Singapore’s climate policy context and carbon tax
Introduced in 2019, the Singapore Carbon Tax (SCT) marked an ambitious move toward controlling emissions in a systematic, scalable manner. Now after 2½ years in operation, the scheme looks set for dramatic change to deliver accelerated climate action for Singapore and the globe.
“Carbon taxes in Singapore will have to move to a steeper trajectory, to help us meet our climate commitments”Ravi Menon, Managing Director, Monetary Authority of Singapore
Learning from Australia’s mistakes
In 2012, Australia introduced the Carbon Pricing Mechanism (CPM), a world-leading suite of measures to reduce carbon emissions including its own carbon price. The scheme started with a price of ~$27AUD/SGD (adjusted for inflation) and was forecast to grow rapidly from there. This grand plan had the effect of generating outrage across the Australian electorate at the time, who saw the tax as excessive, given the lack of global climate action and limited alternative technologies. Outrage so great it caused the CPM to be repealed.
This is where Singapore’s carbon price is a stroke of genius. By waiting until real, genuine alternatives to fossil fuels emerged (e.g., battery storage has dropped 1,000% in price since Australia’s’ CPM was introduced) and starting at a much lower price – Singapore’s carbon pricing mechanism has survived its introduction.
The question is – where to from here?
What are Singapore’s trade partners doing?
Singapore’s major trading partners. Image Credit: Department of Statistics Singapore
Since the introduction of the Singapore carbon tax, a lot has changed. The United States has re-entered the Paris Agreement with an intermediate goal to reduce emissions by 55% by 2030 and the European Union (EU) has announced sweeping climate change plans including the Carbon Border Adjustment Mechanism (CBAM); imposing an $80+ SGD/tCO2e tariff on carbon-intensive imports into the EU. South Korea and Japan have also announced net zero emissions commitments by 2050, and China by 2060; all three are Singapore’s major trading partners.
As the country’s largest trading partner, China’s targets are particularly significant for Singapore. To deliver its goal, China launched the world’s largest carbon emissions trading scheme (ETS) in July 2021, reaching a price of SGD$10.73/tCO2-e on its first day1, twice that of the SCT.
Singapore’s carbon price compared with major trading partners (Clean Energy Regulator, 2021; World Bank, 2021)
Trade implications for Singapore
Singapore’s total merchandise trade exports in 2020 were valued at about S$515.6 billion, with manufacturing representing 21.5% of Singapore’s 2020 nominal GDP.2,3. The nature of Singapore’s economy and top exports mean that it is particularly exposed to CBAMs; schemes we are likely to see more of in years to come.
Carbon Pricing. Onward and upward
The Singapore carbon tax is fixed at S$5/tCO2e until 2023. Thereafter, it had been flagged to rise to between S$10-15/tCO2e by 2030. However, in 2021, Deputy Prime Minister Heng Swee Keat indicated that its “trajectory and level” would be reviewed to reflect growing national and global ambition. The revised trajectory, he said, “would be announced at Budget 2022 to give time for businesses to adjust to any revision in the carbon tax trajectory”.
Carbon prices around the world in line with increased climate ambition from the private and public sector. For example, Australian Carbon Credit Units, generated by carbon projects under the Emissions Reduction Fund (ERF), have seen a record high spot price of SGD$20.92/tCO2-e in July 2021.4 This is a significant increase from an average of SGD$13.15/tCO2e5 in 2015 at the commencement of the ERF. The EU ETS, the world’s second-largest carbon market after China’s, is expected to price carbon at an average of SGD$93.91/tCO2-e between 2026 and 2030.6
All signs are that the Singapore carbon tax, already lower than many other comparable jurisdictions, will need to dramatically increase after 2023 to keep Singapore competitive with global leaders. This drive will accompany significant decreases in the emissions intensity of the Singapore economy as vehicle fleets are electrified and demand of its refined oil products dwindles – changes that will soften the blow of an increased carbon tax rate and thus barriers to further carbon price increases.
“Early forward guidance of the future trajectory in carbon taxes will give businesses time to start restructuring towards less carbon intensity and avoid sharper and more painful adjustments later on.”Ravi Menon, Managing Director, Monetary Authority of Singapore
Along with Australia, Singapore is one of only five countries which have not set a firm net zero target before 2050. Whether Singapore increases the ambition of the SCT, or like Australia, is forced to act by emerging mechanisms like the CBAM and corporate ambitions – change is inevitable. The question is whether companies are prepared to prosper through the transition or be left in its wake.
Ndevr Environmental has experts in carbon pricing, climate strategy and management across Australia and in Singapore. We’re positioned and ready to help Singaporean companies strategically decarbonise and prepare for a more prosperous, decarbonised Asian economy in the decade ahead. Reach out to our Singapore team lead Roohi Ghelani for more information or contact our team, we’d love to hear from you firstname.lastname@example.org
Roohi is based in Singapore and is experienced in the areas of environmental research, carbon project assurance, business advisory, sustainable development, and the circular economy.