Singapore to raise carbon tax after Bill passed in Parliament, WP's proposals rejected
Workers' Party MPs Leon Perera and He Ting Ru had their suggested amendments to the Carbon Pricing (Amendment) Bill rejected.
SINGAPORE: Singapore will raise its carbon tax to S$25 per tonne for greenhouse gas emissions in 2024 and 2025, and S$45 per tonne for greenhouse gas emissions in 2026 and beyond, after the Carbon Pricing (Amendment) Bill was passed on Tuesday (Nov 8) in Parliament.
The progressive increases will set Singapore on a trajectory to reach between S$50 and S$80 per tonne by 2030, Minister for Sustainability and the Environment Grace Fu said during the second reading of the Bill.
Currently, Singapore’s carbon tax rate – applied to 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.
The Bill will also set up a framework for International Carbon Credits (ICCs), which are tradable certificates representing the reduction or removal of emissions from the atmosphere, generated from projects or programmes outside Singapore.
Firms will be allowed to use ICCs to offset up to 5 per cent of their taxable emissions.
A total of 12 Members of Parliament debated the matter over four hours in the House. The session saw heated exchanges between MP Leon Perera (WP-Aljunied) and Leader of the House Indranee Rajah over the procedure of tabling amendments, and MP Jamus Lim (WP-Sengkang) and Ms Fu over the amount of carbon taxes to be imposed on firms.
Mr Perera and MP He Ting Ru (WP-Sengkang) also suggested a number of amendments to the Bill, including a move they said would improve the transparency of the ICC surrender regime. Their proposals were rejected.
Mr Perera proposed an amendment to limit the number of times a taxable facility could receive carbon tax allowances. He also suggested to limit the extent of allowances to a maximum of 33 per cent of the carbon tax assessed to be payable, rather than 50 per cent.
“We believe that lowering the allowance cap makes for a stronger nudge for large emitters to move towards greener business models faster. We believe that our amendment makes for a better balance point between the competing objectives on the table here,” said Mr Perera.
But Minister of State for Trade and Industry Low Yen Ling said companies needed time to develop and implement new technologies to decarbonise and transform their operations.
“Restricting allowances in a manner that's suggested will not provide the support that's needed by the companies nor meet the intended objective of the transition,” Ms Low said.
Ms Low also rejected Mr Perera’s suggestion for a public registry to list information of those awarded allowances.
“Doing so may reveal commercially sensitive information about a facility’s scale of operation, revenue, etc. And may overtime really erode Singapore’s competitiveness as a business and investment location and then at the end of the day, it will affect our ability to create good jobs for Singaporeans,” she added.
Ms He also proposed an amendment under which a registered person permitted to exceed the prescribed limit for ICC usage would be listed in a public registry.
This registry would be publicly accessible include the emissions year when the person was permitted to exceed the limit, and the reason why the prescribed limit was lifted.
Ms He said this would allow both industry players and civil society to observe the use of ICCs over the years and whether particular facilities are over-reliant on the use of ICCs. She added that facilities that are allowed to continuously use ICCs beyond the prescribed limit may look to purchase ICCs at low and favorable prices.
“This could mean that the cost of producing emissions is significantly less than the cost of paying tax on emissions, which creates a disconnect between the purposes of carbon tax and the permitted use of ICCs,” Ms He said.
In her closing speech, Ms Fu said the Government was unable to support Ms He’s proposed amendment as it involves the publication of identifiable information relating to the registered business facility.
This breaches the confidentiality of carbon tax data which firms are accorded under the Carbon Pricing Act, said Ms Fu.
She asked members to imagine a situation where a company had something groundbreaking which required significant ICCs, but had to disclose details in a registry.
“Do you think there'll be more companies stepping forward, or there'll be fewer companies stepping forward?” she asked.
She added that the Government should be “quite practical” at this stage, and that Parliament could return to the matter if the 5 per cent offset by ICCs was found to be insufficient.
CONCERNS OVER COST OF LIVING, COMPETITIVENESS
Other MPs also raised concerns on whether carbon taxes would affect costs of living for Singaporeans.
MP Gan Thiam Poh (PAP-Ang Mo Kio) asked how the Government would minimise, for consumers, the impact of the taxes on all sectors of the economy.
Nominated MP Mark Chay also asked how the increase would impact daily living costs in Singapore, and how the Government planned to ensure that energy prices remain stable.
MP Xie Yao Quan (PAP-Jurong) also pointed out that climate change was “converging” with other structural fragilities such as rising interest rates and inflation.
The need to bear a higher but correct cost of carbon now is competing with very real and immediate concerns about cost of living, he added.
“Electricity prices will go up because of the higher price of carbon, public transport costs will likely go up too,” said Mr Xie.
“So I'd like to ask and seek clarification on how does the Government plan to help Singaporeans cope with and adjust to this new normal of low carbon?
"How do we cushion the impact and for which groups, yet maintain integrity of the price signal of carbon across the whole of society - and bring all segments in our society along in this journey towards a low carbon future?”
In her closing speech, Ms Fu said she appreciated the concern that revised carbon tax levels would lead to higher costs amid rising inflationary pressures.
“Global warming doesn’t pause because of inflation," said the minister.
"So rather than holding back our plans, the Government has been and will continue to provide support in a targeted manner to affected businesses and households, as part of our long-standing commitment to an inclusive low-carbon transition."
At S$25 per tonne, the rise in carbon price would translate to an estimated increase of about S$4 per month in utility bills for an average four-room Housing Board household, said Ms Fu.
“When the carbon tax was first introduced in 2019, U-Save rebates were provided to offer transitional support to help affected households adjust. We have been and will continue to support households with U-Save rebates," she said.
"We are also reviewing ongoing schemes, such as the Climate Friendly Households Programme, to encourage more households to mitigate the long-term cost impact by making the switch to energy-efficient appliances and water-saving fittings."
ISSUES RAISED OVER ALLOWANCES
Earlier Ms Fu also said in her opening speech that as part of the bill, "broad parameters" of a framework will be set up to provide transitory allowances to companies in Emissions-Intensive Trade-Exposed (EITE) sectors.
"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," she added.
"It will be limited to only a portion of companies’ emissions, help to alleviate near-term competitiveness concerns, and provide a form of support to the companies as they work on reducing emissions and invest in cleaner technologies."
MP Louis Ng (PAP-Nee Soon) said that "every allowance weakens the effectiveness of the carbon tax".
“I do understand that we need to remember the trade-offs. We want to push for climate change but we don’t want to push businesses away. But green groups are concerned, and rightly so. Every allowance erodes the coverage of our carbon tax and reduces the urgency to go green,” he said.
As such, Mr Ng asked how many companies currently belong to the EITE sector and would pay carbon taxes. He also asked why the Bill sets no end date for allowances granted, given that these are meant to reduce the “near-term impact” on business competitiveness.
Responding, Ms Low said that the Government would “calibrate” the duration of the transition framework based on international standards and developments in decarbonisation techniques.
“Now, we are very aware that the carbon prices in other jurisdictions are not static. Some may continue to remain very low, and in some cases, no prices for certain sectors at all, while others may raise their carbon prices more aggressively. We are keeping a very close eye on that. We also recognise that companies will need time to transit to low carbon operations,” she said.
Mr Ng also asked if the Ministry of Sustainability and the Environment would consider making it practice to name all companies that receive such allowances from the Government.
“There’s no reason these names should be a secret. They are clearly not a matter of commercial sensitivity. And companies that do not receive such allowances will rightly wonder whether the Government is secretly granting allowances to their rivals in the same sector," he said.
We must not let our carbon tax regime fall under such a cloud of suspicion."
In response, Ms Fu said that public disclosure of data needs to be “contextualised”, so that it can be interpreted “fairly and meaningfully”.
“Our large emitters have products and production processes that are often heterogenous, specialised and proprietary. Publishing the emissions or ranking of top emitters without providing context of the business and nature or the size of its operation may not be helpful in understanding how well a company is doing in mitigating its emissions,” she said.
“For accountability to their stakeholders, we encourage all companies to size, to analyse and to publish their environmental impact to explain how they are managing emissions-related risks, in relation to their commitment to decarbonisation. Companies listed locally are already subject to SGX requirements to do so, as in many jurisdictions globally.”
Ms Fu noted that the changes have been carefully considered in close consultation with the industry and the public.
“Taken together, they will enable the next lap of our green transition, and lay the building blocks for Singapore as an economically competitive global sustainability hub,” she added.
“With an effective carbon price as the cornerstone of our climate mitigation efforts, the Government will continue to push the envelope on all fronts, to secure a climate resilient and sustainable future for Singapore.”
Towards the end of the session, a heated exchange ensued between Ms Fu and the WP's Associate Professor Lim, over the amount of carbon tax to be imposed on firms.
Assoc Prof Lim suggested to allow the carbon tax to vary over time and adapt the rate to the state of the economy, rather than impose a steady increase as the Government suggested.
“Following standard principles of stabilisation policy, such an optimal tax would strike a balance between safeguarding the economy and jobs, while protecting the environment," he said.
"If the economy is in a recession … the tax would be scaled back. In contrast, if the economy is expanding strongly, it should be able to bear a stiffer increase in the carbon tax rate."
He suggested that a carbon tax ranging from S$58 to S$133 would be more “tenable”, compared to the Government’s S$50 and S$80 per tonne by 2030.
Ms Fu asked how Assoc Prof Lim arrived at his proposed range without knowing economic circumstances in the future.
During their exchange, Ms Fu interrupted Associate Professor Lim, prompting Leader of the Opposition Pritam Singh (WP-Aljunied) to raise his hand and say: “Point of order, Mr Speaker. I understand that when a member asks a question, the other member sits down; question is answered, vice versa. There is some decorum between both parties." Ms Fu apologised.
She said: “This is not a fiscal policy, this is a policy to change our energy mix and our energy use. So whether there is going to be an economic downturn or not, this is a change that we all need to make.
“So are we going to delay further, no. The answer is we all need to change ... The signal to the companies must be that this is a path that the Government is going ahead.”
When it was time for MPs to vote on the sections of the Bill to be amended, WP members' had their amendments rejected.
Mr Perera then asked if his proposed amendments had been put before the President to seek her recommendation.
Leader of the House Indranee Rajah replied that the Government had assessed that the amendments could not be supported, and hence had not put them before the President.
In doing so, she explained that the constitutional requirement for the President’s recommendation to be sought for amendments with financial implications "is a procedure that safeguards the Government’s financial initiative".
"The President would act in accordance with the Government’s advice in giving, or not giving, the required recommendation," Ms Indranee said.
“That is not unique to us. It is a long established feature of Westminster Parliaments that the government of the day has the sole right and responsibility to initiate legislation. The government may therefore take the decision not to put forward amendments with financial implications for recommendation.”
Ms Indranee also pointed out that the notice of WP's amendment had only come in last Wednesday evening, leaving the Government less than 48 hours to react before Parliament sat on Monday.
“It was not, I should add, notified to us by the Workers’ Party who had prepared the amendments that it would have fiscal implications, which one would actually expect you to do, knowing that the President’s recommendation is to be signified. So we had to check that through. And that took some time.”
In response, Mr Perera clarified that the amendments had been filed on Monday.
Mr Singh, who is WP chief, also added that there was no intention to give the Government little time to react. “I think the intention was to make sure we filed on time as per standing orders, which we did."