Budget 2022: Singapore to progressively raise carbon tax to reach net-zero target 'by or around mid-century'
SINGAPORE: Singapore’s carbon tax will be progressively increased to reach S$50 to S$80 per tonne of emissions by 2030, in order to meet the country’s new target of reaching net-zero “by or around mid-century”, announced Finance Minister Lawrence Wong on Friday (Feb 18) in his Budget speech.
This is higher than the previous target of S$10 and S$15 per tonne by 2030 announced in Budget 2018. The revised carbon tax trajectory comes as Singapore looks to bring forward its net-zero target to “by or around mid-century”, aligning its goals with the Glasgow Climate Pact.
Previously, the country announced that it would achieve net-zero emissions "as soon as viable in the second half of the century" under its long-term low-emissions development strategy. It also pledged to peak emissions around 2030, and halve its emissions from its peak by 2050.
The decision to bring forward Singapore’s net-zero timeline comes amid international developments in technology and carbon markets.
“Green technologies have been improving by leaps and bounds. Alternative low-carbon solutions, like carbon capture, utilisation and storage, hydrogen, are starting to look more plausible,” said Mr Wong. “Carbon markets are also growing steadily. At COP26, Singapore helped to finalise a landmark decision on Article 6 of the Paris Agreement, which unlocks the door for carbon credits to be traded on a global basis.”
“Such developments give us greater confidence to review our long-term climate goals,” he added.
CARBON TAX TO BE RAISED IN STEPS
Currently, the country’s carbon tax rate – which is applied on facilities that directly emit at least 25,000 tCO2e of greenhouse gas (GHG) emissions per year – is set at S$5 per tonne until 2023.
Mr Wong said the revised carbon tax trajectory will push businesses and individuals “to internalise the costs of carbon, and take actions to moderate their emissions”.
To give businesses time to adjust, the Government will pace the increase in carbon tax between now and 2030. The rate will be increased to S$25 per tonne in 2024, and again in 2026 to S$45 per tonne.
Subsequent increases will also be announced “ahead of time” to provide certainty for businesses, said Mr Wong.
He added that the Government will not impose an additional carbon tax on the use of petrol, diesel, and compressed natural gas, as these already have excise duties that encourage users to moderate their fuel consumption and emissions.
Fuel excise duties will continue to be reviewed and adjusted periodically, he said.
SUPPORTING BUSINESSES AND HOUSEHOLDS
Despite the increase in carbon tax, Mr Wong clarified that he did not expect to derive additional revenue.
“A large part of the revenue will be used to support decarbonisation efforts through investments into new low-carbon and more energy-efficient solutions,” he said. “These investments will help to lower our emissions, and bring us closer towards our net-zero goal.”
In addition, with households expected to see increased utility bills due to the higher carbon tax, Mr Wong said “some of the revenue” will go towards cushioning the impact of the carbon tax increase.
"At $25 per tonne (of emissions), this will translate to an increase of about S$4 per month in the utility bills for an average four-room HDB household," said Mr Wong.
To help households, the Government will provide support such as additional U-Save rebates during the transition. More details will be announced next year, ahead of the carbon tax increase in 2024, added Mr Wong.
He noted that businesses in emissions-intensive and trade-exposed sectors, such as electronics and energy and chemicals, may face higher costs than those in countries with lower or no carbon tax.
Some will also need a little more time to make the necessary reduction in emissions or investment in cleaner technologies, he said.
To support such firms and manage the near-term impact on their competitiveness, Mr Wong said a framework that will provide existing companies with allowances based on efficiency standards and decarbonisation targets will be put in place.
“This will help mitigate the impact on business costs, while still encouraging decarbonisation,” said Mr Wong, adding that the Government will continue to engage affected companies on the design of the transition framework prior to its implementation in 2024.
Businesses will also be able to use high-quality international carbon credits to offset up to 5 per cent of their taxable emissions from 2024.
Mr Wong said this will also help to create local demand for high-quality carbon credits and catalyse the development of well-functioning and regulated carbon markets.
In a press release on Friday, the National Climate Change Secretariat (NCCS) said it will continue to financially support businesses’ decarbonisation efforts through existing schemes like the Resource Efficiency Grant for Energy and the Energy Efficiency Fund for companies undertaking energy efficiency and emissions reduction projects.
It added that the Government is also reviewing support measures for businesses to implement needle-moving decarbonisation solutions to make them more competitive in the medium term.