increase carbon tax rates and the price of a fixed-price carbon credit, introduce a transition framework to give eligible companies in emissions-intensive trade-exposed (“EITE”) sectors more time to adjust to a low-carbon economy, and provide companies an option to use eligible international carbon credits in lieu of paying carbon tax for up to 5% of their taxable emissions from 2024 onwards. The Bill is slated for second reading in November 2022.
The Bill provides clarity for affected companies to determine how their businesses may be impacted by the measures and enables them to better strategise their transition to a low-carbon economy.
A summary of the Bill and MSE’s response to feedback gathered from the consultation are set out below.
Summary of Bill
The Bill seeks to amend the Carbon Pricing Act 2018 for the following purposes:
- Revise the carbon tax rates, the carbon tax per tonne of greenhouse gas (“GHG”) emissions (“tCO2e”), to be as follows:
- S$5/tCO2e for 2019 to 2023
- S$25/tCO2e for 2024 and 2025
- S$45/tCO2e for 2026 or any later year
- Revise the price of a fixed-price carbon credit to be as follows:
- S$5 for any fixed-price carbon credit purchased in 2024 or any earlier year
- S$25 for any fixed-price carbon credit purchased in 2025 or 2026
- S$45 for any fixed-price carbon credit purchased in 2027 or any later year
- Provide for allowances that will reduce the amount of carbon tax payable, to be administered by the Minister charged with the responsibility for trade and industry.
- Rename “carbon credits” as “fixed-price carbon credits”, to provide for the surrender of eligible international carbon credits in place of fixed-price carbon credits for the purpose of paying the carbon tax, and to establish an International Carbon Credits Registry and international carbon credit registry accounts.
- Modify the obligations for registration and emissions reporting (in particular, where there has been a transfer of operational control over a business facility), and the basis for liability for the carbon tax.
MSE response to consultation feedback
On 22 September 2022, MSE set out in a media release its response to the key feedback gathered from the public consultation in the following areas:
- Carbon tax level: MSE stated that most respondents acknowledged the role of the carbon tax in enabling the transition to a low-carbon future, and the need to raise it to achieve Singapore’s net zero ambition. Some respondents were in favour of a more aggressive carbon tax trajectory, citing the higher carbon prices in some developed countries, the latest scientific recommendations on carbon tax levels required to hold global warming to within Paris Agreement goals, and the need to sufficiently deter GHG emissions from growing.
At Budget 2022, the Government announced that the carbon tax will be raised from S$5 per tonne to S$25 per tonne in 2024, and S$45 per tonne in 2026, with a view to reaching S$50-S$80 per tonne by 2030. MSE explained that this carbon tax trajectory was calibrated to set the pace of transformation needed to achieve Singapore’s climate goals, while giving businesses sufficient time to transition to a low-carbon future.
Moving forward, the Government will regularly review Singapore’s carbon pricing regime to take into account international developments, the progress of domestic mitigation efforts in meeting Singapore’s climate change targets, the impact on households and businesses, Singapore’s economic competitiveness, and the role of the carbon tax in stimulating the development of the green economy.
- Industry transition framework: There were mixed views on the provision of allowances to EITE sectors. While some respondents commented that the provision of allowances to EITE sectors goes against the “polluter-pays” principle, others commented that sufficient allowances should be granted to EITE sectors to help them adjust to the carbon tax increase, taking into account factors such as cost pass-through from electricity suppliers and residual emissions that cannot be abated by existing emissions abatement technologies.
MSE explained that the Government recognises that in the near-term, companies in EITE sectors may face higher costs than those in countries with lower or no carbon prices. These companies produce for Singapore and the world and contribute a significant number of jobs and value-add to the economy. Many of their products and expertise will be needed as the world decarbonises, and some will need more time to make the necessary reduction in emissions or investment in cleaner technologies.
Transitory allowances, which are common in many countries with carbon prices, will be provided to facilities in EITE sectors to manage the near-term impact on business competitiveness and mitigate the risk of carbon leakage. To encourage decarbonisation, the allowances will be determined based on the efficiency standards and decarbonisation plans.
The Ministry of Trade & Industry and the Singapore Economic Development Board will continue to engage affected companies on the details of the industry transition framework.
In responding to suggestions for the Government to publicly disclose the amount of allowances awarded to each eligible facility each year, MSE explained that it would be commercially sensitive and challenging to make such disclosures as the quantity of allowances is linked to the nature and scale of operations of the facility.
Some respondents raised concerns on the provision allowing the Government to revise the methodologies used to calculate the quantum of allowances awarded to eligible facilities (“allowance methodologies”). MSE explained that the intent of this provision was to allow the Government to update the allowance methodologies if a methodology currently in use became outdated. The Government would provide sufficient notice to companies should there be any changes to the allowance methodologies.
- International carbon credits: Respondents were generally supportive of the international carbon credits (“ICC”) option. However, there were differing views on the prevailing facility-level limit on ICC usage (i.e. 5% of taxable emissions). Some argued that the facility-level limit should not be increased, as ICC should only be used after companies have exhausted measures to avoid and reduce their emissions. Others requested raising the facility-level limit, particularly for hard-to-abate sectors. MSE explained that the facility-level limit has been set at 5% to ensure the industry continues to prioritise emissions reduction, while providing an additional decarbonisation pathway for hard-to-abate sectors that may find it challenging to significantly cut emissions in the near to medium term. The Government will continue to review the facility-level limit, as carbon markets continue to develop.
Some respondents requested greater clarity around the eligibility criteria for ICC. MSE explained that the broad principles of the eligibility criteria would be set out in subsidiary legislation, taking reference from internationally accepted environmental integrity principles as well as relevant practices amid the evolving international landscape on carbon credits. The Government will ensure that eligible ICC are derived from real emissions reductions or removal, aligned with global climate ambition, and in line with Article 6 of the Paris Agreement, including the requirement for corresponding adjustment by host countries.
- Carbon tax revenue and support measures: While not directly relevant to the draft Carbon Pricing (Amendment) Bill, respondents, among other suggestions, (1) sought greater clarity on how the carbon tax revenue would be utilised, and (2) urged the Government to channel the revenue to support industry decarbonisation efforts, such as investing in clean energy to decarbonise the grid.
MSE explained that the Carbon Pricing Act 2018 does not stipulate how carbon tax revenue will be used. Instead, government expenditures, whether funded from carbon tax revenue or other revenue sources, would be consolidated through the annual Budget process coordinated by the Ministry of Finance. The expenditures are then passed through the Supply Act, which controls the Government’s spending for the next financial year.
The Government does not expect to derive additional revenue from the increase in the carbon tax. Some of the carbon tax revenue would be used to support both households and businesses in the green transition. A large part would be used to support a decisive shift towards decarbonisation through investments into renewables, and new low-carbon and more energy-efficient solutions.
- GST treatment of carbon credits: One respondent suggested that the Government consider exempting carbon credits from the Goods & Services Tax (“GST”) to promote carbon credits trading in Singapore. The Government will study the GST treatment of carbon credits, as part of its periodic review of the GST regime.
Reference materials
The following materials are available on the REACH website www.reach.gov.sg and Singapore Statutes Online sso.agc.gov.sg:
