Singapore Will Raise Climate Ambition to Achieve Net Zero Emissions By or Around Mid Century, and Revises Carbon Tax Levels from 2024
STRONGER CARBON PRICE SIGNAL NECESSARY TO ENABLE SINGAPORE’S TRANSITION TO A LOW-CARBON FUTURE AND ACHIEVEMENT OF NET ZERO EMISSIONS TARGET BY OR AROUND MID-CENTURY
As announced by Minister for Finance Mr Lawrence Wong at Budget 2022, Singapore will raise our climate ambition to achieve net zero emissions by or around mid-century. To enable the transition to a low-carbon future, we will raise the carbon tax levels progressively from 2024. This will support our climate ambition and secure a greener and more sustainable living environment for future generations, while being economically competitive in a low-carbon future.
The Government does not expect to derive additional revenue from this carbon tax increase, in this decade. The revenue will be used to support decarbonisation efforts and the transition to a green economy, and cushion the impact on businesses and households.
Setting the appropriate carbon price to enable transition to a low-carbon future
To achieve our climate ambition, the carbon tax will be raised to $25/tCO2e in 2024 and 2025, and $45/tCO2e in 2026 and 2027, with a view to reaching $50-80/tCO2e by 2030. This will provide a strong price signal and impetus for businesses and individuals to reduce their carbon footprint in line with national climate goals.
The revised carbon tax trajectory is critical in enabling the pace of transformation needed to achieve our raised climate ambition and make the economy- and society-wide transition to a low-carbon future. This early action provides certainty and impetus for businesses to plan their transition. This also helps businesses to be competitive in a low-carbon future, by enhancing the business case to invest in low-carbon technologies and carbon markets, and ensuring new investments and economic activities are aligned with a low-carbon future.
From now till 2023, the carbon tax level will be kept at $5/tCO2e. This gives businesses time to adjust. The carbon tax will continue to be applied on facilities that directly emit at least 25,000 tCO2e of greenhouse gas (GHG) emissions annually. This will cover about 80 per cent of our national GHG emissions.
Helping businesses to reduce carbon emissions
We will continue to financially support businesses’ decarbonisation efforts through existing schemes like Resource Efficiency Grant for Energy (REG(E)) and the Energy Efficiency Fund (E2F), for companies undertaking energy efficiency and emissions reduction projects. The Government is also reviewing support measures for businesses to implement needle-moving decarbonisation solutions to make them more competitive in the medium term.
A transition framework will be introduced to give existing emissions-intensive trade-exposed (EITE)1 companies more time to adjust to a low-carbon economy. Many companies in such sectors have competitors in jurisdictions that may have lower or no carbon prices. To help maintain business competitiveness in the near term and mitigate the risk of carbon leakage2 , existing facilities in EITE sectors will receive transitory allowances for part of their emissions. To continue to spur decarbonisation efforts and energy efficiency, the allowances will be determined based on efficiency standards and decarbonisation targets. Such transition frameworks are provided in many countries. The transition framework is not applicable to new facilities.
In addition, companies may surrender high quality international carbon credits to offset up to 5% of their taxable emissions from 2024. This will cushion the impact for companies that are able to source for credible carbon credits in a cost-effective manner. This will also help to create local demand for high-quality carbon credits and catalyse the development of well-functioning and regulated carbon markets.
We will continue ongoing consultations with relevant stakeholders on the support measures, transition framework, and the framework for the use of carbon credits. Details will be shared in 2023, ahead of the implementation of the revised carbon tax framework in 2024.
Supporting households to reduce energy consumption and manage impact of carbon tax on utility bills
The carbon tax will affect households mainly through an increase in utility bills. The Government will build on existing measures to help households manage cost-of-living pressures, such as through additional U-Save rebates. Details of the support measures for households will be announced in 2023, ahead of the implementation of the revised carbon tax framework in 2024.
Households are encouraged to practise energy-saving habits and switch to energy-efficient appliances to mitigate cost impact. Eligible households can tap on the Climate-Friendly Households Programme to make the switch to more energy or water efficient appliances.
[1] Examples of EITE sectors include the energy and chemicals, and electronics sectors. Non-EITE sectors include domestic-oriented sectors like power generation companies, waste management companies etc.
[2] Refers to the phenomenon where companies respond to higher carbon prices by shifting their operations and emissions to locations with less stringent climate policies or carbon prices, without taking steps to reduce emissions.